Electricity market overview October 2013 Power exchange and electricity market news Spot prices in the Baltic and Finnish market area continuously volatile Electricity price in Estonia decreased slightly (-1.3%) in October, comparing to previous month, reaching 46.76 /MWh In Finland, price decreased 3.8%, averaging at 45.96 /MWh The average price of Latvian and Lithuania bidding area increased by 3.6% to 64.20 /MWh Testing of EstLink 2 Started on October 22nd Enefit will not Enter Latvian Household Market next year What is actually causing high electricity prices in Lithuania? Electricity market impact factors The levels of Nordic hydro reservoir declined throughout October Crude oil price slightly increasing The upward trend of European carbon permits ended in October The price of German base energy contract declined slightly in October Spot prices in the Baltic and Finnish market area continuously volatile Electricity spot prices in the Baltic and Finnish market area continued a volatile behavior in October, with a sudden peak in the middle of the month that kept the average prices relatively high. The average price for power in the Estonian market area in October was 46.76 /MWh (-1.3% m-o-m) and in Helsinki area 45.96 /MWh (-3.8% m-o-m). The prices in Latvia and Lithuania coincided on all days of the month and averaged at 64.20 /MWh (+3.6% m-o-m). Compared to October 2012, electricity prices have increased by 16.3% in Estonia, 19.2% in Finland, 43.3% in Latvia and a remarkable 52.4% in Lithuania. The average peak load prices decreased in the Estonian and Finnish market area, and increased in the rest of the Baltic States. The off peak prices behaved in a similar way. The average peak load price in Estonia was 55.89 /MWh in October (-3.6% m-o-m) and in Finland 55.42 /MWh (-7.0% m-o-m). In Latvia and Lithuania however, the average peak load price was 81.32 /MWh, having increased by 2.9% since September. The first day of October saw the maximum price of the month in Latvia and Lithuania, which reached 126.32 /MWh. In Estonia and Finland, the maximum price was 93.94 /MWh. Estonian and Finnish prices coincided during 88% of the hours in October, compared to 78% in September. The electricity prices in Estonia were higher during 11% of the month, while the Finnish prices only dominated during 1% of October (7% in September). Coal price in October decreased slightly Author of the market overview: Merily Murd merily.murd@energia.ee
Average power exchange price Exchange Average Change Min Max ( /MWh) M-o-M ( /MWh) ( /MWh) Nord Pool Estonia 46,76-1,3% 25,1 210,0 Nord Pool Helsinki 45,96-3,8% 25,1 210,0 Nord Pool Lithuania 64,20 3,6% 25,1 210,0 Nord Pool Latvia 64,20 3,6% 25,1 210,0 Average power exchange price Nord Pool Estonia price (Estonia) Nord Pool Latvia and Lithuania price (Latvia, Lithuania) Nord Pool Helsinki price (Finland) EUR/MWh 1 20 0 01.08 11.08 21.08 31.08 20.09 30.09 10.10 20.10 30.10 Power exchange and electricity markets The forward prices in Estonian and Finnish price area decreased in October The yearly electricity forward prices in the Estonian and Finnish market area went through a decline in October. The electricity forward for year for Electricity forward prices Prices at 31.10.2013 EUR/MWh 53 50 48 45 43 38 35 Spot price Next week Next month Q1 Estonia decreased by 5.8% compared to September and settled at.3 /MWh at the end of October, while the 2015 price fell by 3.7% and closed at 38.95 /MWh. The Finnish market area saw its forward price for decrease by 5.5% to.2 /MWh and the price for 2015 closed at 38.85 /MWh, having declined by 2.9 % since the end of September. Price of electricity (forward contracts in Nord Pool, Estonia price area) Price of electricity (forward contracts in Nord Pool, Helsinki price area) Q2 2015 2016 2017 Testing of EstLink 2 Started on October 22nd The Estonian-Finnish HVDC project Est- Link 2, realised in collaboration between the TSOs Elering and Fingrid and costing 320 million Euros, has reached the testing phase. According to Elering s Chairman of the Board, Mr Taavi Veskimägi, the construction and installation works have finished. On October 18th the last energisations of the connection were carried out and on October 22nd the cable was used for load transmission for the first time. Before the final takeover of the project, the fine-tuning works and general link tests will continue in the following months. According to the time schedule, the system testing period is going to last until beginning of December, 2013. After the tests will be ended in December, the trial operation period will start, which will need to provide assurance that EstLink 2 is ready for everyday smooth functioning. The final project takeover from the constructors is planned to take place in February, according to the deadline established at the project launch. Then we will give the interconnection to the market s disposal and remove the bottleneck between Estonia and Finland that existed due to the connection capacity limit, Veskimägi explained. Allikas: Elering Electricity market overview October 2013 2
