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15.12 2015

Energy Market Overview, November 2015

Mathias Vaarmann

Market Analyst

In November, electricity prices increased in Sweden and Norway but decreased in Finland and the Baltic states

In this market overview, we explain the changes in electricity exchange prices, talk about the state of the oil market and provide our readers with information about important news from the Baltic energy markets. Enefit’s client RETAL Lithuania will share its experience regarding the management of energy costs.

Read more about these topics below

  • In November, electricity prices increased in Sweden and Norway but decreased in Finland and the Baltic states »

    In November, the Nord Pool Spot (NPS) market area prices for Estonia, Finland, Latvia and Lithuania experienced a decline. Compared to the October average, prices dropped 6% in Estonia, 5.2% in Finland and in 19% in Latvia and Lithuania. Hence, the average price was EUR 32.88 per megawatt-hour in Estonia, while it was EUR 31.74 per megawatt-hour in Finland, EUR 45.76 in Latvia and EUR 45.84 per megawatt-hour in Lithuania.

    Compared to October, prices increased in Nord Pool Spot’s largest markets, Norway and Sweden. In Sweden, the October average was EUR 23.30, while it was EUR 21.50 in Norway. In November, however, these prices increased to EUR 25.00 and 24.00, respectively. The prices of Denmark’s two market areas decreased from EUR 26.50 in October to EUR 25.60 in November.

    23 November was nearly twice as expensive as usual, as the two market areas saw a daily average price of EUR 63.34. During the two most expensive hours of the day, 1 megawatt-hour of electricity cost EUR 150.06. This was the highest price for electricity so far this year. That same day, the system price for the Nord Pool Spot market also saw a very rapid rise, increasing from EUR 27.50 from the previous day to EUR 41.14.

    Area Average
    Change compared to
    previous month
    Minimum Maximum
    Nord Pool Estonia 32,88 5,98% 12,78 150,06
    Nord Pool Finland 31,74 5,23% 12,78 150,06
    Nord Pool Latvia 45,76 18,92% 16,96 150,06
    Nord Pool Lithuania 45,84 18,78% 16,96 150,06

    On 23 November, three factors pushed Spot prices higher. First, there was a rapid drop in temperature in the countries of the Nord Pool Spot area. Second, little production was seen from wind generators. And finally, on top of all this, the most powerful nuclear reactor in the Nordic countries, the 1,400 MW Oskarshamn-3, was down for unscheduled maintenance due to a technical fault. These three aspects conspired to raise electricity prices, as the market had less than its usual supply to meet rapidly growing demand.

    The postponement of seasonal maintenance on two other Swedish nuclear reactors, Ringhals-2 and Forsmark-3, also had an impact on NPS market prices. With a combined output of more than 2 000 MW, the two reactors were supposed to start working already in October or at the beginning of November. According to information available at the time of writing, they are not expected to go back into production again before the the second half of December. Colder winter temperatures drive up the demand for electricity considerably, as electric heating is very widely used in NPS countries. The delay in getting the nuclear reactors ready for production has thus made it more difficult to satisfy the increased demand. As a result, electricity prices can, at times, be higher than usual.

    In November, Swedish and Norwegian prices were higher compared to October, while the prices in Finland and the Baltics were lower because the four countries had better access to nuclear and hydroelectricity produced in Sweden and Norway. In October, maintenance was performed on the Swedish-Finnish cable. As a result, a decreased amount of that cheap electricity moved from Sweden to Finland and from there to the Baltic countries.

    Maintenance on EstLink-2 (which lasted a day and a half) had an impact on electricity prices in Estonia, Latvia and Lithuania and increased the gap between the prices in Estonia and Finland. Due to an overload of the Estonian-Latvian cable, the Latvian-Lithuanian connection was limited as well. As a result of limited transmission capacity between Latvia and Lithuania, prices in the latter exceeded those of the former, thus creating an average price difference between the two countries for the first time since this past April.

  • Enefit: TOP4 in most valuable Baltic companies and TOP5 energy supplier in Lithuania »

    We have a great pleasure to announce that according to the Prudentia and Nasdaq Riga’s ranking, Enefit together with its corporate Eesti Energia holds the 4th position in the TOP10 of Baltic most valuable enterprises. Currently, Enefit UAB also belongs to the TOP5 energy suppliers in Lithuania.

