Cost of electricity forecast to keep growing due to soaring natural gas prices
While cheaper in August year-over-year, electricity became noticeably more expensive in the second half of the month, while developments in the gas market are tending to keep electricity prices higher.
Despite large price swings, the average price of electricity in Estonia was lower in August than a year earlier. While the average exchange price in August last year was €77.30 per megawatt-hour (7.7 cents per kilowatt-hour), this year it was €59 (5.9 cents).
However, the lower price compared with last year was not due to increased wind and solar power generation, but rather limited interconnection capacity with Latvia. As a result, Estonia's exchange electricity price was at the same level as Finland's for more hours than it was at the same level as Latvia's, Marko Allikson of Baltic Energy Partners told ERR.
"The bottleneck in interconnection capacity [with Latvia] was caused by additional storage capacity in Estonia, which was able to successfully enter the Baltic market by making competitive reserve capacity bids," he said.
In August, the average daily price could be just over €4 per megawatt-hour on some days, while on others it rose to €150, with prices fluctuating throughout the month. Comparing the first and second halves of August, electricity prices were clearly higher in the second half.
"Exchange prices were higher in the second half of August because there was less wind and sunshine in Europe, while consumption is also beginning to rise. Rising natural gas prices are also supporting higher prices. These factors reached us primarily through the Lithuania-Sweden and Lithuania-Poland interconnections," Allikson said.
Elektrum Marketing Manager Frederika Frey noted that while electricity prices fell to one of their lowest levels of the year in early August, this was also due to increased wind and solar power generation. In Estonia, however, limited transmission capacity kept prices lower than in Latvia and Lithuania.
"But the situation changed rapidly in the second half of the month. There was less wind and sunshine, meaning more expensive energy sources had to be used to generate electricity. As a result, prices rose sharply within a couple of weeks," she said.
Wind power generation during the last full week of August was among the lowest levels recorded this year, while solar power generation fell to its lowest level since April, Frey added.
A summary by the website elektribörsihind.ee shows that the cheapest hours in August were, on average, between 1 p.m. and 4 p.m., while the most expensive were between 7 p.m. and 10 p.m.
Electricity in Estonia was nevertheless clearly more expensive in August than in July, by about one-third.
Comparing the three summer months — June, July and August — with last year, electricity was more expensive this year. Last year's summer average was nearly €52 per megawatt-hour, compared with nearly €56 this year.
Fall prices to be determined by weather and rising natural gas prices
Throughout the summer, forecasts have suggested that energy prices could be unpredictable during the coming fall and winter and that electricity prices on the exchange could fluctuate significantly.
Both Allikson and Frey said prices will depend heavily on weather conditions.
"Windier and sunnier days can quickly push prices down, while low renewable energy generation could lead to another price increase. In addition, prices are affected by constraints on the Baltic states' interconnections, meaning the electricity market could remain quite volatile in the near future," Frey said.
Allikson noted that a cold winter with little wind would mean greater reliance on gas, introducing another factor that increases uncertainty. In particular, it will be important to monitor how successfully European countries can build up their gas stocks for the winter, as low storage levels mean higher prices.
At the same time, the rise in gas prices on the Dutch TTF gas exchange could have a positive effect on European stocks, Allikson said. The current price of more than €70 per megawatt-hour means Europe can attract more LNG, or liquefied natural gas, because gas prices are lower in Asia.
Just a month ago, gas was trading at around €52 per megawatt-hour on the TTF before prices rose rapidly. The last time gas prices were as high as they are now was in late 2022.
However, low storage levels in some European countries could eventually cause gas prices to spike again, Allikson noted.
"Larger price spikes could occur if, for example, Germany or the Netherlands were to begin applying government pressure to fill gas storage facilities at the last minute before winter, regardless of the price level," he said.
Gas storage facilities across the European Union are currently 65 percent full on average. In Germany, for example, storage facilities are currently only slightly more than half full, at 53 percent.
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Editor: Marcus Turovski
