Weather conditions cause big difference between night and daytime electricity prices

The mild and windy weather this winter has created a situation whereby electricity exchange prices remain close to the minimum at night, while daytime prices are set by individual generation units.
On Tuesday, the electricity exchange price remained at €1 per megawatt-hour (MWh) overnight and had risen to €91 at 8 a.m. The price remained more or less at that price until evening. The average price for the day was €59.69 per MWh, the same level as in Latvia and Lithuania.
While not quite as stable, a similar trend in the price is expected for Wednesday, when it will range between €20 and €30 per MWh at night and, after peaking at €300 at 9 a.m., will then hover between €200 and €240 per MWh for the rest of the day.
Sander Randver, Enefit's head of energy products, explained that the cold weather means more electricity is consumed during the day, and the night price has been driven down by relatively good level of wind generation. "In the Baltics, all the main generation units are well-positioned in the market. During the day, when wind and EstLink are not enough, the price goes up relatively sharply."
Randver says it can be concluded that the price is shaped throughout the day by one particular generation unit. On the power exchange, the price is set by the last plant to enter the market. Which one exactly, cannot be said, as bids are submitted to the exchange anonymously.
EstLink 2 damage shapes prices during the day
While the average daily price in the Baltic countries is at the same level, in Finland, for example, Tuesday's average exchange price was €5.63 per MWh.
Following the rupture of the EstLink 2 electricity cable, electricity between will be transported Estonia and Finland via the 350 megawatt EstLink 1.
According to Kalvi Nõu, portfolio manager for energy trading at Alexela, the cable damage has changed the market dynamics. "If EstLink 2 were on the market, we probably wouldn't see such high prices during the day, or they would be a bit lower and more in line with Finland. As there is less cheaper Finnish supply on the market now, these higher daytime prices are also happening at certain times," Nõu said.
Since there is less energy consumption at night, it is possible to cover the amount needed with EstLink and low-cost wind power generation.
He noted that the price during the day is also influenced by the fact that Latvia and Lithuania have recently produced a lot of electricity via gas plants. "It seems that in any case, they are doing this in a way whereby it will not have a really bad impact on market prices. Given the gas prices, the variable cost of a gas power plant should actually be quite high, but we don't see that very clearly in the electricity prices at the moment. It is possible to operate plants on a black run system. In other words, the plant has to run at some capacity irrespective of the market price. This will certainly also contribute to the fact that prices have not gone really crazy."
So far this winter, warm and windy weather has kept prices down. "If it gets colder and windier soon, there is a fear that these prices could rise significantly," said Nõu.
Nõu explained that in addition to wind power and imports from Finland, the eleventh unit of the Auvere and Baltic power plants as well as smaller cogeneration plants are currently still in operation.
Lithuania and Poland restrict interconnections
Electricity prices on the Baltic market are also impacted by the fact that Lithuania limits how much can be moved on to the Polish market at a higher price. Lithuania says this is necessary to ensure the stability of the grid, Nõu said.
"By its very nature, this also ensures that cheaper wind power, if it is available in the Baltics, is not sold to Europe at the moment," he explained.
According to Randver, Lithuania and Poland have a long history of notifying the market of restrictions on interconnections due to the specificities of the Polish system. "One could expect that Poland might, for example, restrict imports into its own system because it has so much overproduction on a permanent basis, or vice versa. There are some specificities there. This Lithuanian-Polish connection is constantly being forced back and forth," he said.
At night, electricity moves one way and during the day the other. Randver pointed out that this has been the case for a long time, with network security being the reason.
"But what it generally means is that because electricity prices are usually higher in Poland and electricity always moves from a cheaper region to a more expensive one, from our Baltic perspective, consumption would increase due to this transfer and that would actually increase our electricity prices if the movement towards Poland was unrestricted. As Poland has a very coal-based energy system, inevitably the price of electricity there will always be more expensive," Randver said.
Desynchronization brings price volatility
In mid-February, the Baltic countries will decouple from the Russian and Belarusian frequency bands.
According to Sander Randver the electricity exchange price is more likely to remain the same after desynchronization, and that the more important factor will, once again, be the weather conditions.
"If you have a very mild winter, with wind blowing, you will have low electricity prices, like today. The most dangerous thing in the Baltics is when it gets very cold and windy. Then you can expect high price peaks, and when consumption drops off you have very low prices again. I would rather look at it this way: the average price stays the same, but price volatility increases. The lows go lower and the highs get higher," he said.
Kalvi Nõu said that regular consumers are not likely to notice desynchronization, but with that as a backdrop, balancing the books might become more complicated.
Transmission system operators (TSOs) will have to purchase standby generation or consumption capacity from power plants on a daily basis during the desynchronization process, and some of the plants on the market today will be sold into the reserve.
"This means that those plants that are bought into reserve will not be able to participate in the classic day-ahead market, whereby power plants sell electricity today and where the price is calculated for regular consumers," said Nõu.
Nõu added that the exclusion of some plants from the day-ahead market could also affect the exchange price in colder weather.
"But the long-term effect will be more that if it can be seen that prices for balancing energy are going to be very volatile, very different from the day-ahead market, then that will increase the risk for those managing the balance sheets. The long-term effect of that may be that it forces distributors to increase their prices for new products. However, only time will tell," said Nõu.
---
Follow ERR News on Facebook and Twitter and never miss an update!
Editor: Michael Cole