As winter approaches, many people ask the same question: will electricity become expensive again? The honest answer is that no one knows for sure. Consumers can only decide whether to take on the risk of winter price spikes or hedge against it with a fixed‑price contract.

What is certain is that electricity prices are usually higher in winter than in summer. Colder temperatures and heating needs significantly increase demand, and unlike summer, the market lacks large volumes of cheap solar energy.

Still, it is very difficult to say how high prices will climb this winter. Should we expect a repeat of the exceptionally high prices seen in January and February 2026, or something more typical of a mild winter? Let's look at the factors that could push prices toward one scenario or the other.

Three drivers of price increases: gas, water reserves, and carbon quotas

Compared with the past couple of years, the risk of rising electricity prices is noticeably higher this winter. Several factors have converged.

First, the electricity market is affected by high gas prices. Over the past year, global market developments and tensions in the Middle East have pushed gas prices up by nearly two and a half times. In addition, Europe's gas storage facilities are only 67 percent full heading into autumn — the lowest level since 2011, when storage statistics were first collected.

Although Estonia itself produces relatively little electricity from gas, price formation in the European electricity market often depends on the production costs of gas‑fired power plants. When gas plants cover peak demand, they frequently set the market price.

This means high gas prices are not just a problem for gas consumers. When the production cost of gas‑fired electricity rises, it feeds into wholesale electricity prices and ultimately into consumer bills. Last September, the variable cost of a gas plant was around €100/MWh; today it is already at €180/MWh.

This means gas plants — which often cover peak loads — enter the market only when the price rises above €180/MWh. Considering additional taxes and fees, electricity costs consumers more than 21 cents per kilowatt‑hour when gas plants set the price.

Second, Nordic water reserves are a concern. Due to an exceptionally cold winter and a hot, dry summer, reservoir levels in the Nordic countries are at their lowest point in 30 years heading into autumn. As a result, cheap hydropower may be scarcer than usual this winter.

Hydropower has long been one of the main reasons Nordic electricity prices often stay below those in continental Europe, as dispatchable hydropower can effectively push down peak prices.

If water reserves do not improve significantly during autumn, Nordic prices may move closer to continental levels. In that case, Estonia's ability to import cheaper electricity from the north would diminish.

Third, CO₂ quota prices have risen. This increases the costs of fossil‑fuel power plants across Europe and raises the price level at which gas, coal, or oil‑shale plants offer electricity to the market.

Favorable weather could prevent the worst

These risks do not automatically mean a very expensive winter is guaranteed. Weather is increasingly the biggest force shaping the electricity market. A rainy autumn could improve Nordic water levels. A windy winter would boost renewable‑energy production. Warmer winter months would reduce energy consumption. All of this would lower demand for expensive gas‑fired electricity.

There will also be a positive impact from the renewable‑energy capacity and batteries added to the Baltic market this year. New wind farms in our region will produce roughly the equivalent of three Auvere power plants (900 MW), and an additional 500 MW of batteries will help stabilize prices. As a result, in a windy and mild winter, we could see entirely average — if not outright favorable — electricity prices.

We have already seen the positive effect of wind power this month: thanks to good wind conditions, electricity prices have remained 35 percent lower than last year, despite rising gas prices and low Nordic water reserves. Last December, strong wind production kept prices twice as low as in January. Therefore, if the wind dies down this winter and deep cold arrives, we will likely see even higher prices than at the start of this year.

Price risks or fixed‑price contracts

The energy market is becoming increasingly volatile, with price swings occurring not over months or weeks but in 15‑minute intervals. Prices are influenced by numerous often unpredictable factors, from geopolitics to weather. In such conditions, consumers must assess their ability to cope with fluctuating prices and risks.

For those who value predictable costs and want to avoid potential price spikes, a fixed‑price electricity contract is the most suitable option. Ahead of a risk‑heavy winter period, fixed‑price packages are indeed more expensive than usual, but if risks materialize, consumers are protected from extreme prices.

A market‑price contract suits those willing to accept risks and temporarily higher bills during winter months, and who can shift their consumption to cheaper hours.

Even energy experts and traders cannot say whether a fixed price or a market‑price package will ultimately be cheaper. It depends on consumption patterns and actual market prices. But a household that consistently uses the most electricity during morning and evening peak hours — as most people do — is quite likely to benefit from choosing a fixed price.

It is often assumed that because fixed‑price packages include the electricity seller's profit margin, customers with fixed contracts always lose compared with market prices. Last winter proved the opposite: due to cold weather, fixed prices set in autumn ended up being lower than the average market price.

--

Follow ERR News on Facebook and X and never miss an update!