    In order to offer the best service and products, we conduct yearly customer surveys to get the feedback and thoughts from our clients. This year Enefit UAB carried out a customer satisfaction survey together with TNS Emor, with the participation of 464 large and medium-sized companies, who’s assessments also confirm that Enefit’s offers are valuable to the clients. “We have put a lot of effort into changing our service model to be even more advisory in its nature,” explains Janis Bethers, the head of UAB Enefit.

    The survey reveals that business customers of Enefit have given higher positive ratings to the competitive pricing and proposals, since they meet the customer’s needs. “We are really glad to receive this kind of news,” says Bethers. “Having achieved great results this year does not mean that we are going to rest on our laurels. In order to maintain and raise client satisfaction, we must contribute to the seamless functioning of our main processes and to the development of customer-based service even more.”

    Enefit UAB holds the fifth position on Lithuanian energy market amongst energy suppliers, who sell electricity in business segment. Also, Enefit was recently awarded by Lithuanian Credit Bureau “Creditinfo” with a certificate “The Strongest in Lithuania 2015” that reassures the companies of our management reliability and fulfilment of financial obligations. Only 5% of Lithuanian companies have been rated at the same credit rating level.

    However, the survey has brought out that besides electricity, 84% of clients are also positive about opening the Lithuanian gas market to the competition. “Our survey showed that 55% of company representors that had positive attitude towards gas market opening, feel that the competition on the gas market is definitely a good thing,” Bethers explains. He adds that clients, who felt positive about the gas market opening, also see a price decrease as a positive result of the gas market opening (44% of the clients that answered positively).

  • Lithuania has started testing new electricity connections »

    In November, Lithuania started testing two new electricity connections, NordBalt and LitPol Link. In November and at the beginning of December, the first electricity from Sweden and Poland reached the Lithuanian market. The testing period for the 700 MW NordBalt and the 500 MW LitPol Link connections, which connect the Lithuanian electricity market with the Swedish and Polish markets, started almost two years after the test period for EstLink-2 started. EstLink-2 has helped considerably lower Estonian electricity prices, and NordBalt and LitPol Link are expected to have a similar impact on Latvian and Lithuanian electricity prices. In the context of new connections, Estonian prices may become even more harmonised with Finnish prices because NordBalt helps share the load of EstLink-2 when transmitting Swedish and Norwegian nuclear and hydroelectricity into the Baltic states.

    NordBalt’s operations can lower Latvian and Lithuanian prices from last year's average of EUR 40/MWh towards a price limit of approximately 40 EUR/MWh. Poland’s LitPol Link, which is going to be opened at the same time, may limit price decreases since prices in the Polish market may rise during certain time periods. In addition to the impact on prices, the new cables will lessen Lithuanian dependency on Russian energy.

    Existing, new and planned electricity market connections

  • Oil low again, dollar had a strong month »

    In November, Brent crude oil showed a continuous downward price trend After a month of trading, the price of crude oil decreased by 10%, dropping from the October level of USD 49.50 to USD 44.60 at the end of November. The first days of December saw an additional decrease and by the end of trading on 2 December, oil cost USD 42.50 a barrel, which was also its lowest price this year. At the beginning of November, the price of oil ticked slightly above USD 50, but this was down from around USD 70 in May.

    In the middle of the month, the price of oil shot up after Turkey shot down a Russian warplane. This caused a short-term scare in the markets, as there was fear that the Middle East might be destabilised and in turn limit oil routes to Europe. As a result, the price of oil increased close to 3% in one day. This rise was short-lived, however, as markets turned their attention back to the global abundance of oil. This quick increase was followed by a steady decrease.

    This year, a global surplus has been pushing oil prices down Oil demand has decreased in many large countries, starting with People's Republic of China, which has seen considerably slower economic activity this year and hence less economic growth. On the other hand, markets are flooded with supply, causing a so-called shale oil revolution in the United States and leading to a decision by OPEC, (Organization of the Petroleum Exporting Countries, at its summit in November to not limit oil production. An increase in supply can also be expected from Iran, whose oil is again hitting Western markets after sanctions were alleviated during the second half of this year.

