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Friday 16.11.2018 | Name days: Glorija, Banga

Electricity prices in European countries up 20-40% this year

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe price of electricity in European countries has increased 20-40% this year. This includes a 30% increase in Latvia and Lithuania, says Latvenergo Sales Department manager Guntis Lūsis.

At the same time, electricity price level in Nord Pool region, which covers Nordic countries and Baltics, remains below the level of other European countries, says Latvenergo representative.

Lūsis said that an analysis of the general electricity price situation in Europe, including Nordic states and Baltics, shows a price increase level of 40-50%. Compared to the same period of last year, the price at Nord Pool exchange has grown 47% in the first nine months of 2018. At the same time, in Germany, for example, the price of electricity has grown 20% in the aforementioned period. In the UK the price of electricity has grown 25%, whereas the price in Denmark, which is part of Nord Pool’s region, has grown 39%.

Electricity price in Nord Pool trade regions and Germany was between 35 to 45 EUR/MWh in the first nine months of 2018, whereas the wholesale price in Baltic States was around 45-55 EUR/MWh. Similar to elsewhere in Europe, the average price increase there was around 30%.

Lūsis said the electricity market is closely linked between countries that have harmonized basic guidelines and have transparent production. With that, price fluctuations in Germany, UK and Denmark are affected by the same factors.

According to him, the main factors that affect prices are associated with global raw material markets, regional and access to production sources, as well as wind energy fluctuation, temperature or hydro energy storage changes and price fluctuations for coal and gas. Consumers’ behaviour and demand is directly affected by seasonal changes. For example, demand in Baltic States is usually down during summer when compared to autumn, when weather becomes colder. Price formation at the exchange affects electricity generation volumes based on different production methods’ fluctuating costs (wind energy, hydro energy, nuclear energy, etc.).

Lūsis added that in summer, when precipitation volumes usually reduce, hydro energy output is usually lower. Energy output of wind farms is also unstable and usually lower in summer months. All of the above factors – weather, prices of raw materials – define which power stations produce the base energy output. Electricity price level in Europe is mainly dictated by coal as fuel and its effect on the environment. Thermal power stations provide base energy output. Their production costs are used as reference prices for conventional general and renewable energy resources.

Lūsis added that as demand increases in autumn, electricity producers look at prices of raw materials and outlooks for wind and hydro energy output. When renewables are not enough to cover demand, conventional power pants step up production. The price increase observed in the last year had influenced electricity generation costs and electricity prices.

He said that Latvia has no power plants that use coal for fuel. Still Baltics are part of a single and closely integrated electricity market. Because of that, changes with production output and prices also changes import and export flow among Nord Pool member states, which is also reflected in price changes in Latvia. In the past year, European interconnection capacity has demonstrated the potential of balancing energy turnover and equalizing price levels. Each country has a local producer, import and export opportunities. In 2018 it was possible to observe that countries with a major ratio of renewable energy resources had received higher price fluctuations amplitude.

Electricity wholesale market is also affected by the weather – lasting anticyclone with hot and dry weather conditions in Central and Northern Europe and Baltics had reduce stores of hydro energy. Lasting heat and drought also means air masses move slowly, which means slow wind speed and low wind energy output. Increased usage of cooling and air conditioning equipment cause electricity consumption to go up in Europe, said Lūsis.

According to him, the aforementioned effects created additional worries – reduced water levels in the largest rivers in Europe, which made it harder to carry raw materials domestically. High temperature had also negatively affected the cooling efficiency at coal, nuclear and gas power plants.

Latvenergo’s representative said nearly all European countries were affected by the aforementioned factors, which created reduced supply of electricity and increased production costs.

He said that in the next ten, twenty years electricity producers will have to use fossil fuels, because this year proved that electricity production using renewable energy resources also requires the presence of conventional energy production as backup. «The situation is gradually becoming more unstable and unpredictable, considering how hard it is to predict weather for the next year and that global climate forecasts tend to make mistakes,» said Lūsis.

He said that this year proved that market participants were convinced that stores of hydro energy in Nordic countries are so large that they can not only balance energy production in the region but also ensure exports. Reality, however, turned out different – while in Q3 2017 there was export volume of 3 TWh observed, imports worth 0.5 TWh were observed in the same quarter of 2018.

Lūsis also mentioned that the main direction of energy flow changed when Germany started balancing demand in Nordic Countries by allowing coal power stations to work in their base regime. Compared to Q3 2017, German coal power plants’ output grew by 9% (+22 TWh) in Q3 2018.

Capacity of Nordic hydro reservoirs in Q3 2018 was lower than it was in the same period of 2017. The decrease is around 208 TWh, which is equal to Baltic States’ eight-year consumption volume (26 TWh per year). The output of Nordic hydro power plants decreased 18% (9 TWh) in Q3 2018.

He also said that the autumn season also usually means more precipitation. This means an increase of water level in reservoirs, which would improve electricity production balance.

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