Huge price spikes on Baltic reserves market likely due to one Latvian participant
Massive price fluctuations seen on the Baltic reserve electricity market, ranging from a few cents to thousands of euros per megawatt-hour, mostly seem to be caused by one market player in Latvia, an issue which Estonian grid distributor Elering is approaching its counterpart in Latvia about.
Similar price spikes have been seen across all three Baltic states.
The joint Baltic frequency reserves market was launched in February this year just ahead of the desynchronization from the Russian grid, and aimed at keeping production and consumption in the power system in balance.
Elering board member Erkki Sapp said that the reason for the price spikes was frequency reserve offers from Latvia, and that in the past few days prices of these have "increased significantly."
"Elering is in contact about the problem with the Latvian system operator AST, who has contacted the market participant making the offers. Offers made to the market must comply with competition rules, and in the matter related to the Latvian market participant, the Latvian energy market regulator can give an assessment of compliance with the competition rules," Sapp said.
Marko Allikson, partner at trading company Baltic Energy Partners, also noted there should be no shortage of offers, though some market participants might change things somewhat with their price bids, and not in a positive way.
"There seem to be sufficient offers on the market, but apparently not all of them can be used, for technical reasons, while one small Latvian bidder with high prices has been activated who is constantly raising the prices of their bids. In this case, it may also be a matter of market manipulation, and the Latvian competition authority should investigate whether making bids in this way is justified," Allikson said.
Elering officially stated Thursday, via a spokesperson, that it "has additionally raised the issue in an official letter to the Latvian system operator and market supervision, whose task it is to investigate the case and react if necessary."
"There are sufficient frequency reserves for managing the power system, but there are few so-called divisible bids on the market, which is why expensive bids are occasionally used for managing the system, creating price volatility," Sapp noted.
Adam Erki Enok, project manager for energy storage at renewables producer Sunly, told energy publication Montel News that there was no shortage of reserves during the price spikes and that hundreds of megawatts of capacity were still available.
"High prices for up-regulation and high prices for down-regulation make you scratch your head, but I do not want to speculate about other market participants' bidding strategies," he said.
While electricity prices on the reserve market began to fluctuate sharply from the very outset, spikes seen over the past week, with prices ranging from the cents to several thousand euros per megawatt-hour were a new phenomenon.
Allikson noted the entire Baltic reserve market is still in its infancy and lacks sufficient transparency. "And prices depend too much on the decisions and reactions of system operators and regulators, which do not seem fast enough given the rapid changes in market situations," he added.
All these factors combined mean that the costs of maintaining balance will increase for all market participants, which for end customers is reflected in higher exchange margins, which in turn increases electricity buyers' costs and reduces producers' revenues.
There have been recent price fluctuations on the Baltic frequency reserves market that could be considered anomalous, with the price reaching an extreme of -€4.473 (i.e., negative) per megawatt-hour on Sunday, then spiking to €9.976 per megawatt-hour on Monday between 7:15 p.m. and 7:30 p.m., before dropping to -€8.76 in the following quarter-hour; such fluctuations are not typical, as price peaks in the manually activated frequency restoration reserves (mFRR) market usually stay within the range of +1000 and -1000 euros.
Erkki Sapp, a member of the management board of the system operator Elering, made these
Frequency reserves are power plants and storage facilities that quickly respond to power grid imbalances, such as plant failures, creating a surplus or shortage that could threaten the 50-hertz frequency. Reserve providers must rapidly increase production or reduce output to maintain balance.
Up-regulation occurs when there's a production shortage, and the system operator, Elering in Estonia, activates a market participant's bid to increase production or reduce consumption. The operator buys electricity, paying the producer, and recovers the cost from the balance responsible party, whose portfolio is short.
Down-regulation is when there's excess production. The system operator activates a market participant's bid to reduce production or increase consumption, with the cost covered by the balance responsible party whose portfolio is surplus. If the price is negative, the surplus party pays for the excess electricity.
In early February, just before the Baltic states' grid was disconnected from Russia, the joint Baltic frequency reserves market was launched. The three Baltic system operators began buying reserves from electricity producers to maintain balance and keep the system frequency at 50 hertz.
Competition Authority: Any market manipulation outside our jurisdiction
The Estonian Competition Authority (Konkurentsiamet) said that while the frequency reserve market is common to all three Baltic states, any potential market manipulation would be processed by the supervisory authority of the given country in which that manipulation was happening, ie. Latvia in this case.
"In supervisory activities and in detecting market manipulation, we actively cooperate with both Latvia, Lithuania, and the cooperation agency of regulatory authorities in the energy sector," said Armin Ilisson, adviser at the authority's energy markets department.
"Although the Baltic regulatory authorities cooperate in supervisory activities, the Competition Authority conducts procedures only in relation to Estonian market participants when a violation is detected in the wholesale market. Latvia and Lithuania conduct procedures accordingly in relation to their market participants. In cross-border cases, the cooperation agency of regulatory authorities in the energy sector may also intervene in supervisory activities," Ilisson went on.
The authority said it cannot comment in more detail on the particulars of ongoing supervisory activities until the relevant supervision-related actions have been concluded.
Editor's note: This article was updated to include comment from the Competition Authority.
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Editor: Andrew Whyte
