Trading Activity on the Power Exchange Increased Last Year

Trading in the Estonian price area of the NPS, the Nordic power exchange, increased in the last full year with total transactions reaching 10.4 TWh. 33.2% of the electricity consumed in Estonia was bought from the exchange. Continuing improvement in the reliability of the market in the past year and price setting in the exchange showed clearly that a well-connected regional electricity market offers opportunities for both consumers and producers at different times.

The amount of electricity sold in the Estonian price area was higher than the amount bought over the whole year. A total of 5.8 TWh of electricity were sold in the last year in the NPS Estonia price area and 4.6 TWh were bought. The difference of 1.2 TWh was exported through the EstLink 1 undersea cable to Finland.

Last year 90% of the sellers were Estonian market participants, while Latvians and Lithuanians accounted for 5% each. At the same time the buyers were mostly Estonians and Latvians, respectively 55% and 40% of the total, and only 6% were Lithuanian market participants.

Taavi Veskimägi, the CEO of Elering said that the power exchange, which started operation following the partial opening of the electricity market to large consumers from 1 April 2010, has become a successful part of the electricity market. “Our experience of running an electricity market successfully will certainly boost faith in the likelihood of success for the full opening of the market. For that success to be achieved, it is imperative that we have rules in place that can limit the danger of concentration in the market or the creation of unequal competition.”

He added that competition needs sufficient connections to other countries if it is to function. “The past year showed clearly how well good international electricity connections work for both consumers and producers. FennoSkan 2, the second undersea cable between Finland and Sweden, which came into operation in the middle of November, gave our consumers access to Nordic hydropower, which is why the electricity price on the open market in December was basically the same as the regulated market price for residential consumers. The second cable between Estonia and Finland, EstLink 2, will improve matters further because it will allow unlimited access to Nordic electricity and traders in the Nordic market. If Latvia and Lithuania finally manage to join the Nordic power exchange, we would have a regional market that would have sufficient capacity to cover demand for the next ten years without production needing any additional subsidies.”

The general fall in prices in 2011 in all the price areas of the power exchange also affected the prices in the NPS Estonia price area. The average price in the Estonian price area in the last year was 43.37 EUR/MWh, which is almost 3 EUR/MWh lower than it was in the last nine months of 2010. Prices in December 2010 were extremely high because the very cold weather pushed consumption up at a time when the reservoirs of the Nordic hydropower stations were low. In contrast, the main cause of the fall in prices in 2011 can be attributed to the warm weather at the end of the year and high water in the Nordic reservoirs.

Prices on the exchange vary seasonally, and are especially volatile in the winter and summer. The volatility in winter is caused by high consumption and a shortage of generating capacity at peak times contrasting with night time hours when prices are much lower. In summer the price volatility is mainly due to the lack of transmission capacity between Estonia and Latvia, which means there is a shortage of generating capacity in Latvia and Lithuania when combined heat and power plants are not being used and hydropower stations are producing less than they do during the spring thaw. Latvian and Lithuanian market participants trade in the Estonia price area, and this means our price is affected by the conditions in the regional market and the balance of consumption and production throughout the Baltic states.

The Estonian electricity market will open fully from 1 January 2013, meaning that each consumer can choose their supplier by choosing the best package and conditions from among the many available choices and agreeing on prices and amounts with the supplier. Those consumers who don’t want to or don’t manage to choose a supplier by that date will not be left without electricity, but will receive electricity as a generic service, which means that by law the price will be based on the average exchange price of the previous month with a reasonable margin added.

A complete summary about NPS Estonia in 2011 can be found here (only in Estonian).