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17.09 2015

Energy Market Overview, August 2015

Mathias Vaarmann

Market Analyst

In August, the Nord Pool Spot market area electricity prices continued to rise

In this Energy Market Overview we will have a closer look at the energy prices from August, which in Estonia and Finland rose to their highest level of recent months, whereas in Latvia and Lithuania they reached their peak for the current year. In order to obtain reasonable electricity prices, we therefore suggest you start thinking about your electricity- and gas-buying strategy for the next period.

Within the Overview we highlight plans concerning solar panels that are becoming increasingly popular, and we also discuss the weak period experienced by the Chinese economy that had negative repercussions for almost all world markets. We also tackle the ever-changing oil prices, which fell between July and August. In addition, we write about the fact that next year the import of gas to Lithuania might see a decrease, and that Eesti Energia is getting ready to produce petrol from oil shale gas.

In the last section of Market Overview we introduce a corporate client of Enefit SIA, the subsidiary of Eesti Energia that has been present in Latvia for ten years - it's the Latvian hand-made beer brewer, Stargorod.

Read more about the topics below

  • Nord Pool Spot market area electricity prices rise in August »

    Despite the fact that in August the Nord Pool Spot (NPS) area water reservoir levels stayed high, electricity costs throughout the whole region were higher than the average cost for last month. At the same time, Estonian electricity prices rose to their highest levels since May, Finnish prices rose to their highest since February. and Latvian and Lithuanian prices even reached their highest point so far this year.

    In August, the Estonian day-ahead electricity price was EUR 31.20 per MWh, which is 11.2% more than in July. From month to month the Latvian and Lithuanian prices increased by 4.8 % to EUR 46.40 and, in comparison with rates for July, Finnish prices increased even by 12.9 %, with the average Finnish electricity amounting to EUR 31.12 per MWh.

    Norway, Sweden and Denmark, the Nord Pool Spot countries best equipped with electricity production and infrastructure, are currently experiencing extremely low electricity prices. In July the MWh prices were still at one-digit figures; however, in August the prices slightly increased in these countries as well. In the Swedish market areas, prices grew to EUR 14.42 and EUR 16.69 per MWh. In Norway the price fluctuated between EUR 11.01 and EUR 13.69 and in Denmark, average prices were marked at EUR 21.91 /MWh and EUR 23.95 /MWh.

    In August, electricity prices of the NPS countries were mostly increased by periodic maintenance works of Swedish nuclear plants, i.e. the maintenance works of the Forsmarck and Ringhals plants, due to which the market lacked over 2 gigawatts of nuclear energy. In August, the Finnish Loviisa nuclear plant blocks also underwent periodic maintenance works, creating a deficit of 500 MW of nuclear energy per block and thereby increasing Finnish and Baltic electricity prices. The maintenance of the transmission cable between the Norwegian 1st and Swedish 3rd market area also had an impact, as this limited accessibility to hydroelectricity produced in Norway in the other NPS countries.

    The price increase caused by maintenance works was counterbalanced by the continued ample output of hydroelectric plants. This year the Norwegian reservoirs have had an extremely quick fill-up with water. By the end of August, an 89.2% uptake of water reservoirs was reached — this is quite close to the record of the past 20 years – 93.9%. Due to ample water reserves and fast river flows, hydroelectric plants have been forced to produce energy regardless of the level of demand. Circumstances have pushed the price of electricity down to a couple of euros per MWh during some hours.

    Area Average
    €/MWh
    Change compared to
    previous month
    Minimum Maximum
    Nord Pool Estonia 31,2 11,19% 3,38 77,14
    Nord Pool Finland 31,12 12,88% 3,38 77,14
    Nord Pool Latvia 46,4 4,84% 5,16 77,14
    Nord Pool Lithuania 46,4 4,84% 5,16 77,14
  • Choosing a buying strategy should not be a last minute decision »

    September is the month when many of the electricity- and gas-buying contracts need to be prolonged for subsequent periods. Edvardas Štabokas, sales project manager at Enefit, recommends thinking about one's business needs for subsequent periods now and consulting with account managers that can help establish the best energy-buying strategy. "With our service portfolio, we are ready to offer individual solutions that cover the needs of the client and the energy price risks, so that each client can find an energy-buying solution that fits their needs," Štabokas explains.

    Enefit offers its clients electricity- and gas-buying opportunities, and Štabokas suggests contacting account managers to find the best solutions.

  • Solar power is becoming a more affordable renewable energy source »

    In August the International Energy Agency (IEA) announced that by the year 2020 it foresees a price decrease of renewable energy sources and solar panels in particular. Compared to modern energy technologies, this makes the technology of renewable energy sources more competitive.

