What happened in energy this week?
Week 41 of 2022 (I. e., the week starting on 10th of October)
Baltic regulators found no wrongdoing connected to the 4,000 €/MWh power price incident on the electricity market in August. However, they would like to see technical adjustments to the exchange processes.
The first wind farm in Lithuania since 2016 started operations. This and other projects to be built soon end the prolonged wind farm drought.
The last step towards the end of state selling electricity to households is postponed until 2026. Probably unrelated, but the parliamentary elections will be held in October 2024.
Let us look at all that in detail.
Power Market Is Speaking
The Baltic energy regulators have concluded their investigation into the events that led to a mismatch between commercial electricity supply and demand on the Baltic power exchange on 17th of August. That day for an hour wholesale market power prices jumped to market’s technical maximum level of €4,000/MWh.
Regulators concluded something that seemed likely: this happened due to a “perfect storm” of circumstances and due to “peculiarities arising from the small size of the Baltic market.” No market rules violations were uncovered. Mutual suspicions or claims that the prices are "the fault of the exchange algorithm" don’t seem to have been substantiated.
The regulators did, however, call on Nord Pool to be more flexible in the Baltics. The proposal seems to be technical in nature – to add an additional procedure in case the market is threatened with another such mismatch. This is not the only possible intervention, but it seems minimal and relatively painless.
Why is this important? Well, Ursula von der Leyen was wrong when she said that “the electricity market no longer serves its purpose”. On the contrary, the European electricity market is functioning exactly as one would expect it to under such circumstances.
The power price not only indicates the upcoming power bill but also sends a signal. For a large chunk of Europe, as well as for the Baltic countries, the market has been sending a message this summer: you do not have enough power plants. And we don’t. A decade of ultra-low electricity prices and poor policies have impoverished the European – and even more so the Baltic – power generation fleet.
No solution is being offered to the Baltic countries' long-term problem: the lack of dispatchable power generation. No acknowledgement that we are doing something wrong with our fleet of power plants. This seems to be a pathology for which I would recommend urgent medical intervention.
If we think that flexible generation is in short supply now, wait until the remnants of the Elektrėnai complex in Lithuania reach the end of their natural life. And until the Isengard fires in Narva, Estonia have been extinguished. That will happen over the remainder of this decade.
Further reading:
Regulators’ statement (EN): https://www.konkurentsiamet.ee/en/news/competition-authority-nord-pool-must-offer-greater-flexibility-products-baltic-market
An earlier and fairly apt Nord Pool’s assessment of the situation (EN): https://www.nordpoolgroup.com/en/message-center-container/newsroom/exchange-message-list/2022/q3/summary-of-max-price-situation-in-estonia-latvia--lithuania-for-delivery-date--17th-august/
First Wind Farm Since 2016
E Energija has opened a wind farm in the Telšiai region. It is a 69 MW, 13 turbine wind park that took a capital investment of over €70m. It should generate some 230 GWh of electricity per year. This means a 17% increase in overall wind power generation in the country.
Company develops projects but tends not to hold on to them. The proceeds from sold projects are invested in new projects. This is what the company has done with wind farms in Šilutė and Pagėgiai. Typically, such sales are made either to larger energy companies, financial investors or large local industrial power consumers.
The new wind farm is the first project of this size, completed since 2016 and that will actually start producing electricity. This is the beginning of the end for this lull in wind power development. Estonia's Enefit Green is building a 75 MW wind farm in Akmene district. Ignitis Group is due to complete a 63 MW wind farm in the Mažeikiai district – both projects should be completed by the end of next year.
Why is this important? The launch of large-scale wind projects is important because the Baltic countries lack local power generation. It is also good to see that the development of wind farms has resumed in general. It was held back for a while by extremely low electricity prices and some more universal obstacles to wind power development: NIMBYs, bureaucracy and suboptimal regulatory environment.
