In February, Estonia launched its frequency reserve market in tandem with its desynchronization from the Russian electricity grid. Frequency reserves are critical to maintaining balance in the power system at all times.

These reserves are procured on the day-ahead market and Elering has estimated that acquiring them will cost a total of €60 million this year. In February alone, reserves cost €3 million and in March that figure jumped to €11 million.

Now, it appears that April's costs may be on par with March, Elering board member Erkki Sapp told ERR.

The challenge has been a market that is too illiquid, where expensive generation units often set the price. In multiple hours each day, prices have hit €4,000 per megawatt-hour.

According to Sapp, the contribution of Latvian generation assets to reserve markets had been underestimated. Additionally, Riga's gas power plants play a role, as they generate less heat for the city during warmer weather.

On top of that, when maintenance began in March at Lithuania's Kruonis pumped-storage hydroelectric power plant — which supplies 900 megawatts primarily to the reserve market — prices spiked, as more expensive plants had to be brought online.

As part of its desynchronization agreement, Estonia received an exemption allowing it to use the Kiisa emergency power plant as a frequency reserve until the end of 2028. This would help reduce the volume of frequency reserves it must purchase from the market. Elering had initially pledged not to use Kiisa at full capacity — 250 megawatts — but only to the extent of Estonia's reserve needs, which Sapp said varies daily and is about 190 megawatts.

Given that the monthly cost of frequency reserves has significantly exceeded earlier projections, Elering reassessed the situation and decided action was needed.

The solution was to request permission from the Competition Authority to also use Kiisa's remaining capacity — 60 megawatts up and 40 megawatts down.

That permission was granted, and as of Friday, Kiisa is now being used at full capacity to reduce frequency reserve demand.

Elering estimates the move could save €1 million to €1.2 million on some days in frequency reserve procurement costs across the Baltic transmission system operators.

"It's not a huge amount, but we don't need a lot to make a noticeable improvement," said Sapp. "We already have the reserves and the capacity. What really brings prices down is avoiding the need to start up a thermal power plant just to provide reserves. Starting one up is very expensive."

"We're not far from seeing prices return to February levels — or at least to the forecasted levels," Sapp added. He noted that the situation is improving over time as new capacity continues to come online in the region, expanding the range of reserve offerings. As a result, the potential savings could amount to tens of millions of euros.

The change is unlikely to be welcomed by some low-cost participants in the reserve market, whose opportunity to reap large profits when thermal plants are activated will now be diminished.

"They can't expect windfall profits just because a thermal plant gets switched on some days," Sapp said.

The frequency reserve costs will be covered through the end of the year using congestion fees collected by Elering. After that, the cost will be passed on to electricity producers and consumers.

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