The risk of short-term high electricity prices this coming winter is at least as great as last year, said Marko Allikson, a member of the management board of Baltic Energy Partners.
Marko Allikson said on the talk show “Esimene stuudio” that forecasts indicate average electricity prices this coming winter will be around €100 per megawatt-hour, which is similar to last year’s levels. However, the risks of sharp price fluctuations remain.
“If we compare where we are today, ahead of winter, with last year, the price of CO2 is €20 per ton cheaper, gas is cheaper than it was a year ago and there is more renewable energy – we’ve added more wind energy,” Allikson explained.
“But what hasn’t increased is the number of power plants capable of generating electricity during very cold and windless periods. So, the risks of short-term high prices during cold and calm weather are at least as great as last year, and the Finns even think they may be higher. For example, a 500-megawatt coal power plant in Finland has been placed on reserve. This means that base energy, when there is no wind, won’t be easy to source in the region, and it will be expensive,” he added.
Allikson noted that determining what constitutes a reasonable electricity price is difficult.
“Maybe, in the long term, a reasonable price depends on the perspective of who’s assessing it. From the industry’s point of view, Estonia’s price should be closer to Finland’s, not €20 to €30 per megawatt-hour higher on average, as it is now. This difference means that our energy-intensive industries are less competitive. For private individuals, I hope that a reasonable price is one that doesn’t make you think about electricity costs every day. What that level is depends on each person’s income. Fortunately, electricity usually isn’t a major part of daily expenses,” he concluded.
Allikson acknowledged that the difference in electricity prices between Estonia and neighboring countries is likely to persist for several more years. He explained that Estonia’s electricity system is heavily dependent on weather, particularly wind.
“Recently, we’ve had less wind, and the price gap [with Finland] emerged immediately. There was some wind in Finland, but insufficient wind in the Baltics. However, the situation will improve a bit tomorrow. Hopefully, Auvere [power plant] will be back online in a few days, and the Lithuania-Poland connection will be restored by the end of the week, which should reduce the price differences,” Allikson said.
“A few days ago, we even had negative prices during certain hours. This is how things go, and unfortunately, it will continue like this for the foreseeable future,” he added.
According to Allikson, the situation could be improved if Estonia had more energy storage solutions.
“Compared to neighboring countries, including Germany, the gap between our minimum and peak prices is one of the largest. This indicates that storage solutions have a lot of potential in Estonia. The opportunity exists to buy when prices are low and sell when prices are high,” he explained.
Allikson also noted that the planned disconnection of Estonia’s electricity system from the Russian system, scheduled for February next year, is unlikely to directly affect electricity prices, and from a technical standpoint, market participants should not be concerned about desynchronization.
“All preparations should be complete, and it is primarily a technical event that regular consumers should not feel. From a market perspective, desynchronization won’t directly impact electricity prices. What will have the most impact this coming winter, as it did last winter, is the weather. As we saw at the beginning of January, extremely cold weather drove prices very high, close to €2,000. If the same happens this winter, prices could again rise sharply, even without desynchronization,” he said.
Regarding whether consumers should fix their electricity package or stay on the market in light of desynchronization, Allikson said it’s difficult to make a specific recommendation, as it depends on each consumer’s needs.
“It really depends on whether a person is prepared for the possibility that electricity prices might be high at certain times and negative at others. If they are able to manage their consumption, then a market-based package will undoubtedly provide the best price over the long term. However, fixing the price offers peace of mind and helps with budgeting. For businesses where electricity is a key input cost, fixing the price is definitely the right choice,” he explained.
Allikson noted, however, that desynchronization will impact the margins of market-based packages. “This is primarily because balance costs will likely be higher. We will have to maintain our own balance. There are already fewer power plants in the region that can flexibly provide the kind of products needed to maintain balance, and our separation from Russia, which has played a major role in maintaining that balance, means there will be fewer suppliers, and prices for this service will rise. The risk of higher balance costs is quite clear,” he explained.
Additionally, at some point, frequency reserve charges will be added. “At the moment, their implementation has been postponed for at least six months, but eventually, it will come. The initial plan was around €5.31 per megawatt-hour for both producers and consumers. Under the new plan, there will be no additional costs for the first six months, after which a partial charge will be applied to consumers, along with an imbalance surcharge. But I believe there will be many discussions ahead about what is actually fair,” Allikson concluded.
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