Competition Authority chief: Regulated electricity prices in Estonia viable

Märt Ots
Märt Ots Source: Competition Authority.

Switching to regulated electricity prices in Estonia, while it would require major upheaval and restructuring, is in principle viable, the head of the national regulatory authority says. This would at least make prices stable, he added, though it may not head off the current high price levels overall.

Märt Ots, Director General of the Competition Authority (Konkurentsiamet), said that: "The transition to a state-regulated price for smaller consumers would require a major transformation, but would be possible and in-line with EU restrictions."

"The domestic electricity market package actually allows for the provision of such a thing as a universal service to households and to small customers, ie small businesses," he went on.

At the same time, this would not be without its effects, particularly in relation to neighboring states and with Estonia's size in mind.

"If any country in the region's electricity market implements a completely different system, that will undoubtedly have its effects," Ots continued, listing these as including a reduction in the liquidity and volume of the stock exchange.

As to the current situation, fixed-price electricity contracts are still available, Ots said, though he recommended waiting until spring when prices might be more normalized.

Ots noted also that in Estonia, electricity sales contracts are debt-related in their nature, which: "Means that the seller is actually permitted to withdraw from the sales contract in exceptional circumstances," something he said was also unregulated.

As to what a nationally regulated electricity market might look like, Ots said one option would be legislation imposing an obligation on all domestic electricity producers to provide electricity sellers with a coordinated price, which they could in turn sell to consumers.

This would require further analysis and would vary depending on the size of the company, he added.

Leaving the NordPool exchange unilaterally would not be seen as a good move by neighboring states, and would affect the exchange itself.

In the case of a lack of capacity on the part of producers, this would require electricity imports – under a regulated market – and the importing would be done either by the producers or sellers, depending on the regulation, he said.

Regulation would not necessarily spell lower prices, he said, though the sharp, sudden and large increases recently seen – from €200 to over €400 per MWh, and possibly as high as €1,000, would not be seen.

One of the highest costs facing state generator Eesti Energia is the CO2 quota, but this could also provide the basis for a regulated price – based on energy costing the state firm up to €130 per MWh to actually generate.

"If we take the situation in Estonia today, the main factor why Narva power plants still have such a high price is CO2. If there were no price for a CO2 quota, then of course the numbers would be completely different," Ots said.

Two of the three opposition parties, Isamaa and the Conservative People's proposed Tuesday a switch to a regulated electricity market, where consumers would buy electricity directly, at a price approved by the Competition Authority.

The two parties also support a Center Party proposal to slash the VAT rate on electricity from 20 per cent to nine per cent – in fact Isamaa submitted a bill to the Riigikogu on Tuesday which would do just that, if it passed (it would also cut VAT on heating bills - referring to the type of centralized, district heating which makes use of hot water piped in - as well as on natural gas, the energy sector which has seen the greatest price hike - ed.).

The third opposition party, the Social Democrats (SDE) also supports the move – which would be temporary.

At the same time, while EKRE leader Martin Helme, supports a nuclear power plant in Estonia as a longer-term solution, both SDE MP Jevgeni Ossinovski, and Isamaa leader Helir-Valdor Seeder, expressed skepticism over this.

Regarding the two coalition partners themselves, Reform and Center, cutting VAT may not be a solution in the shorter term.

Center's public administration minister – effectively the minister for the regions – Jaak Aab, told ETV current affairs show "Ringvaade" Tuesday that he felt that the policy would founder, due to Reform's opposition, though Reform leader and prime minister, Kaja Kallas, said that while there needn't be a rush to do so, with measures such as saving energy being more pragmatic.

Electricity prices set another record Tuesday, at €469 per MWh and, while the price per MWh has fallen since then, indicators are that much higher levels could follow in future.

Additionally, winter has arrived early, with night-time temperatures nearing -30C and daytime temperatures well-below zero nationwide. The country is also largely blanketed with snow.


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Editor: Andrew Whyte

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