Cold, calm conditions partly behind electricity price spike this week
The arrival of wintry conditions has been accompanied this week by surges in electricity prices, which may recur from time to time as the winter goes on.
A range of factors is behind the spikes, stakeholders say, including calm winds, which diminish renewables generation and lead to higher reliance on costlier fossil fuels; cold spells, which drive up demand even further, plus some power plants in the region being offline.
Limited imports and higher import costs from nearby countries like Finland and Sweden, and higher prices there and in other Baltic countries such as Poland, plus the Estonia–Latvia interconnection being at a little over half-capacity will also serve to price volatility, experts say.
Prices peaked at €483 so far this week
At the start of this week, the Nord Pool exchange spot price of electricity in Estonia rose sharply, peaking at €350 per megawatt-hour for one hour on Monday, while the overall daily average stood at €177 per megawatt-hour.
On Tuesday, the peak was even higher at €483 per megawatt-hour for the priciest hour, with an average of €237 for the day.
This compared with average prices on Sunday of €77 per megawatt-hour, and an overall mean price of €156 per megawatt-hour for the period November 1-26.
The last major price spike took place at the start of the month: On November 3, the peak hourly price was €557, and the daily average was €185 per megawatt-hour.
Cold, calm conditions a major factor
At the start of the week, electricity prices increased due to higher imported electricity costs and low wind production in the Baltics and Finland. Grid constraints between Sweden's SE3 and SE4 price areas, and between SE3 and Finland, limited the flow of cheaper electricity. As a result, prices rose by 171 percent in Finland and by 65 percent in Sweden's SE4 zone.
"In addition, consumption has increased due to colder air temperatures, which also pushes prices up," Sander Randver, head of business development at Enefit, said via a spokesperson.
Randver added the recent high electricity prices in Estonia are the result of very low wind generation, with local dispatchable power plants setting the price. Estonia's price is somewhat softened during morning and evening peak hours by a bottleneck to Latvia, with the Estonia–Latvia interconnection currently at 58 percent capacity. This creates price volatility, as Estonia's prices fluctuate between Finnish and other Baltic market levels depending on demand.
Daily demand highest in over nine months
Nord Pool's representative for the Baltic states, Aiste Krasauskiene, said that another reason behind Monday's and Tuesday's soaring prices was higher daytime demand, which was last this high on February 12 this year.
She noted prices in the Baltic states were driven up by high prices in Poland, much of Europe, and southern Sweden, influencing Baltic prices through market coupling. To meet domestic demand, more fossil fuels and some hydropower, both of which are more expensive, have been used. She also pointed out that some generators in the Baltic states are currently offline.
Randver said the high electricity prices will persist at least until midweek, and will remain elevated as long as wind power generation stays low.
"From Wednesday onward, wind is forecast to recover to above-average levels, which could ease prices. But if grid constraints and low wind production continue, prices may remain high for several more days," he said.
Marko Allikson, partner at traders Baltic Energy Partners, too, said that the main reason for the high price lies in the calm weather in the region, i.e., in Finland and the Baltic states. "At the same time, the weather has turned cold and there is no sunshine. The amount of electricity needed is so large that many dispatchable units have had to be started, and this has driven the price up. The last time we had so many dispatchable units running was this February," he told ERR.
Forecast for average winter prices is around €100
Looking ahead to the rest of winter, Randver noted that meeting higher winter electricity demand, driven mainly by heating, will increasingly rely on fossil fuel–based power generation, which again will hike the average electricity price.
"Looking at the whole winter period, the current average winter price forecast based on forward contracts is in the range of €90–100 per megawatt-hour. However, consumers should be prepared for higher price spikes as well. If we get a very cold winter month, it's not excluded that we may see an average price up to 20 percent higher in some months," he noted.
The main factor affecting electricity prices this winter overall will remain the wind. When wind renewables generation is high, prices are cheaper and more stable. However, when the weather stays cold and calm as it has done recently, prices could often exceed €150 per megawatt-hour as gas- and oil-shale-fired plants come online. Hours where these were used accounted for a quarter of the week's total generation last week.
Winter storms can also affect prices and lead to outages. Finally, a rise in the price of carbon quotas in Europe to €80 per tonne since spring, up from €60, and a likely future continued rise, will also impact electricity prices upwards.
Further afield, Norway is even considering decoupling from the European grid even as Estonia joined it early on this year. Electricity prices in Norway can be six times the EU average despite it being a hydro-electric powerhouse.
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Editor: Andrew Whyte, Mait Ots
