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Cold Finnish weather and water levels in Latvia impact Estonia's electricity price

Charger and extension cord plugged into outlets.
Charger and extension cord plugged into outlets. Source: Aili Vahtla/ERR

Estonia's electricity system is able to cope with peak demand even during periods of frosty weather. However, the price of electricity inevitably rises when temperatures get colder, as fossil fuel power plants enter the market. In Estonia, electricity prices are also being driven up by conditions in Finland, which is struggling with even harsher weather. Meanwhile, Latvians are enjoying slightly cheaper electricity thanks to the high water levels in the Daugava River.

Estonia's electricity consumption peaked in February 2021 at 1,591 megawatts. This week's cold weather may bring consumption close to or even above that level said Märt Allika, head of Elering's energy system control center

"We are probably close to that all-time peak. It is relatively difficult to say whether the record will come or not, but we are probably close," he said.

At the time when peak consumption was reached almost two years ago, the weather was also cold, with strong winds reducing temperatures further, Allika said. On Tuesday, with air temperatures in parts of Estonia set to fall below 20 degrees Celsius, the expected peak consumption level is 1,460 megawatts.

"Extreme cold plus wind is the combination that usually provides the maximum peak in consumption. Broadly speaking, you could say that the Estonian power system is designed for these types of peak loads, so in that sense there is no threat to the system," Allika said.

Estonia's own generation peaked at 955 megawatts on Tuesday. As of Tuesday morning, wind farms were producing just a few hundred megawatts of electricity. A large proportion of the electricity production therefore comes from shale oil plants, which will not be able to enter the market at lower prices.

"With so-called absolute caps on consumption, there is certainly a likelihood that power plants, which have not normally been able to enter the market can do so. This could lead to higher electricity prices," Allika pointed out.

The arrival of the cold weather was accompanied by an immediate rise in the electricity exchange price, both in Estonia, and in neighboring countries. Tuesday's average price in Estonia is €173.56 per MWh, compared to €45.25 per MWh on Monday. However, this means that there is still some wind, so wind farms are keeping the price a little lower than it would be on a windless day, when the price would be set by fossil fuel plants," Allika said.

Price stays the same for a week

Kalvi Nõu, Alexela's portfolio manager for energy trading, told ERR that the price of electricity in Estonia is currently being pushed up by Finland in particular, which is currently experiencing lower temperatures. "Today, on average, around 450 megawatts of electricity per hour are moving from Estonia to Finland," Nõu said.

Nõu added that, barring major system failures, daily average prices could be expected to remain at around €200 per megawatt-hour this week, with peak prices close to €500 per MWh.

"Given the current situation, the electricity system is very vulnerable and the failure of some power plants could lead to very unpleasant price increases," he said.

According to Nõu, everything depends on the weather, and with the most recent forecasts suggesting things to be relatively mild, electricity prices should remain low. Next week, the price ought to stay between €110 and €140 per megawatt-hour, Nõu said.

Electricity moves from south to north

Meanwhile, on Tuesday, electricity prices in Latvia and Lithuania are cheaper than those in Estonia, at €111 per megawatt-hour. In Estonia, the price is the same as in Finland. According to Allika however, something that is happening now which is quite unusual, is that electricity is moving from south to north, as Estonia's southern neighbors are now able to offer it more cheaply.

"Basically from Poland and Sweden to Lithuania and on to Latvia, then from Latvia to Estonia. In mid and late December we had very warm weather, and a lot of rain, as did Latvia and Belarus. The water level in the Daugava River, where there are three hydroelectric power stations, is very good. These power stations are now producing significantly more electricity than they usually do at the beginning of January. This is an additional component, which provides cheaper electricity to the market. What has happened now is that the electricity is moving from south to north, which is not quite the normal direction for electricity to move in," Allika said.

According to Allika, Tuesday's peak price in Estonia, €483 per MWh, shows that a higher-priced fossil fuel plant has entered the market.


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Editor: Michael Cole

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