The new 900-megawatt electricity link between Sweden and Finland that came online this week proves that foreign connections don't necessarily lower prices for importing countries, but rather raise them on the exporting side, wrote Kalev Kallemets, CEO of Fermi Energia, the company planning a nuclear power plant in Estonia, in a social media post.

Kallemets pointed out that comparing this Tuesday with the previous one — before the link became operational — shows that in Sweden's northern region (SE1), where electricity is typically cheaper, prices doubled, while prices in Finland did not fall.

"Of course, individual days aren't directly comparable and it takes a full year to form a clearer picture. But the situation is quite similar to the dynamic between Estonia and Finland: although the connection — 1,000 megawatts — is operational, the price gap remains significant. Increasing capacity toward a more expensive market tends to push up prices in the exporting region more than it brings them down in the importing one," Kallemets noted.

Commenting on Kallemets' example, Erkki Sapp, a board member of Estonia's grid operator Elering, told ERR that the price alignment between Sweden's SE1 zone and Finland was more likely caused by the relative size of the Finnish market area.

"Which region sets the price more often depends primarily on the size of the market area in terms of electricity production and consumption. A larger area tends to determine the price more frequently because generation and consumption in smaller regions influence prices less often. The Finnish market area is more than twice the size of Sweden's SE1, so it's more likely that prices align closer to Finland's," said Sapp.

Comparing Finland's market area to Estonia's, the former is roughly ten times larger, meaning Finnish production and consumption are far more likely to set the price than Estonia's, he added.

Sapp cited the EstLink 2 outage as an example, during which prices in Finland dropped slightly, but rose significantly in Estonia. This shows that cheaper electricity from Finland had a far greater price-lowering effect than the price-raising effect of more expensive electricity coming from Estonia.

Connections have a balancing effect on the price

The way imports and exports — namely, cross-border connections — affect electricity prices by lowering, raising or evening them out across regions was evident on Tuesday when for much of the workday electricity prices were nearly identical in Estonia, Latvia, Lithuania, Sweden's four price zones, Norway's five zones, Denmark's two zones and Finland.

Elering board member Erkki Sapp told ERR that although each 15-minute interval on the electricity market is different, there are a significant number of periods when regional transmission capacity is sufficient to align prices and prevent border congestion.

"Price convergence happens more frequently between market areas that have relatively higher cross-border transmission capacity," he said.

Sander Randver, head of business development at Enefit, told ERR that cheaper regions typically have high production and low consumption.

"When a lower-priced zone is connected to a higher-priced one, the more expensive zone effectively adds consumption to the cheaper one, pushing the demand curve toward a higher price," he said.

Commenting on the impact of the new Finland–Sweden link on both zones, Randver explained that in a situation where the cheaper zone has only a slight production surplus, the new 800-megawatt cable can act like a large consumer, quickly turning that surplus into a deficit and driving prices up in the exporting region.

"But if production in the cheaper zone can cover the added demand from the new connection, we generally see that the price in the cheaper area remains unchanged in absolute terms, while the price in the more expensive area comes down," he said.

The recent shift in the Finland–Sweden price relationship can also be explained by a roughly 8 percent increase in peak electricity consumption in Finland over the past week, which can easily tip the price balance one way or the other, Randver added.

In general, however, connections between different price zones tend to reduce price differences between the regions. That convergence can happen when prices fall in the more expensive area and rise in the cheaper one, Randver said.

Electricity prices in Estonia are also affected by neighboring Latvia and Lithuania to the south. Recently, due to construction-related limitations on the Estonia–Latvia link and calm weather with little wind power, Latvia and Lithuania have had less access to cheaper Nordic electricity, resulting in higher prices than in Estonia. In October, Estonia's average electricity price held at around €60 per megawatt-hour, compared with about €80 in Latvia and Lithuania.

The impact of the larger Finnish market has also been visible this year. In winter and spring, when EstLink 2 was offline, electricity prices in Estonia were generally higher compared with the same period last year. In summer, when EstLink 2 was back in operation, prices were noticeably lower than during the same months in the previous year, when the link had also been down.

--

Follow ERR News on Facebook and X and never miss an update!