    OPEC members met again on 4 December to evaluate the organisation’s strategy and decide on future action. In response to widespread market expectations,, OPEC agreed to continue with its strategy of not limiting its members’ production. This means that OPEC is leaving its agreed production limit unchanged, is sticking with its plan of maintaining market share, and that it accepts current oil prices, which have dropped to their lowest level in seven years.

    In November, the fast rise of the US dollar spurred on the fall in the price of oil With a stronger dollar, the currency of the oil trade, the price of oil has increased for those countries whose main currency is not the US dollar. This is why, historically, the dollar and the price of oil have had an inversely proportionate relationship: a stronger dollar usually leads to a cheaper price of oil.

    In November, the dollar reached its highest level in the past eight months — USD 1.056 to EUR 1 as of 30 November. That day, the European Central Bank fixed the euro price at USD 1.058. The last time the dollar was stronger than this was March of this year, when EUR 1 euro was worth USD 1.049. In October, EUR 1 could still buy USD 1.149.

    The dollar was strengthened on the back of market expectations that in December, the US central bank, the Federal Reserve, led by Janet Yellen, its director, would raise the base interest rate, whereas the European Central Bank, under the guidance of Mario Draghi, was expected to print even more money. This year, the Eurozone has been struggling with extremely low inflation and deflation threats. During the first half of the year, European Central Bank (ECB) took measures to boost the economies of its member states by injecting money into them. However, the Eurozone has still not achieved the higher inflation that was expected, which is why markets were expecting the ECB’s December meeting to apply even stronger monetary policy measures.

    After the 3 December meeting, however, it turned out that the measures taken by Draghi and the ECB were far milder than markets had been expecting. That is why a quick correction of the euro-dollar exchange rate took place on 3 December, and the day ended with the price of the euro at USD 1.094, which also meant that the currency’s November fall had been almost completely reversed. The price of crude oil also reacted to this change and showed a stable growth trend.

  • News from the Baltic states »

    Elering becomes sole shareholder of gas transmission network

    At the beginning of November, the general shareholders meeting of Võrguteenus Valdus AS (the parent company of Elering Gaas AS, which manages Eesti Gaas’s transmission network) declared that there would be a binding takeover of shares belonging to small shareholders, as a result of which Elering AS would become the sole owner of the gas transmission network. Up to that point, Elering had a 99.14% stake Võrguteenus Valdus, while small shareholders had the remaining 0.86%. According to a press release, during the takeover, Elering will purchase A shares in Võrguteenus Valdus at a price of EUR 54.1 and B shares at EUR 0.541 a share. Elering used the same price in all earlier transactions with Võrguteenus Valdus. The takeover of shares belonging to small shareholders is expected to take place in December.

    The Paide cogeneration station has started steady operations

    On 5 November, there was celebration to mark the fact that the Paide Pogi cogeneration station had begun steady operations. The station, which cost EUR 8 million to build, is now steadily generating electricity and heat. Eesti Energia has a majority holding in the Paide Pogi cogeneration station, which has been supplying city inhabitants with heat since 2013, whereas its electricity has been reaching the grid as of the beginning of this year.

    In a year, the Paide Pogi cogeneration station can produce approximately 75% of all the heat that Paide needs, using local biofuel. At the same time, the amount of electricity produced by the station covers around one-fifth of the electricity that Paide needs. The cogeneration station generates 2 MW of electric power and 8 MW of heat. The station can produce 7.5 gigawatt-hours (GWh) of electricity and 42 GWh of heat a year. Together with its at-peak energy boiler plants that, when necessary, use heavy fuel oil and biomass, the station’s production capacity is up to 58 GWh a year. According to estimates, Pogi uses approximately 33 000 tonnes of fuel a year, which is supplied to the station by the nearby timber industry.

    Estonian oil shale industry yearbook stresses the need for more effective technologies

    The yearbook of the Estonian oil shale industry was published in November. It is aimed at policymakers, scientists, officials and entrepreneurs, as well as anyone with an interest in shaping the future of oil shale industry and who needs a holistic overview in order to make progressive decisions based on facts.

    Despite variational circumstances in the energy market, the country has made more than EUR 300 million off the oil shale industry and has considerably increased its production of liquid fuels. The challenges that the industry has to tackle today are the same for all oil shale industry companies — extraction is becoming more complicated, energy prices are falling, and environmental requirements are getting more strict.