    The IEA announcement was made at a time when the governments of several large European countries (including e.g. Great Britain) are reducing subsidies for renewable energy sources. Therefore, the announcement of the Energy Agency supports the plans of those governments, as developing renewable energy sources requires increasingly fewer subsidies.

    Solar panels. Source: taastuvenergia.ee

    According to IEA, the price of solar panel production (including construction and maintenance) will drop to USD 200 per MWh. It was only five years ago that producing 1 MWh cost USD 500. By 2025, for large collections of panels, IEA foresees a price drop to less than USD 100 per MWh. By the year 2030, the prices of solar panels installed on the roofs of private homes may drop to USD 95–110 per MWh.

    According to the Energy Agency, during the next five years, of all the renewable energy sources, the prices of solar panels will drop the most, but wind generators built on mainland areas will still be the cheapest overall.

    The same day that IEA published their announcement, the French Energy Ministry also released their press release stating that France is raising its goals for the number of solar panels installed by the year 2020 to 8 000 MW (instead of the earlier 5 400 MW). Due to decrease in the price solar panels, by the end of 2014 France achieved 5 300 MW panel capacity. Meanwhile, Germany had only 38.5 GW solar panels installed.

    The US, led by its president Barack Obama, have also set a clear goal of increasing the relative importance of renewable energy — in order to fight climate change, Obama promised more support for renewable energy sources. In August, the US revealed new monetary support for the development and use of solar panels.

  • World markets shaken by China's weakened economy »

    In August, the world markets were shaken by a panic that started in China; the liquid fuel and currency markets did not go unaffected. The increasingly weakened Chinese economy and the related rapid fall of its the stock exchange markets made world markets fear that this sudden breakdown might possibly also include other economies of the Asian region, which would then weaken energy and raw material demand around the world. This is why in August the price of crude oil fell to its lowest level for the past six and a half years. In August, the prices of some other raw materials also reached their lowest point. On August 24, Brent crude oil dropped to USD 42, experiencing a drop of more than 6% in a single day. At the beginning of August, crude oil stayed at around USD 50. At the beginning of July, a barrel of crude oil still cost USD 60. The rapid fall was followed by an even faster rise. On August 27, the price of crude oil recovered by more than 10% in one day, which was also the biggest daily rise of Brent within the past six years. During the next trading day, crude oil rose by a further 5% and on August 31, the price rose by another 8.2%, closing at USD 54.15 per barrel. A price spurt like this also denoted the fastest price rise of Brent crude oil since the year 1990.

    An extremely fast price rise was caused by the decrease in the US oil production figures for the first half of the year drawn up by the Energy Information Administration (EIA) of the USA, and also the OPEC announcement expressing a willingness to discuss low oil prices (including limiting production) with other crude oil producers. Prices were also increased by the globally rising stock exchange markets that found new strength after the Chinese government announced their intention to intervene in national markets.

    However, the rapid rise of oil prices was not sustained. On September 1, the price fell once more by more than 8% within one day, finishing at the level of USD 49.56 per barrel. The weak industry reports of China, USA and Europe brought decline to the extremely volatile markets, which also downturned global stock exchange markets.

    As a result of trading in August, by the last day of the month the price of oil increased to USD 54.15 per barrel. The price was 3.7% higher than at the end of July, when barrels cost USD 52.21 each.

    The volatility caused by the Chinese economy did not leave currency markets untouched either. Temporarily, the value of the euro grew to its highest level for the past 7 months and, according to the European Central Bank, on August 25 it rose to USD 1.1506. On August 19 the rate was still USD 1.1183 per euro. The rapid rise was caused also by the demand for euros as a result of concerns over the Chinese economy. Due to low European Central Bank interest rates, the euro is currently a 'safe' currency for investors.

    For the remainder of the trading days, the financial markets became much calmer, which quickly caused a decrease in the value of the euro. By August 31 the euro value had again dropped to USD 1.1215. From month to month, the value of the euro rose by 2.3%.

  • News from the Baltic States »

    Next year the import of gas to Lithuania may experience a downturn

    In August the Lithuanian business paper "Verslo Zinios" announced that next year, Lithuania intends to import 35–40% less of LNG through the Klaipeda terminal that opened last year. Its reason — declining demand.

    Initially, the plan was to import 540 million cubic metres of gas to Lithuania via the Klaipeda terminal. Next year the amounts may fall to 320–350 million cubic metres. The Lithuanian LNG importer Litgas currently has a 5-year contract with Statoil, according to which they buy 540 million cubic metres of gas per year. Litgas has the right to sell the amounts of gas they do not need to European gas markets.

