Consumers should watch the hourly electricity price as exchange fluctuations may cut price ten times lower, advises Eesti Energia CEO Hando Sutter.
At the currently low electricity prices, Eesti Energia would be willing to sell electricity into Russia but bumps into political risk.
Despite the drop of oil price, Eesti Energia’s oil shale biz proved so successful that the company is preparing the next Enefit 280 technology based plant in Auvere by beginning of new year. Should the Jordanian oil shale project be a success, the company will sell its technology into China. Meanwhile, the stalled project in Utah, USA threatens Eesti Energia with assets discount.
- In June, the lowest electricity price was €27.3 for megawatt hour, which is less that the last regulated price in 2012. What was the electricity price impact on lay-off of two hundred miners?
As we started with the new board, we noticed that oil shale price had risen to be above €5 Mwh. For 2018, the prognoses were showing oil share price rise tempo in two digit percentages. We had to find a solution to make production of oil shale more effective and halt the rise of production price. The lay-off of miners at Estonia Mine is linked to the switch to new technology, wherefore less staff was needed.
-How long will the current low persist, in electricity and oil price?
Probably, oil prices will stay low for a long time, and may drop even lower.
With the current price of electricity, which may last till the fall, producers cannot offer it for very long. As electricity produced by wind and water enters the market in the summer when consumption is low anyway, the Narva power stations have no room on the market any longer.
As we are on the common Baltic-Nordic electricity market, we need to consider that here 60 percent of electric energy is produced in hydro stations. In the Nordics, reservoirs at power stations have filled up fast and, by producing electricity, they are making place for new water to avoid the tanks overflowing – so to speak.
At the moment, lots of thermal power stations have been shut down for good in the Nordics, and should the winter be cold and the rainfall scarce, the prices may skyrocket fast.
-What would be the correct consumer behaviour?
Consume during the cheaper hours. In the night, electricity is cheaper than during the day. If possible, put some activities off till night-time, you’ll save money. Currently, hourly electricity prices fluctuate between six and 60 euros. If a consumer succeeds in using the six euro hours and skip the €60 hours, he will bring his power bill really low.
The price fluctuations are seen in Eesti Energia mobile app where one may daily monitor and manage his consumption. And as Elektrilevi has already installed remote-readable meters to over half of Estonian consumers, I advise to watch the hourly consumption, not the daily or monthly.
Since the hourly fluctuations will remain large even in times to come, it makes sense to invest in energy storages or heating systems allowing to heat in the cheaper hours and switch them off when electricity is dear. Electricity being cheap at the moment, why not heat water with electricity, not with oil boilers.
-How did you manage to boost Eesti Energia’s shale oil sales while the oil prices are low?
With the current $50 barrel we still manage to stay on the market. Meanwhile, many producers are cutting their operations.
In first half this year, we produced 158,000 tonnes – about a third of increase, year-on-year.
The combined cycle of the new Enefit 280 oil plant, where we simultaneously produce oil, electricity and gas, has helped us to keep electricity price competitive. This way, effectiveness of oil shale use is close to 70 percent i.e. twice what we had in the old oil shale boilers.
As we prepared our 2015 oil production prognosis at the lowest market situation, the first half year price has been above what was expected. The first significant oil price drop happened in December-January. After that, the oil price recovered and even rose to $70 a barrel in March-April. Now, at the end of July and beginning of August, oil has again dropped to almost New Year levels.
-What allows the labour-intensive shale oil to compete with crude oil which only takes a hole drilled in the right place?
Our edge is the technology. The cheap and easily accessed oil is beginning to run out. Every new find requires ever greater investments, affecting the price.
We are sticking to the plan to get Enefit 280 working at designed capacity before the year is over, to be ready in the beginning of the new year for the decision to invest into building the next plant. From decision, completing a plant takes three-four years. The new plant would use two million tonnes of oil shale a year, provide employment for over 50 people, and indirectly outside the group to several hundred probably.
-Electricity production in Russia has become more expensive than in Nordics, and the Finns are already exporting electric energy to North-West Russia. What do you see regarding Eesti Energia’s options for export to Russia?
Economically speaking, it would make sense to buy from the Baltics in a situation where in the Baltic and Nordic regions electricity is as good as free, and in Russia the production price is much higher.
Among the Baltic Sea nations, Estonia has the best conditions for electricity export into Russia. We have very good and working transmission lines with Russia, with wattage over 1,000 megawatts. The Narva stations are very close to the rapidly developing market.
In Nordics and Baltics, in the five-ten years perspective, supply of electric energy is developing faster than consumption. The only place where consumption is growing faster and production capacity is insufficient is the very North-West Russia. Thus, technically and also economically, this is also an opportunity for Eesti Energia.
Politically speaking, the attitude in the Baltics is that the less often you mouth the word Russia the better. Compared to us, the Finns have taken a much more pragmatic approach and, in the situation where none else is too willing to do business with Russia, have begun to take advantage of the opportunities.
-In what shape are Eesti Energia’s oil shale projects in Jordan and USA?
The Jordanian project has reached a decisive phase: we have found financers among Chinese banks, entered a electricity sales contract with Jordanian government for 30 years, while also entering contracts with suppliers of world class technologies. By the end of the year, we may arrive at the conclusive financing decision.
However, Eesti Energia is exiting the Jordanian project and we are currently in negotiations to get worthy compensation for the ten years of work.
In Utah, USA, we have 12,250 hectares of land and 6.4 billion tonnes of oil shale capacity. At the moment, we lack a good plan to put a prudent content to the Utah project, as the lonely part of USA has no grid where to sell the electricity.
We have ordered a complementary audit and by the third quarter results in the fall the board will know whether we will be forced to downgrade our Utah assets.
-How do you intend to use the experience gained in Jordan and the USA?
China is a place with lots of oil shale and where they want to do something with it. They are very much interested in our experience. On Tuesday, I will be meeting the Chinese ambassador.
We have dome technology developments in China, and have tested their local oil shale, but we will first have to see how we will do in Jordan, and how Enefit 280 launches. Even if getting involved in some foreign projects in the future, we will rather be developers of the projects with our experience, but will not make large investments ourselves.