The launch of a new wind farm could be a good opportunity to overhaul the procedures connected to such developments. I am sure that, if one was to sincerely commit to it, it would not be hard to find inefficiencies even before getting to the dilemmas of "environment vs energy" or "landscape vs energy". Or to the debate with the Ministry of Defence about radiolocation and interference.
Further reading:
About the new wind farm: https://www.vz.lt/pramone/energetika/2022/10/11/e-energija-baige-statyti-70-mln-eur-vertes-69-mw-vejo-parka-telsiu-rajone
Electricity Market Liberalisation Delayed
The Lithuanian state will retain it’s direct involvement in the supply of electricity to the population for a bit longer – until the 1st of January of 2026. This was approved by the Parliament. Electricity for a regulated tariff will remain available for the last batch of households that were supposed to be cut off public electricity supply by the end of this year. They will now have more time to choose when to ditch regulated tariff for an independent supplier. The government claims many more solar and wind farms will have been installed in Lithuania by 2026, making electricity cheaper.
Almost 1.2m, or about 70% of all household consumers, are already off the public supply and are serviced by an independent electricity supplier. 0.5m (30%) have not yet chosen one, of whom 431,000 are in the 3rd phase of liberalisation, the one that has just been extended. Some 63,000 consumers are being supplied on a guaranteed supply basis. That’s the emergency supply if something goes wrong with your supplier.
Lithuania has been dismantling its electricity supply monopoly since 2009. Initially companies, were brought onto the free market in three phases. Residents have formally been able to choose their supplier since 2010, but no electricity suppliers have been willing to compete with the regulated monopoly. And so, they had no services available.
The incomplete process got moving in 2020, when regulated tariff started to be phased out. Starting with the largest consumers, the monopoly stopped providing electricity to medium-sized consumers in 2022.
Why is this important? It is not entirely clear what this delay is supposed to achieve. Officially, it’s an exercise of waiting for market prices to cool down. But the high price of electricity will be reflected in the regulated tariff just as well. Besides, all households are subsidized irrespective if their tariff is regulated or not. I am sure it is a coincidence, but parliamentary elections are coming in October 2024. It is also a coincidence that, historically, the regulated tariff for households mostly decreases before elections.
Overall, the postponement of the last step of liberalisation seems to be a nervous political reaction to the public outcry that arose when households, frightened by the electricity price shock, had to choose a new electricity supplier on top. The situation has been exacerbated by politicians' habit of keeping the regulated tariff as low as possible.
The process was not smooth even before these tensions started building. It was not helped by a series of setbacks of varying magnitude. The communication campaign was less than successful, the dominant market player could not restrain itself from some dirty tricks, newcomers’ approach was sometimes peculiar. It all culminated in one independent supplier going under.
Further reading:
The postponement: https://www.vz.lt/verslo-aplinka/2022/10/10/treciasis-elektros-rinkos-liberalizavimo-etapas-atidetas-iki-2026-uju
Lessons from a decade ago (€): https://www.vz.lt/rinkos/2022/08/25/desimtmecio-senumo-pamoka-energijos-prekeiviu-gretose-nera-vietos-maziukams
What next?
A joint Estonian-Finnish LNG import terminal will be moored in the Finnish port of Inkoo and not on the Estonian coast in Paldiski. Both countries are installing berths and it was agreed that the ship would be moored where the jetty was prepared first. In the end, it still had to end up in Finland, where Gasgrid leased the FSRU from the American Excelerate Energy. The FSRU Exemplar is bound to arrive in Finland in December. A test cargo is expected by mid-month and commercial operations by January 2024.
Litgrid, the Lithuanian TSO has prepped the Alytus substation for synchronous condensers. These devices are necessary to connect the Baltics to the European power system and help maintain inertia, one of the parameters of the power system. They will also allow more solar and wind power plants to be integrated to the grid. The first two condensers will be installed at substations in Alytus and Telšiai and will arrive in Lithuania in spring 2023, becoming operational at the end of that year.