TALLINN – The Estonian Competition Authority, in cooperation with the energy regulators of Latvia and Lithuania, has concluded that the Nord Pool power exchange needs to adapt its offering products and make processes more flexible on the Baltic market.
In the Competition Authority's view, it is essential to adopt an approach whereby offer lists are reopened in the event of a risk of a high market price, which would open up the possibility for market participants to modify their production offers.
On Aug. 17, the average price of electricity in price area Estonia rose to 682.05 euros per megawatt-hour, and in one hour, from 6 p.m. to 7 p.m., to as much as 4,000 euros per megawatt-hour. The Competition Authority launched an analysis to identify the reasons for the spike in the price.
The joint analysis by the energy regulators of Estonia, Latvia and Lithuania found that the sharp increase in electricity price on the Nord Pool power exchange was caused at that time by a coincidence of different circumstances, as well as specificities arising from the small size of the Baltic market. No violation of market rules was detected in the framework of the analysis.
From 6 to 7 p.m. on Aug. 17, not enough generating capacity was able to enter the Baltic market. In accordance with the rules of Nord Pool, a peak capacity reserve of 50 megawatts of the Lithuanian transmission system operator Litgrid was triggered for the whole day, which prevented the electricity price from reaching 4,000 per MWh for two more hours on that day, but did not prevent the price from hitting the cap for the one-hour period from 6 to 7 p.m.
The size of the shortfall was 2.14 megawatt-hours.
Evelin Parn-Lee, the head of the Estonian Competition Authority, said the analysis revealed that the power exchange needs a revision of processes, as several of the circumstances that led to the price spike may also occur in the future. At the same time, immediate efforts should be made to make the products offered by Nord Pool more suitable for the Baltic market.
"Flexibility must definitely be increased on the power exchange, and Nord Pool must adapt its processes and offer products to suit our local conditions," Parn-Lee said.
According to the Competition Authority, the reason for the increase in the price of electricity was a combination of factors, including transmission capacity restrictions, simultaneous maintenance and breakdowns at Baltic and Finnish generating units, low production of wind energy, low stocks of Norwegian hydro reservoirs, and the rigidity of the system of the Nord Pool electricity exchange, due to which the offers of some market participants were repeatedly rejected. The Baltic electricity market is small compared to other European Union markets, so very small changes in the market can affect the price.
Electricity prices have been rising since July 2021 in Estonia and elsewhere in Europe alike. The average price of electricity in 2021 in the Estonian price area of Nord Pool was 86.73 euros per megawatt-hour, 157.4 percent higher than the average price for 2020.
The electricity price has been affected in particular by the large increase in gas prices in the Baltic market. In addition, electricity demand has increased, the prices of carbon dioxide emission allowances have doubled, and the weather has affected the stocks in hydro reservoirs.
The Baltic energy regulators have presented the results of the analysis to Nord Pool, which has promised to improve its products and processes.