Gas prices may keep Estonian electricity costs rising

Electricity prices in Estonia rose sharply in the second half of August and may remain elevated as natural gas becomes more expensive, ERR reported. The monthly average was still lower than a year earlier, but daily prices fluctuated widely.

The average electricity exchange price in Estonia was 59 euros per megawatt-hour in August, or 5.9 cents per kilowatt-hour, compared with 77.3 euros per megawatt-hour, or 7.7 cents per kilowatt-hour, in August last year.

Marko Allikson of Baltic Energy Partners told ERR that the lower annual average was not driven by higher wind and solar generation. Instead, limited transmission capacity with Latvia meant Estonia’s exchange price matched Finland’s for more hours than it matched Latvia’s.

Allikson said the bottleneck was caused by additional storage capacity entering Estonia’s market and successfully participating in the Baltic market by submitting competitive reserve-capacity bids.

Daily average prices ranged from just over four euros per megawatt-hour to as high as 150 euros. Prices were clearly higher in the second half of the month than in the first.

Prices rose as Europe had less wind and sunshine, consumption began to increase and natural gas became more expensive. According to Allikson, the impact reached Estonia mainly through the Lithuania Sweden and Lithuania Poland interconnections.

Frederika Frey, marketing manager at Elektrum, said that stronger wind and solar generation also contributed to the low prices at the beginning of August. However, limited transmission capacity from Latvia and Lithuania kept Estonia’s prices below those markets.

In the second half of the month, wind and solar generation declined, forcing electricity producers to use more expensive energy sources. Prices consequently rose sharply within a few weeks. Wind generation during the final full week of August was among the lowest recorded this year, while solar generation fell to its lowest level since April.

Based on a summary by elektriborsihind.ee, the cheapest hours in August were typically between 1 p.m. and 4 p.m., while the most expensive hours were between 7 p.m. and 10 p.m.

Compared with July, electricity was about one-third more expensive in August. Across the three summer months, electricity was also more expensive this year than last year, with an average price of nearly 56 euros per megawatt-hour compared with almost 52 euros last year.

Weather and gas prices to shape autumn costs

Energy prices during the coming autumn and winter are expected to be unpredictable, with large fluctuations possible on the electricity exchange.

Both Allikson and Frey said prices would depend heavily on weather conditions. Windier and sunnier days could quickly push prices down, while lower renewable-energy production could trigger another increase.

Electricity prices will also be affected by restrictions on connections between the Baltic countries, Frey said, meaning the market could remain volatile in the near term.

Allikson said a cold and windless winter would increase the need for gas and add to uncertainty. He said attention should focus on how successfully European countries can fill their gas reserves for the winter, as low supply levels would mean higher prices.