Electricity prices will rise to over €100 next winter again

Electricity lines.
Electricity lines. Source: Ken Mürk/ERR

Due to the increased use of fossil-fueled power plants during harsher and windier periods next winter, it is possible that a megawatt-hour will cost more than €100, Marko Allikson, an energy expert, said on Vikerraadio's "Välistund" program.

Despite the tenfold drop in gas prices since August of last year, Allikson said that the CO2 component of energy derived from shale or coal will hike the price of electricity above €100 per megawatt-hour during colder weather.

"When there is no wind, shale, coal and gas must be used. The current price of CO2 is around €90, so for every ton of CO2 you must add €90, resulting in an electricity price above €100," he explained.

Allikson said that the standard for gas-generated electricity is to double the price of gas. "Currently, the exchange price of gas is around €30, plus the CO2 component, which is much lower for natural gas than for shale or coal; therefore, electricity could be produced and sold from gas for around €70 to €80," he said, adding that if you look at future prices, or futures, prices will still be over €100 per megawatt-hour next winter.

He said that the prices "are not very favorable" when considering futures, and advised consumers for the upcoming winter that electricity may be cheaper at the exchange price, but the fixed price would give peace of mind.

Taavi Veskimägi, chairman of the Elering management board, said that there is no need to worry about a supply crisis, because the market for electricity suppliers is now more diversified, making the market and supply security less vulnerable.

Investment in LNG could delay the green revolution

The eagerness of Europeans to end their reliance on Russian gas and the rapid construction of new LNG receiving capacity led to in very large investments, which means that it is not wise to completely abandon natural gas in the near future, according to Allikson and Veskimägi.

Veskimägi said that the growth of LNG capacities is "excessive" and that they will impede the green energy revolution.

"European societies have invested billions of euros, and it is difficult to foresee that by 2030 /.../ many [of these new assets] will need to be written off. This delays the gas exit," he said.

The rapid decline in gas prices, Allikson said, also indicates that gas will continue to be a very attractive energy source in the near future. "If there is any time to deploy controllable capacity, gas plants are the most effective," he stated.

Allikson said that because gas prices are currently low, gas suppliers have a strong incentive to stock up, but Europe has limited storage capacity, which he said could be a factor that drives up winter prices.

Storage capacity accounts for 50 percent of annual consumption in Estonia-Latvia-Lithuania, but just 20 percent in Germany.

It also means that when the European Union is at capacity, the level of supply security in Estonia will be lower than in the EU. And the Dutch gas trading platform (TTF) price is determined by events in Germany, not Estonia," he said.


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Editor: Marko Tooming, Kristina Kersa

Source: "Välistund"

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