Tallinn, Tartu pick exchange price electricity over universal service

Narva maantee in Tallinn, at dusk.
Narva maantee in Tallinn, at dusk. Source: Priit Mürk/ERR

Municipalities in Estonia's two largest cities, Tallinn and Tartu, have opted to buy much of their electricity for the foreseeable future at stock exchange price levels, rather than at the universal price level available under a government scheme rolled out last year, with price being the main factor.

Additionally, more than half the remaining municipalities in the land have signed up to a joint procurement deal to purchase their electricity either from state generator Eesti Energia, or from one of two private sector producers, with the tender reviewed annually through to 2027.

The City of Tallinn is currently undergoing the procurement process, to find an electricity provider to power its institutions, and has rejected using a universal service. 

Meanwhile Tartu's city authorities are also currently buying electricity at exchange price, though the option to use the universal service remains in its contract.

In December last year, local governments were granted the right to use a universal electricity service if they desired, mirroring a package which was rolled out to domestic consumers amid soaring energy prices.

However, since then, the Nord Pool exchange price of electricity has generally been lower than the universal price, with the result that Tallinn and Tartu both unsurprisingly favor the exchange price route.

Tallinn had to sign stop-gap contract to cover January, February

The City of Tallinn is currently organizing its tender for electricity supply for the period from March 1, 2023 to February 29, 2024. The tender deadline is next week.

Tallinn financial director Silver Tamm told ERR that: "Offers are requested for a package using an hourly stock market price, which covers all the city's institutions."

"This means the city will not procure a universal service for the period starting March 1, 2023, but should the need arise, the city will have the opportunity to separately procure a universal service package for residents of social housing," he went on.

Tallinn found itself in a difficult situation with electricity sellers late last year, when all three providers the city had signed a framework agreement with in 2020 declined to take part in the competitive process which would have culminated in one of the three having the right to sell electricity to the capital's authorities, through 2023.

The City of Tallinn last year also changed its existing contract to allow social housing residents to use the domestic equivalent to the universal service package, as noted rolled out first.

The remainder of the city's institutions still bought electricity based on the Nord Pool exchange package. 

In October, after the electricity procurement failed and only one offer was submitted, Tallinn approached state generator Eesti Energia and signed a contract for January-February of this year, so that the city's institutions would not find themselves completely without power. 

Tartu reviews and renews its contract every three months

Meanwhile the City of Tartu divided its procurement in two, requesting bids for both the universal service and the exchange electricity provider. 

Only one bid was received, from fuel retailer firm Alexela, who offered a price of €17.4 per MWh (exchange) and €21.60 per MWh (universal service), both prices inclusive of VAT.

Tartu Deputy Mayor Priit Humal (Isamaa) told ERR that the package can be amended every three months, i.e. by choosing whether to use the universal service or buy electricity at the exchange price, for the ensuing three months.

The first three months have seen the university town opt for the exchange price, since at the time the contract was signed, around a month ago, this price was the lower of the two. The city had already used the exchange price route prior to this.

Tartu's procurement was also divided into to segments in terms of electricity use – one relating to street lighting (which consumes around 7,100 MWh per annum in Tartu) and the second for city institutions like schools and kindergartens (around 11,700 MWh projected consumption per year).

Additionally, electricity must be 100 percent sourced from renewable generation.

The city is also not obliged to purchase the entire projected capacity (ie. 18,800 MWh).

The Alexela deal the City of Tartu signed is valid to January 31, 2024.

Contract signed with three electricity sellers to supply 46 more municipalities

Meanwhile, with 46 other municipalities (Estonia has a total of 79 local municipalities), a joint state procurement center (RHK) procurement involved three electricity sellers.

The framework contracts supply around 300 institutions across the 46 local governments, the RHK says.

The three companies involved are Eesti Energia, Elektrum Eesti and Alexela, and cover the period 2023–2027. 

Each spring, a competitive process will be held between these three firms, to decide the supplier for the ensuing year.

For 2023 to 2024, Elektrum Eesti was chosen.

RHK board member Margus Lantin said a higher commission fee was offered for the first annual period (ie. 2023-2024) compared with previous joint procurements. 

Latin said: "Within the same framework, we achieved an average price win of 5 percent compared with general electricity prices and contract conditions, in relation to monthly fees and sanctions offered on the open market."

"We hope that the electricity market will normalize and in the 'mini-competition' held for the next period, 2024-2025, in addition to brokerage fees, a fixed kilowatt-hour price, with a reasonable price level, will be offered," he said Lantin.

For domestic consumers, not taking part in the universal service package generally required expressly opting out, while that service price has reportedly hardly helped with the soaring electricity prices either, since exchange-based packages have often worked out cheaper too.


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Editor: Andrew Whyte

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