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Enefit: the three unknowns in the energy market in 2016


15.01.2016
Lithuania's energy sector faces interesting changes this year. Energy prices for business and domestic consumers will depend on the situation in three important areas: electricity and gas markets, as well as the implementation of the EU’s requirements on energy efficiency. During the next six months, three key questions have to be answered: what changes to the electricity market will be brought about by the new power links with Sweden and Poland? How long will the retrospective discount affect the gas market? What requirements for businesses will be provided for in the new law on energy efficiency?
Impact of new power links to be seen in six months

Completed at the end of last year, the NordBalt power link with Sweden and the LitPol Link electricity connection with Poland became have symbols of increasing energy independence. However, their significance will not be just symbolic: both business and domestic consumers are expected to feel the practical benefits of lower electricity prices.

That said, estimating the exact benefits of cheaper electricity is not easy. At the end of last year, electricity prices in the Nordic market were approximately 40% lower compared with Lithuania. Meanwhile, the difference between electricity prices in Lithuania and neighbouring Poland was around 9%. Integration of the Baltic states into the Nordic and Polish markets is expected to reduce the difference in electricity prices among all these countries.

All market participants expect electricity prices in Lithuania to go down. However, this change will not be significant enough for electricity prices in the Lithuanian market to match the current price in the Scandinavian countries. Customers not only in Lithuania but also in Poland will be interested in purchasing cheaper electricity. Therefore, a portion of the electricity supplied via the NordBalt link may leak to the neighbouring country.

Anyway, we see today that business consumers are already benefiting from the decrease in electricity prices that started last year. However, a more accurate estimation of the changes and the impact of the new power links will become possible within the next six months. Electricity prices for domestic consumers have decreased as well, but it will be interesting to wait for July 2016, when the National Commission for Energy Oversight and Prices will have estimated electricity price changes in the electricity exchange and will probably review the final price of electricity for domestic consumers.

Gas market still unattractive for independent suppliers

The situation in the gas market is less clear. Launched in Klaipėda last year, the liquefied natural gas terminal created an alternative gas supply, stimulated more active trade on the gas exchange and added to an already noticeable decrease in gas prices for consumers.

As of 2016, the Get Baltic gas exchange started applying more favourable pricing for participants. In theory, this should boost trade on the exchange; however, actual changes may not happen any time soon, as independent gas suppliers are in no rush to enter the gas exchange.

The main reason is the reduced gas price applied by Lietuvos duju tiekimas UAB for all consumers as compensation for the retrospective discount received from Gazprom. During the approval of the compensation procedure several years ago, a decision was taken to apply the reduced price until mid-2016. However, this date may now change due to to decreased gas consumption and a number of claims submitted by consumers. The uncertainty in the market does not encourage new independent gas suppliers to enter the gas exchange.

Enefit's experience in the Baltic electricity market and the Estonian gas market shows that in order to ensure smoother and more efficient market functioning, all participants must have the possibility to operate under the same rules and under equal conditions.

Energy Efficiency Directive to provide for new requirements when transposed into national legislation

Four years ago, the European Parliament adopted an Energy Efficiency Directive, according to which all members of the European Community must considerably improve energy consumption efficiency by 2020. EU Member States are obligated to transpose the provisions of the Directive into their national legislation. However, this process has not been going smoothly in Lithuania. As a result, at the end of last year the European Commission sent a warning to the Government of the Republic of Lithuania for its delay in implementing the Directive.

Although a draft law on energy efficiency has been prepared, it has not reached the Seimas yet. Following demands from the European Commission to act faster, the draft law is likely to be submitted to the Seimas within the next six months. The provisions of the new law will affect companies of a particular size or operating in particular segments.

Essentially, they will affect large heat suppliers and energy companies that will have to start investing in solutions aimed at increasing the efficiency of energy production, transmission and consumption. However, business consumers should also pay attention to this law because large companies will be obligated to carry out energy consumption audits. Therefore, companies may have to consider the new requirements when creating action plans and energy budgets for 2017.

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