According to the latest forecasts, electricity prices in Finland are expected to remain below €100 per megawatt hour (MWh) for the coming winter. However, experts are not expecting such favorable electricity prices in Estonia.
Finnish futures prices for the first quarter of the coming winter are currently below €100/MWh. On average, they fluctuate somewhere between €85 and €90.
According to Marko Allikson, management board member of Baltic Energy Partners, the Finns' optimism is justified on account of the third reactor at the Olkilouto Nuclear Power Plant, which has a capacity of 1.6 gigawatts, being brought on line.
A number of wind turbines have also been added and gas prices have remained lower than last year.
"There are always risks in the market. When you look at these futures prices, futures prices always incorporate the best knowledge of the market at the current moment, and the best knowledge is really that Finnish prices could be below €100 in the winter, and our prices will probably be a little over €100," Allikson said.
Historically, electricity has cost €10-30 more per megawatt hour than in Finland during the winter months.
This is due to the fact that Finland has a much more diverse energy portfolio and production capacity, which makes electricity production a lot cheaper. At the same time, Estonia has a low level of interconnectivity with the Finnish electricity market - two Estlink undersea cables are capable of transmitting a maximum of 1,000 megawatts per hour.
Estonia has also invested in both solar and wind power. However, renewable energy capacity remains poor in the winter months and so gas is still needed to generate electricity.
"Coal, shale, gas, all have an important CO2 component, which is currently priced at €85/MWh. And if for example, you take the production of electricity from shale, then you can broadly say that one tonne of CO2 is enough to produce one MWh [of electricity]. So, the cost of CO2 alone is €85, and if you add in the processing, extraction and other costs, the price just goes up to over €100. That's why the price in our region goes over €100 and we don't have enough renewables," Allikson explained.
But how do predictions about the future affect people who have chosen fixed price packages? More than 60 percent of Eesti Energia's customers have now opted for fixed price electricity packages for instance.
According to Roul Tutti, Eesti Energia's sales director for domestic markets, fixed prices vary depending on when and for how long contracts are signed. The recent average is around €150/MWh, which is not much more expensive than may be predicted for the winter.
"We're actually talking about a forecast price, so if we add VAT and profile risk to the end (price for the) customer, then that's the size of what we're offering on the market at the moment," Tutt said.
However, it should be borne in mind that while fixing prices does provide certainty and stability, depending on the market situation, it may not always be the most advantageous option. Fixed prices will however be reviewed from time to time and adjusted according to the latest forecasts.
"If we also see in our price forecasts that price stability is developing in the market, then of course we will adjust our prices accordingly. It's difficult to predict the long-term price, especially at this point in time, when in reality we are still not yet out of the energy crisis. There are factors here that can have a significant impact on price volatility," said Tutt.
Marko Allikson added that energy prices have been falling over the last six months.
"The peak of the crisis was in August and September last year. That was when prices were at their highest, and there was also a very big crisis in the fall, so prices were inevitably still high. After that, both fixed prices and exchange prices have been consistently falling, so the later the fixed-price package is taken, the better the price," Allikson said.
Editor: Michael Cole