Enefit will not Enter Latvian Household Market next year In October, Enefit, the daughter company of Eesti Energia, announced that the company will not enter the Latvian household market, which is to be opened in Latvia in April next year. This decision was made due to two factors. Firstly, the transmission cost issue on Estonian-Latvian border has not been solved, which makes impossible for any Estonian or Nordic seller to offer long term fixed price contracts to Latvian electricity consumers. For the same reason Enefit stopped offering new fixed price electricity contracts to business clients earlier this autumn. Secondly, the decision was influenced by the fact that the proposals done by the Latvian Ministry of Economics concerning the opening of Latvian household market, set on electricity sellers strict demands so that sellers are not free to decide on their product offering or service levels. Janis Bethers Chairman of the Management board Enefit SIA For the time being the responsible authorities are lacking comprehensive and legally sound solution to the current situation. The inability to intro- duce appropriate hedging instruments on Estonian-Latvian border endangers the further development of regional electricity market, including the opening of the household market in Latvia. This keeps the electricity prices in Latvia higher than it s usual and harms the competition in the market place. In spite of the decisions done so far, Enefit will continue to monitor the developments of laws regulating Latvian energy market and will re-evaluate entering to household segment once the initial difficulties will be resolved. What is actually causing high electricity prices in Lithuania? ANDRES TROPP Head of regulatory affairs Eesti Energia AS Since the beginning of October, we are witnessing public debate in Lithuania which is looking for the answer why the electricity price in Lithuanian spotmarket is so high? Who shall be blamed for that? One of the most popular reasoning has been that this has occurred because imports from third countries (Russia) were blocked. This is not exactly the wrong reasoning but certainly not exhaustive one either. Higher prices in Lithuania and Latvia have first of all been triggered by change of allocation of transfer capacities between the Baltic countries, which was initiated by Baltic Transmission System Operators on 3rd of June 2013. Due to this change the costs of making deliveries of electricity from Estonia to Lithuania have more than doubled. Cheaper Estonian and Nordic electricity can simply no longer access Latvian and Lithuanian markets. The impact of those changes is now being reflected in higher electricity prices for consumers. So, the truth is that not only imports from third countries have been diminished. The same applies to deliveries of cheaper electricity from Estonia and other Nordic countries. The situation is critical and certainly requires quick resolution. However, while looking for solutions, we should keep our eyes on the bigger picture. Giving preferences to third countries imports would not necessarily mean lower prices for consumers. The Baltic countries need to set the terms for fair competition. Since the 3rd of June 2013 Estonian electricity sellers had to pay to Estonian and Latvian Transmission System Operators in average more than 10 EUR/MWh for crossing Estonian-Latvian border. At the same time Russian electricity is entering Lithuanian market free of any charge. Therefore, the solution which shall be implemented should treat all electricity sellers equally, no matter of their origin. Electricity market impact factors The levels of Nordic hydro reservoir declined throughout October The decline of the Nordic hydro reservoir levels continued throughout October, in spite of the fact that the amount of precipitations in the first weeks of the month was somewhat bigger than in September. The reservoir level remained between 72-74%; the long-term median at the same time was 83-85% of the maximum. Water levels are low in both Sweden and Norway, there are fewer precipitations than usual at this time of year, and that situation is expected to continue in the nearest weeks. If the weather should turn dry and cold, it might cause the electricity prices to increase. Electricity market overview October 2013 3
