Energy entrepreneur Sandor Liive predicted that if Estonia disconnects its power system from Russia's in early February, it will certainly impact electricity prices, as 500 megawatts will be removed from trade and redirected to frequency reserves.

Erkki Sapp, a member of Elering's management board, told ERR that the more significant factors influencing electricity prices include renewable energy production, the pace of project development, hydro resources in the Nordic countries, power plant outages, total consumption and natural gas prices. According to Sapp, the impact of synchronization on market prices is relatively small, though it will have some effect.

"Synchronization will bring two major changes to the electricity market: one is the reduction of the Lithuania-Poland electricity link from 500 megawatts to 150 megawatts, and the other is the procurement of new reserves for system management. Both changes could either raise or lower electricity prices," Sapp explained. "For instance, reducing the Lithuania-Poland connection lowers electricity prices when Poland's prices are higher than in the Baltic states."

Sapp noted that maintaining reserves has a two-way effect on electricity market prices: on the one hand, production held in reserve doesn't offer bids to the market, which could lead to price increases. On the other hand, the need to hold reserves brings otherwise idle production capacity to the market, increasing supply and driving prices down.

"Additionally, due to the need to exchange reserves between the Baltic states, the transmission capacity between Estonia and Latvia will be reduced, which could have a price-lowering effect on average electricity prices, as less affordable Nordic electricity will flow further south," Sapp pointed out.

According to Sapp, the impact of each of the listed factors on electricity prices is relatively limited, making it impossible to say at this point whether synchronization will primarily raise or lower market prices. However, the overall effect is expected to be minor.

Expert: Weather a bigger factor on winter energy prices

Marko Allikson, a partner at Baltic Energy Partners, stated that disconnecting from the Russian power grid will have a short-term effect on electricity market prices in February, especially during the first few days after the disconnection and to some extent for one to two weeks afterward, as power connections between the Baltic countries and the Nordic region remain limited.

"A week after the disconnection, the Baltic electricity market will have access to both the Finnish and Swedish cable connections, and two weeks later, 150 megawatts from the Lithuania-Poland connection will be reintroduced for market use," he explained.

According to Allikson, the weather will have a greater impact on electricity prices this coming winter than the disconnection from the Russian grid.

"If the disconnection happens during cold winter weather, prices in Estonia will likely match those in Finland. However, if the period is mild and windy, prices are more likely to be higher than they would be without the disconnection," he said.

Following this period, Allikson added, there is no direct reason for electricity prices in Estonia to be higher than last winter. Estlink 2 is back in service, about 300 megawatts of wind energy have been added in Estonia and the expected 50 percent reduction in the Estonia-Latvia connection for system service needs will likely bring prices closer to Finland's levels compared to this year.

Allikson listed several factors that could impact electricity prices, noting that this winter, developments on the Finnish electricity market will likely have the most significant effect on prices in Estonia. He highlighted that the large Meri-Pori coal plant will no longer be available to the market this winter, increasing the likelihood of price spikes during cold weather. Additionally, starting in March, the Olkiluoto 3 nuclear plant will undergo maintenance for nearly two months, removing 1,600 megawatts of steady electricity production from the market.

Bigger exchange margins on the horizon

At the same time, balancing and regulation costs will increase after desynchronization, as very short-term and flexible electricity production will be needed to maintain frequency, and there is currently not enough competition in the region to fulfill this task, according to Allikson.

"In addition, we will join new pan-European platforms, which are currently used by energy traders from only a few countries. Many countries have postponed their participation, citing the risks of excessive price volatility. For the average consumer, this primarily means that electricity sellers will be forced to raise market margins and factor in higher balancing costs even in fixed-rate packages," Allikson explained.

He also noted that the much-discussed new frequency reserve tariff has been postponed to the second half of next year, based on recent developments. Going forward, the impact of these additional costs on electricity prices will depend on how they are ultimately implemented. For instance, the imbalance tariff currently under discussion would be even more costly for solar and wind producers than the flat €5.31 per megawatt-hour balancing tariff for production, but Narva power plants and cogeneration plants would benefit from it.

According to Allikson, consumers should not make decisions to switch their electricity packages solely due to the upcoming desynchronization, as the potential costs associated with it have already been factored into both fixed-price and market-price margins.

"When fixing a price, it's important to understand whether additional costs, such as potential frequency reserve tariffs, might be added later," he added.

Allikson pointed out that for household consumers, fixing the price is more about peace of mind and budgeting. However, in the long term, a market-based plan generally offers the most affordable electricity price. With such a plan, consumers benefit from both price peaks and negative electricity prices, and it also allows them to manage their electricity consumption more effectively. Some electricity providers also offer packages that combine market prices with a price cap.

On Wednesday, the Ministry of Climate sent Elering a directive to adjust the methodology for setting balancing service prices, ensuring that Estonian producers and consumers are not treated unfairly compared to those in Latvia and Lithuania.

On Thursday, Elering submitted an updated balancing service pricing methodology to the Competition Authority. Under this new plan, the costs of procuring frequency reserves during the transition period would be covered by congestion charges. This differs from the original plan, which had proposed funding the frequency reserve purchases through a balancing fee imposed on both electricity producers and consumers.

"This allows us to adopt a methodology similar to our neighbors and avoid unequal treatment of consumers and producers," explained Erkki Sapp.

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