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Price of electricity to become more changeable in the future

Solar panels at a power plant at Mäo, Järva County.
Solar panels at a power plant at Mäo, Järva County. Source: Ken Mürk/ERR

The market price of electricity will come to fluctuate to a greater degree as countries switch to renewable energy and close coal and oil shale power plants. Kalev Kallemets, CEO of nuclear plant project company Fermi Energia, predicts that prices will continue to rise, while Estonian transmission network operator Elering disagrees.

The past week has seen the price of electricity on the Nord Pool exchange reach €100 per megawatt-hour for at least a few hours every day. The price climbed to €255 two weeks ago. Cheaper times see a megawatt-hour of energy cost €30-40.

However, prices also move down and overproduction of Nordic hydro and wind energy saw the price dip into the red last July.

Estonia imports roughly half of the energy it needs when its quiet and warm like this, Kallemets said. "We are importing around 1,000 megawatts from Finland, while half of it moves on to Latvia."

Head of the Nord Pool exchange in the Baltic region Ingrid Arus said that the high prices of the past few weeks are caused by lower wind energy supply that has been replaced by more expensive fuels. "Not just in Estonia and the Baltic region but the whole of Scandinavia and Central Europe as well," she said.

Both fuel prices and environmental fees have gone up, while the price of CO2 emissions has almost doubled in the last year. "This affects power supply prices in different regions," Arus explained.

Stable sources to be closed

Kallemets said it is a problem that major countries are closing plants that used to ensure stability on the open European energy market.

Germany plans to close three nuclear plants this year and the last three next year. Belgium is also set to shut down a reaction the year after next.

"Considering the rise in CO2 quota prices and coal plants being closed ahead of schedule, serious questions of supply security in Europe will arise," Kallemets said.

"Such capacity is obviously needed during the hours and days when the wind is quiet, like this past week."

"Considering that the rise in CO2 prices is inevitable – as it should be for carbon neutrality to be achieved – the annual average price of electricity will grow. Everyone is saying that we will only see an increase in price volatility, while higher prices are also inevitable in the long run," he said.

Estonia is currently importing half of its energy from Finland that is in turn dependent on supply from Sweden. "Sweden is also sending power to Lithuania, Poland, Germany and Denmark. Demand growing in Germany and Denmark means not enough left over for Lithuania that in turn affects the entire Baltic region," Kallemets said.

"Europe is connected, meaning that prices are very low when there is plenty of wind power on the market and very high when the wind dies down," the Fermi Energia CEO said, adding that building small modular nuclear reactors in Estonia needs to be considered. "Wind farms absolutely need to be built, but they cannot ensure supply security," he said.

Ingrid Arus said that Estonia and the entire Baltic region is hugely dependent on transmission capacities.

"June will continue to see limited transmission capacity between Sweden and Lithuania, also between Estonia and Latvia and Latvia and Russia in recent weeks. Import from Russia been cut in half in the past week. Maintenance of the Estlink 1 power cable also meant reduced important from Finland for five days toward the start of the month," Arus said.

Nord Pool does not forecast price trends, while Arus said that what comes next will largely depend on coincidences and what kind of new production capacity the market will see.

Elering: transmission network operators have counted on old plants being closed

Head of communication for Elering Ain Köster said that supply security is intact and that controllable capacities will still exceed peak consumption a decade from now.

Transmission network operators have been taking the fact nuclear power plants will be closed into account for years. "We will keep at least 1,000 megawatts of controllable capacity operational in Estonia, utilizing strategic reserves when necessary," Köster said.

While the closing of old plants and CO2 quota price hikes affect the market, this is aimed at pushing for greener energy sources.

"We will definitely see greater volatility or price fluctuation in the future. However, temporarily higher prices will make it possible to construct power plants that would not be cost-effective in the conditions of constantly low prices," Köster explained.

Elering finds that the open market can ensure the best possible result through supply security and sensible energy prices. At the same time, the operator wants to see the system rendered more flexible to be able to quickly send power from where its generated to where consumption spikes.

"The transmission network must be more flexible and quickly able to react to changes if the wind fails and the sun doesn't shine in a particular area. Energy storage and managing consumption are necessary We need more links between countries. That is why Elering is pursuing the Baltic Sea marine network initiative one part of which is a link between Estonia and Latvia," Köster said.


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Editor: Marcus Turovski

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