Shortage of production capacity causing €1,000 per MWh energy prices

Shortage of production capacity causing €1,000 per MWh energy prices. Photo: Tairo Lutter

The market price of electricity will exceed €600 per megawatt-hour on 11 hours on Tuesday, with the price on the Nord Pool exchange reaching €1,000 per MWh in the morning. But prices are shaped by manufacturers stopping consumption rather than new power capacity.

Former World Energy Council officer, member of Eesti Energia supervisory board Einari Kisel said that an energy cost of €1,000 per MWh does not mean a power plant gets to sell its output at that price. “In Finland and Sweden, major consumers start entering bids for dropping consumption as prices go up. A few manufacturers have said today that they refuse to consume electricity at this price, with the price shaped by freed up production capacity,” Kisel explained. This scheme is made possible by the fact that it makes no difference for the exchange whether deficit is covered using increased production or reduced consumption.

While peak electricity cost the same in Finland, the Baltics and parts of Denmark and Sweden on Monday, the Swedes will have to pay 50 percent less than Estonia during the morning rush hour on Wednesday, with the bottleneck on the Finnish border. “Tomorrow, the fact that there are not enough power links between Finland and Sweden will affect the price,” Kisel said. That was not a problem on Monday as all regions were short on capacity.

Bad timing

Marko Allikson, member of the board of Baltic Energy Partners, said that the weather has been hard on the power system. “The prices today are caused mainly by increased consumption due to cold weather and reduced wind energy output,” Allikson told Postimees. He added that reserve capacity is also hiking prices. “For example, the network operator has fired up a 662-megawatt oil power plant in southern Sweden,” he said.

Estonian system operator Elering said that peak consumption due to cold weather comes at an inopportune time. “Two Estonian oil shale energy blocks were either partially or completely out of commission by Monday morning, with Latvia and Lithuania each having one power plant offline. These four capacities total around 1,300 MW. Power plant components currently undergoing maintenance should start coming back up in the second half of December that could alleviate the situation,” Elering said. Einari Kisel said that the weather easing up would be of more help. “While that extra capacity would have some effect, the situation in Finland will remain the decisive factor. Sky-high prices are this week’s peculiarity. Things should ease up as the weather is forecast to become warmer next week.”

Reserves not exhausted

Elering said that while the situation is tense in the Nordic and Baltic power system, there are reserve capacities left. “Should the market be unable to cover consumption, operators have strategic regional power reserves that are not on the exchange on a daily basis,” Elering CEO Taavi Veskimägi said in a press release. The Baltic countries have emergency reserves of 750-850 MW, with reserves also in Finland and Sweden. These reserves will be used once the price hits €3,000 per MWh. Kisel said that power plants cannot dictate the price of electricity.

Growing electricity prices have made politicians uneasy. Estonian Minister of Economic Affairs and Infrastructure Taavi Aas (Center) wrote on his social media account on Monday that he will raise the issue of lowering VAT on electricity in the government. “Even though the government has already taken steps to alleviate the energy price hike, there is more we can do,” Aas wrote. EU rules allow VAT to be lowered to 9 percent.