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Wednesday 23.08.2017 | Name days: Valgudis, Ralfs, Vitālijs

Electricity market liberalization: similarities and differences between Latvia and Estonia

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUOne of the main actualities to hit the headlines in Latvia at the beginning of 2014 is the liberalization of the country’s electricity market. Even though the Saeima has approved amendments to the Electrical Energy Law and postpone the liberalization of the market until January 1, 2015, this decision has not reduced the importance of this matter.

‘The liberalization of the market in Estonia had caused an increase of electricity bills in the country. However, at the same time the level of competitiveness there has already reduced the prices there. In 2013, the price per 1 kWh in Estonia had increased by 28.7% in comparison with 2012. According to Estonia’s economic and monetary policy outlooks, initial expectations showed only a 20% increase. The electricity price increase formed approximately 1% of the country’s total inflation,’ – explains economist of the Bank of Latvia Linda Vecgaile.

‘Prior to the liberalization of the electricity market in Estonia, the Finance Ministry predicted that the impact of this event on the total inflation would be 0.65 percentage points. Estonia’s Eesti Pank admits that the country’s inflation is expected to reduce in 2014. This is likely because of the end of the impact of the liberalization of the electricity market,’ – as reported by makroekonomika.lv.

The economist notes that Estonia’s electricity is supplied by Russia, Latvia and Finland. In addition, it is planned to set up NordBalt electric power cable between Lithuania and Sweden in 2016. This will help to integrate Estonia’s electricity market with that of the EU.

Latvia is supplied with electricity from Estonia (two 300MW power cables), Russia (300 MW) and Lithuania (330 MW). It is planned to construct an additional power line with Lithuania in 2016.

‘Electricity bills in Estonia consist of network operator’s costs (36%), excise tax on electricity and VAT (21% together), tax on renewable energy (10%) and costs of electricity (33%). In Latvia, however, components that make up the electricity bill include: network operator service (34%), VAT (17%), mandatory procurement component (16%) and electricity costs (33%),’ – explains the bank’s expert.

‘A comparison of components that make up electricity bills in Estonia and Latvia, some differences can be noticed. They are not significant. It should be noted that electricity bills in Latvia do not include excise tax. There are currently 12 companies in Estonia that sell electrical energy to households. In Latvia, on the other hand, there are only four licensed electricity traders,’ – says Vecgaile.

‘If we look how the liberalization of the electricity market in Estonia improved the diversity of electricity traders in the country and improved competitiveness, we can conclude this method is positive. For example, Eesti Energia (had the monopoly before the market’s liberalization) continues to lose customers. Current information shows the company lost 11 percentage points of its customers since the opening of the market. The number of contracts Estonian households signed with other electricity traders in the country fluctuates in regard to every month. This may be because households use the opportunity provided to them and re-sign contracts with new traders, who often provide much better offers. For example, Elektrum’s market share was 9.6% in December 2013 and that of January 2014 was 14.6%.

A brief evaluation of liberalization of Latvia’s electricity market shows that its postponing will impact inflation trends: it is likely to reduce inflation this year and increase it next year. This kind of fluctuation suggests uncertainty and makes it hard to make economic decisions.

In addition to that, the postponing of liberalization of Latvia’s electricity market will affect Latvia’s image as a cooperation partner. Four traders were issued licenses that allow them to trade electricity in Latvia. However, considering the government’s decision to postpone the market’s liberalization, these traders will have to put off their plans. It is also important to keep in mind that June 17th, 2009, marked the signing of a memorandum with the European Commission about the Baltic Energy Market Interconnection Plan. This plan includes the agreement regarding a gradual liberalization of the electrical energy market in the Baltic States. This will cancel the regulated end tariffs until 2015,’ – concludes Vecgaile.

Ref: 102.109.109.4782


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