Crude oil price slightly increasing After a significant decline in September, the price of Brent crude oil began to slightly rise. In the beginning of October the price closed at 107.9 $/bbl, the highest level (111.3 $/bbl) was reached by the middle of the month, and the end of month closing price was 108.8 $/bbl. Thus the total monthly increase was only 0.9 $/bbl (0.8%), in terms of euros the change was 0.33 /bbl (0.4%). One of the important aspects affecting the prices was probably the oversupply of oil and dropping demand in the US market. The upward trend of European carbon permits ended in October The upward trend of European carbon permits that had been lasting up to almost five consecutive months, reached its end in October and by the middle of the month the price had dropped to 4.6 /t. On the 25th of October the permit price exceeded the limit of 5 /t, but the end of month closing price was again somewhat lower 4.8 /t. As the holder of the rotating presidency of the EU, Lithuania plans to seek approval for a negotiating mandate with the European Parliament concerning the backloading of the permits at a meeting of ambassadors from member states on November 8th. If the mandate is approved, the price of the permits may be expected to move up again. Hydro reservoir levels Nordic hydroreservoir levels from maximum*, % Crude oil price,$/bbl 110 90 70 CO 2 emission price /t 8 7 6 5 4 3 2 20 0 Base energy price /MWh 50 45 2010 2011 2012 2013 Median** *Maximum 121,4 TWh **Median values for the period 1990-2012 1 4 7 10 13 16 19 22 25 28 31 34 37 43 46 49 52 Price of crude oil (ICE) $/bbl Price of crude oil (ICE) /bbl December 2013 CO emission price 2 Price of baseenergy for the year in EEX, Germany 35 30 Electricity market overview October 2013 4
The price of German base energy contract declined slightly in October Coal price,$/t Price of coal for year, $/t Price of coal for year, /t The price of German base energy contract went through a slight decline in October. The price remained between 37.2 and 38.3 /MWh, and at the end of month closed at 37.6 /MWh. The total monthly decline was 1.24 /MWh or -3.2%. Coal price in October decreased slightly The price of coal contract moved slightly down after a small rise in September. In the beginning of October the contract closed at 82.9 $/t, and by the middle of the month exceeded the limit of 84 $/t. The end of month closing price was again 82.3 $/t, the total monthly decrease being 0.6 $/t (-0.7%), 0.7 /t (-1.1%) in terms of euros. Among the factors that affected the price was probably the slowing down of Chinese import demand and the US shifting to a cheaper shale gas instead of coal. EXPLANATION OF TERMS Base energy is the sale/purchase of 1 MWh of electricity each hour within the given period. MWh i.e. megawatt hour equals 1,000 kwh. GWh i.e. gigawatt hour equals 1,000 MWh. An electricity exchange price area is a part of the electricity market with a uniform electricity price. Estonia price area is the Nord Pool price area in Estonia. Nord Pool is a power exchange that consists of price areas in Finland, Sweden, Norway, Denmark, Lithuania, Estonia and the Estonian-Latvian border. ICE i.e. the Intercontinental Exchange is the largest commodity exchange in Europe. OPEC is the Organization of Petroleum Exporting Countries. Peak hours describes the period of increased electricity consumption. The Nord Pool exchange regards the period between 08:00 and 20:00 Central European Time (one hour behind the Eastern European Time used in Estonia) as peak hours. Closing price is the price of the last contract of the day. A forward contract is a contract that binds the parties to sell/purchase specific assets at a specified time in the future at an agreed price. The forward price i.e. the forward contract price is the price at which the assets specified in a forward contract are sold/purchased. Brent crude oil is the reference product for several oil products from the North Sea. DISCLAIMER The market review has been prepared by an analyst of Eesti Energia to the best of their knowledge. It is not an official standpoint of Eesti Energia. The information given is based on public information and the sources specified in the overview. The market overview has been presented as informative material and it has in no case whatsoever been presented as a promise, proposal or official forecast of Eesti Energia. The standpoints contained in the market overview may change and the person presenting them reserves the right to amend said standpoints. Due to the fast changes in the electricity market regulation, the Market Overview or the information contained herein are not final and they need not correspond to situations emerging in the future. The market overview does not create, terminate or amend legal relationships (incl. contracts). Eesti Energia cannot be held liable for any expenses or damages that may emerge as a result of the use of the information contained in the Market Overview. Electricity market overview October 2013 5