    The yearbook of the Estonian oil shale industry was published by Põlevkivi Kompetentsikeskus, Eesti Energia, Viru Keemia Grupp and Kiviõli Keemiatööstus.

    Lithuanian government adopts new maintenance model for LNG terminal

    In November, the Lithuanian Parliament accepted a new maintenance model fort its natural gas terminal, specifying who will be covering maintenance costs for the terminal as of next year, as well as how they will be covered. With a majority of votes, the Parliament decided that the obligation for Klaipéda terminal maintenance rests with all market participants, as well as gas clients and funds, regardless of whether they are currently using the gas supplied from the terminal or not. According to the maintenance model, the costs borne by Litgas (the natural gas provider) concerning the supply of the LNG terminal will be also covered from the terminal's maintenance costs.

    Elering starts using a new type of wires

    At the end of November, Elering announced that they were installing 11.5 km of innovative high-temperature wires on the Tsirguliina-Valmiera 330 KV high-voltage power lines in order to explore whether wires with a larger capacity would be suitable for use in Estonia. Works ordered through public procurement cost nearly EUR 2.7 million without VAT.

    The high-voltage power lines currently have wires with a steel core, while the new wires that will be installed next to them have a composite material core that has not been used in the Baltic countries or Scandinavia before. These wires are lighter than usual, and their permitted working temperature is considerably higher, and the wires do not stretch much as the temperature rises. This means that with greater power transmission, the wires do not sag dangerously close to ground and hence permit the transmission of twice as much electricity as regular wires would do.

    Watch presentations from Eesti Energia’s Smart Energy Industry forum

    Forum presentation can be watched by clicking on the name of presentation:

    Innovation for the sustainable use of oil shale“ – Andreas Orth, Vice President of Outotec
  • RETAL Lithuania: fixing electricity price gives us an opportunity to plan our business costs in the best way and avoid unexpected expenses »

    This month we are going to introduce Enefit’s client from Lithuania – RETAL Lithuania, which is a modern and continuously expanding company that concentrates on PET package manufacturing activities. While increasing the scope of manufacturing activities and tapping new markets, RETAL Lithuania tries to manage the energy costs of its production in the most effective way.

    Giedrius Viederis, the managing director of RETAL Lithuania, explains that the company is concentrated on manufacturing of blow-molded plastic bottles. “Manufacturers of soft drinks, mineral water, juices, beer and oil use safe and handy PET packaging (i.e. bottles and packages made of polyethylene terephthalate) for bottling their products,” Viederis explains. “Our goal is to manufacture PET preforms for carbonated and still beverages, mineral water, beer, oil, mayonnaise, etc. to a standard that would satisfy the needs of our customers. We offer our customers PET preforms in a wide variety of colours, designs and modifications that are produced with the most innovative manufacturing technologies.”

    Managing director of RETAL Lithuania brings out that over 65% of company’s customers are internationally recognized beer, lemonade or oil producers. “Our company exports 88% of its production to over 20 countries. Approximately 27% of the export goes to Germany and Denmark, 18% to the Baltic States, 23% to Scandinavia and 23% to Poland,” says Viederis. RETAL Lithuania’s sales have grown especially within recent years. “Our target for the next year is to keep our sales volumes on the same level with 2015,” Viederis states.

    RETAL Lithuania’s managing director explains that electricity makes up a 4% of expenses on producing the products. “So – in all variations of electricity prices there is always a direct effect on our business,” says Viederis.

    In order to manage its electricity costs, RETAL Lithuania has chosen to fix the electricity price until the end of the year. “Our strategy is to buy electricity during our contract period with the fixed price. It gives us an opportunity to plan our business costs in the best way and avoid unexpected expenses,” Viederis states. From the next year, the company will try the price where fixed price and spot price are combined.

    He adds that RETAL Lithuania has been a client of Enefit UAB for couple of years already. “Enefit is a great business partner, who understands that life isn’t just one single interaction, but that one’s actions will be judged over a longer period of time. Therefore, I think that both sides – us and Enefit – can say that we are happy with our cooperation,” endorses the managing director of RETAL Lithuania its energy partner Enefit UAB.

The 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 on no condition as a promise, proposition, or an official prognosis of 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, nor 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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