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Elering: Transmission bottleneck reason for electricity price difference

Electricity.
Electricity. Source: Siim Lõvi /ERR

The price of electricity in the Estonian region of the Nord Pool exchange on August 3 exceeded the price in Finland hundredfold and has consistently been higher on other days. Estonian grid operator Elering said that the price difference is caused by exhausted transmission capacity between the two regions, which problem the EstLink3 undersea power cable should fix.

On August 3, electricity cost €10.16 per megawatt-hour in Finland, while customers in Estonia were charged €379.43 per MWh. While such a drastic price difference is exceptional, electricity is often more expensive in Estonia than in Finland.

Former banking executive Urmas Somelar wrote on social media that during the massive price gap, Estonia's electricity import was minimal at 136 MW, while Finland imported 1,256 MW.

Somelar proceeded to ask why the existing Estlink system seems to be working primarily to cater to the needs of Latvia and Lithuania and how much the latter invested in its construction. He also asked how much the two Baltic countries have paid Elering in so-called overload fees and based on what the Estonian grid operator distributes cable capacity.

"This would help shed light on the identities of these apparently shrewd businessmen buying electricity at €2.87 in Finland and selling it in Estonia for €374.10," he wrote.

Somelar believes that the Estonian Competition Authority should investigate how such a price difference between Estonia and Finland is created in a situation where Estonia imports very little power and Finland quite a lot.

"Earlier explanations according to which the price is determined by the cable's insufficient throughput capacity cannot be right in a situation where imports of just 136 MW seem to be too much for a 1,000 MW cable. Or who really owns the cable?" he asked.

Ain Köster, head of communication for Elering, told ERR that price calculations and distribution of transnational transmission capacity are up to the exchange operator, while Elering is obligated by law to ensure the grid functions.

"Elering has no part in calculating the market price. Electricity producers and traders who participate in the market have a better feel for price levels on certain days or hours of trading," he said.

Köster pointed out that Elering puts transmission capacity between Estonia and Finland and Estonia and Latvia at the disposal of the market, based on common European rules and regulations, and capacity is allocated based on the algorithm used to calculate the price of electricity.

Once transmission capacity between two regions is exhausted, price differences are created.

"That is why Elering is working on an additional Estonia-Finland power link to remove the bottleneck between the two countries and ensure consumers better access to cheaper Nordic renewable energy, or to avoid price differences," Köster explained.

This summer saw Elering and its Finnish counterpart Fingrid sign an agreement for practical preparations for EstLink 3. The new link's throughput still needs to be decided but will fall between 700 and 1,000 megawatts. EstLink 3 is scheduled to be launched in the first half of the 2030s.

The use of (transmission) overload fees is determined by EU regulation according to which proceeds needs to be used primarily for maintaining and increasing transmission capacity with the purpose of removing regional price differences.

"For example, the overload fees will be a big part of financing for EstLink 3," Köster assured.

The summary throughput of existing EstLink 1 and EstLink 2 cables is 1,000 megawatts. The first link became operational in 2006 and the second in 2013.

Nord Pool market prices on August 3, 2022. Source: Nord Pool

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Editor: Marcus Turovski

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