The price of electricity in Estonia, as well as in Latvia and Lithuania, has risen higher than usual this week, reaching an average of €184 per megawatt-hour (18.4 cents per kilowatt-hour) as of Friday. This is nearly 50 percent more than last week and exactly double the average price in January. For comparison, the average electricity price in Estonia last February was €75.5 per megawatt-hour.

There are several reasons behind this price surge: the synchronization of the Baltic electricity grid with mainland Europe has led to a temporary reduction in transmission capacity and the opening of the frequency reserve market. Additionally, rising carbon quota prices, a lack of wind and solar energy and increasing gas prices have also played a role.

Nõu told ERR that the outage of EstLink 2 has had a significant impact on electricity prices, as it has reduced the amount of cheaper electricity available in Estonia. For instance, in Finland, the average market price for electricity this week has been €84.6 per megawatt-hour, while in previous weeks it was even several dozen percent lower.

"Estonian consumers as a whole will pay approximately €50 million more for electricity in February alone due to EstLink 2 being out of service. This impact will remain significant in the coming months, especially in March," he said.

EstLink was also out of service last year due to a malfunction for more than seven months. At the time, Eesti Energia calculated that the outage of the EstLink 2 connection increased electricity prices in Estonia by an average of up to €24 per megawatt-hour in the second quarter and up to €42 in July.

The Estonia-Finland electricity link, EstLink 2, which has a transmission capacity of 650 megawatts, was damaged by an anchor during the Christmas holidays. Since the damaged section is located in Finnish waters, the repair work is being carried out by Finland's system operator, Fingrid.

A Fingrid representative told ERR a few weeks ago that preparatory work for repairing the cable is expected to take place at sea in February, during which the damaged section will be cut out and the cable ends isolated.

Elering also announced this week that preparations for the repair work are underway and that the repairs will be conducted in cooperation with the cable manufacturer. The repair is expected to take between four and six weeks. However, the exact start date for the repairs remains uncertain.

Market reports indicate that EstLink is expected to be operational again by August 1, meaning the timeline has not changed.

On Thursday, Minister of Climate Yoko Alender (Reform) also acknowledged that the repair of EstLink 2 is indeed affecting electricity prices. She noted that finding a suitable repair vessel is urgently needed. However, as there are few such vessels available worldwide and most of them are already booked, this may not happen as quickly as hoped.

Meanwhile, EstLink 1, which has a transmission capacity of approximately 350 megawatts, remains operational, and on Thursday, electricity trade between Finland and Estonia was taking place at full capacity.

Frequency reserve market also having an effect on prices

The past few days in Estonia have been windless, meaning that cheaper wind-generated electricity has been virtually unavailable.

For example, on Thursday morning, electricity consumption in Estonia peaked at just over 1,300 megawatts, while production at the same time was 1,065 megawatts. Wind farms, however, generated minimal output, fluctuating between zero and 40 megawatts in the morning. According to forecasts, production was expected to rise to over 150 megawatts at its peak in the evening.

Throughout February, Estonia's wind energy production has fluctuated between zero and 200 megawatts.

Nõu noted that stronger winds and, in March, increased sunlight are the main hopes for a drop in electricity prices in Estonia. "This could lower daytime prices by up to 50 percent," he said.

Armen Kasparov, head of energy trading at Eesti Energia, considers the calm and cold weather to be the main factor driving prices higher.

"In the coming months, weather conditions will be the biggest factor in easing electricity prices. With windier weather, we can expect significantly lower prices, as wind energy production has already reached a considerable volume in the Baltic states," he said.

Another factor influencing prices is the frequency reserve market, where system operators purchase production capacity for the next day to maintain grid frequency, effectively reducing supply in the electricity market. The frequency reserve market opened in the Baltic states last Tuesday.

"So far, the impact has been quite significant. Cable restrictions are one factor, but the reduction in available day-ahead market capacity also has a substantial effect. Low wind levels and cold temperatures amplify this," Nõu explained.

Kasparov pointed out that the launch of the frequency reserve market influences day-ahead market prices in both directions. "For example, on Saturday, we saw prices drop to €62.7 per megawatt-hour, as several power plants in the region had prepared to offer frequency reserves and therefore participated in the day-ahead market with a set load," he said.

As for the long-term impact of the frequency reserve market on electricity prices, Kasparov said it is still too early to predict. "The next few weeks will likely provide more clarity," he added.

Transfer limits also at play

Cable restrictions, meaning limitations on cross-border transmission capacity, primarily affect two connections: the 500-megawatt Lithuania-Poland link, which is currently operating on alternating current and therefore closed to trade, with 150 megawatts set to return to the market on the morning of February 24. Meanwhile, the Lithuania-Sweden connection has been reduced by 100 megawatts, with full capacity of 700 megawatts expected to be restored on the morning of February 17.

Both connections are operating at limited capacity to ensure frequency stability in the Baltic electricity system.

Kasparov noted that due to these restrictions, less affordable electricity from the Nordic countries reaches the Baltic region, leading to higher electricity prices.

Another factor contributing to rising electricity prices is the carbon quota market, where prices have been on an upward trend since January. Companies such as Eesti Energia must purchase these quotas for their oil shale power plants, which have been producing more electricity as prices rise and market demand increases.

Mattias Kaiv, head of communications at the energy group, told ERR last week that the cost of carbon quotas accounts for well over half of the final or market price of oil shale-generated electricity.

Nõu acknowledged that carbon quotas do impact electricity prices since they are a cost factor for oil shale and gas power plants. However, he emphasized that among all the factors influencing prices, this has the smallest effect.

Kasparov added that the rising price of natural gas also affects electricity prices.

Taking all these factors into account, electricity prices are expected to start declining within a week or two, Nõu said.

"It looks like this price level, or slightly lower, will last for another seven to ten days. After that, weather models indicate slightly warmer temperatures and likely stronger winds," he explained.

Kasparov noted that in March, solar energy production will also begin to have a significant impact on electricity prices.

However, he pointed out that current air temperatures are still relatively mild for an Estonian winter. If the weather turns significantly colder in February or March, electricity consumption could rise further, leading to full-capacity production from Estonia's oil shale plants and gas power plants in neighboring countries, which would keep electricity prices high.

"Air temperature certainly plays a role in price fluctuations — colder weather increases demand, requiring higher-cost production facilities to be brought online," Kasparov said.

Estonia's peak electricity consumption record dates back to January of last year at 1,599 megawatts. According to Elering, the country's highest electricity production record was set in January 2016, reaching 2,281 megawatts.

The system operator Elering has outlined the factors influencing Estonia's electricity price on its website, categorizing them into four main groups: transmission capacity, weather conditions, production capacity and primary fuel prices.

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