Veskimägi: unless defence mechanisms against electricity from third countries are developed, fair competition on the electricity market is not possible

To improve the organisation of the electricity system and the electricity market, the Transmission System Operators of the Baltic States met in Vilnius today, 26 August, and their discussions centred on the existence of the production capacity needed to ensure the security of supply in the region and the rules for electricity imports from third countries.

Agreeing rules permitting electricity into the electricity market from countries outside the European Union is now urgent, because the absence of environmental legislation, low safety standards, non-market fuel-prices and many other conditions that do not correspond with European Union market conditions mean that electricity production in Russia is much cheaper than it is in European Union member states. Elering believes that in order to ensure that the Nordic-Baltic electricity market functions without disruption, it is necessary as a minimum for the Baltic States and Finland working together in one price area to agree a single solution for electricity from third countries. In the Baltic States 25% of all consumption is covered by electricity imported from third countries, and 14% of consumption in Finland is.The only Baltic State that sells electricity outside its borders is Estonia, but Elering’s report on the security of supply of the Estonian electricity system shows that without new investment Estonia could also be left with insufficient production capacity from 2016 when several of the generating blocks in the Narva power stations will be closed because of stricter environmental regulations.  According to the Chairman of the Board of Elering, Taavi Veskimägi, unless defence mechanisms against electricity from third countries are developed, fair competition on the electricity market is not possible. Elering’s report on the security of supply of the Estonian electricity system shows that it is likely that in such circumstances investors would not be prepared to invest in further production capacity in the Baltic States. This would deepen the shortage of production capacity in the Baltic region, significantly increasing the threat to security of supply and the price risk. “The importance of this issue can be seen in the market, where even when prices are high a large amount of electricity is bought in from outside countries, while investments in domestic production capacity go unmade. If this production capacity is not financially reasonable at the current high prices, then we could easily find that on paper we have enough capacity in the Baltic region, but in reality we have a shortfall”, said Veskimägi. Elering has proposed several solutions to ease the situation, which together would free the electricity market from unfair competition. The best solution would be to apply environmental charges which would be directly related to the market price for CO2. However, this would require wide agreement across the European Union, which would take a long time to achieve. Alternatives which were presented today to the other system operators are to set physical limits on imports, to hold a capacity auction at the border of third countries, and to set extra network tariffs for imported electricity.  Elering, AST and Litgrid are currently working together with the management of the Nordic power exchange operator NPS to look at ways of opening a single Baltic electricity market and NPS price area extending to Latvia and Lithuania as fast as possible. Despite agreements between governments and TSOs, the creation of a price area for Latvia and Lithuania has started to slip. Veskimägi explained that the dramatic price spike yesterday in the Estlink price area could have been avoided if the Baltic States had already had a single electricity market with a large number of suppliers and purchasers, as this would have made the market much more liquid. “For this reason we, as the Estonian system operator, are doing everything we can to set up a power exchange in Latvia and Lithuania, even though this is not really our job”, he added.