    Last year Lithuania opened the Klaipeda LNG terminal to reduce the dependency of Lithuania and other Baltic States on Russian gas. Due to warm weather, gas demand in the Baltics has diminished in recent years. Biomass is also being used more often in heat production instead of gas.

    Elering, the Estonian main transmission network operator, announced in August that in July, gas sellers imported 4.4 million cubic metres of gas from Lithuania to Estonia, which amounted to 24.9% of all Estonian gas imports. In addition to Eesti Energia, Baltic Energy Partners, Reola Gaas and Viru Keemia Grupp also imported gas from Lithuania in July. As a result, in July 17.6 million cubic metres of gas was imported to Estonia from Russia by Eesti Gaas, which is 1.7% less that the same month last year.

    Eesti Energia prepares to produce petrol from oil shale gas

    At the beginning of September, Eesti Energia announced a tender for the design of machinery for extracting petrol from oil shale gas. Adding an extra device to the Enefit140 and Enefit280 oil plants increases the yearly production of liquid fuel by the oil industry by 10%. Oil shale petrol produced from oil shale gas can be sold to refining plants for producing motor fuels and to the chemistry industry as raw material.

    In 2014, Eesti Energia produced 265 000 tons of liquid fuels and 0.9 TWh of oil shale gas. During the first half of 2015, liquid fuels production reached a record of 158 000 tons. Today the main consumers of liquid fuels are heat producers and producers of fuel for ships.

  • Latvian handmade beer brewer Stargorod: Optimising costs is the key »

    Stargorod is a Latvian beer brewer and restaurant that offers handmade beer and exciting taste experiences in a restaurant located in Riga. Handmade beer is brewed in the restaurant so that clients can see the production process and enjoy the experience in a 300 year-old historic building near the Daugava river. The handmade beer restaurant belongs to the Stargorod chain of restaurants, the first of which was opened 10 years ago in Kharkov, Ukraine. The next one was opened in Lviv, Ukraine and the third one in Riga. Further restaurants were later opened in Russia as well.

    According to Kirill Filatov, the financial specialist of Stargorod, there are several other beer producers in Riga, but Stargorod is special because the raw material for beer is imported from Czech Republic. "During production we use classic technology, which means that the beer is fermented and kept in different containers, which in turn means that we need lots of machinery. At the same time we respect traditions, so the beer is not pasteurised, stored or filtered," Filatov explains.

    In their restaurant, Stargorod offers a special menu compiled to match the locally made beers, enriching their taste and making sure the clients enjoy the best experience.

    Filatov emphasizes that for a seasonal company like Stargorod, finding new opportunities and developing them in order to enhance and renew produce offerings is business as usual. "In order to be original and make our restaurant unique, we constantly try come up with new tastes in our beers and food," Filatov explains. He adds that in addition to new tastes, the company also highly values the quality of customer service and the opportunity to positively surprise clients during their every visit, be it with a new show or topical evening or with a restaurant full of musical experiences.

    Filatov explains that due to the seasonality of the business environment, both planning and making use of operative ideas are regular aspects of their business. The company's energy consumption can mostly be divided between two energy uses — beer production and upkeep of the restaurant. Due to beer production, the company has several additional costs related to special machines and freezers, whereas restaurant costs include expenses incurred mostly for the purpose of customers comfort — heating, lighting and air conditioning, etc.

    In order to better manage energy costs, Stargorod chose a product with a fixed electricity price. "We made this decision because we found that in our business it is difficult to constantly change the activities of personnel and machinery based on so-called 'off-peak' hours." "This inevitably means that we cannot always take advantage of the hours with the best prices, but all in all we found that, when planning energy costs, the fixed-price offer was the most optimal solution for us," Filatov concludes.

    For two years now, Stargorod has been the customer Eesti Energia subsidy Enefit SIA. "The suitable energy solution and service offered by Enefit have served as motivators for our cooperation. This involves constant information exchange regarding the energy market, prices and other necessities," Filatov emphasises.

This market overview has been prepared according to the current market knowledge of the Eesti Energia analyst. The information provided herein is based on public information and sources mentioned in the report. The overview is presented as informative material and in no way does it constitute a promise, proposition or official prognosis from Eesti Energia. The opinions presented in the market overview are subject to change and the person presenting them reserves the right to make changes to them. Given the rapidly changing regulation of the electricity market, this market overview or information provided herein is not final and may not comply with situations that may arise in the future. The market overview does not create, end, or change legal relations (including contracts). Eesti Energia is not liable for any expenses or damages which may occur in relation to the use of the information presented in this market overview.

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