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12.05 2016

Energy Market Overview, April 2016

Sander Randver

Market Analyst

Cable malfunctions, maintenance work, low hydro reserves and poor weather raise power exchange prices in April

In this edition of the Market Overview, we recap the changes in electricity prices in April and examine the factors behind the changes.We’ll also take a closer look at the fluctuations in the price of crude oil, the exchange rates of the euro and the dollar, and carbon prices, and introduce the most important news from the Baltic states’ markets in April.

Read more about the topics below

  • Average Nord Pool market price rises in Estonia, Latvia, Lithuania and Finland »

    The average market price on the Nord Pool electricity exchange in April for Estonia was 29.73 €/MWh, which is EUR 0.32 higher than the average price in March. In general, the market price of electricity in the Baltics has stabilised after the very high price level of January. The market price of electricity in Latvia experienced a somewhat greater increase in April, going from 29.87 €/MWhin March to EUR 30.71 per megawatt-hour in April. As the NordBalt connection was out of service for an extended period, Lithuania had the highest electricity prices in the Baltics in April. The price of 33.03 €/MWh was 7.21% or EUR 2.78 higher than the month before. The price of electricity in Finland in April was somewhat lower than it was in the Baltics - 27.25 €/MWh, which was EUR 0.16 higher than in March.

    Looking at these average prices, it should be noted that these are the arithmetic mean electricity prices in April. The monthly average price of the electricity actually consumed by each customer may vary, as the price of electricity is different on each market. Thus the average price of electricity for each customer depends on when the electricity was consumed.

    Area Average
    €/MWh
    Change compared to
    previous month
    Minimum Maximum
    Nord Pool Estonia 29,73 1,09% 14,93 51,5
    Nord Pool Finland 27,25 0,59% 14,93 51,5
    Nord Pool Latvia 30,71 2,81% 14,93 51,5
    Nord Pool Lithuania 33,03 7,21% 14,93 95,08

    Electricity prices in April were impacted by malfunctions in the NordBalt and Estlink power cables and restrictions in service, low hydro energy reserves, maintenance scheduled for power plants, and unstable weather. The lower availability of hydro power meant higher market prices in the Baltics as well. In connection with low hydro reserves, April saw extensive scheduled maintenance performed in hydroelectric plants across the Nordics.

    Maintenance was performed on the unit no. 1 of the Olkiluoto nuclear power plant in Finland, which raised the price of electricity somewhat in Finland for two weeks. Maintenance on unit no.2 was planned for 8 to 17 May. Unfortunately, malfunctions and scheduled maintenance occurred in both EstLink 2 and NordBalt cables in April. Lithuania bore the brunt of this fact, with electricity prices constantly higher than in the other Baltic states.

    According to Elering, electricity flows took place in the ordinary manner - mostly from Finland to Estonia and from Estonia to Latvia. In the Finland-Estonia and Estonia-Latvia direction, over 60% of the capacity provided to the market was used in the last month. The number of hours at full capacity in the Finland-Estonia direction was 287 and on the Estonia-Latvia direction, 125.

  • Enefit makes it possible for companies to use renewable energy »

    Independent electricity supplier Enefit is offering businesses and other organisations an opportunity to purchase electricity produced from renewable energy sources. The company will now ensure the supply of green electricity to all customers that choose a product labelled with a special Green Energy mark.

    "Given the growing interest in green electricity, we are offering companies a new energy product that will become a new alternative for companies oriented towards a sustainable business model. When we proposed that our existing customers use green electricity at the end of the last year, we received a favourable response. In the first quarter of this year, 40 per cent of the energy supplied to them was produced from renewable sources," said Janis Bethers, Enefit’s Managing Director.

    Enefit customers that have opted for green electricity include such companies as Neo Group, Cesta, Maltosa and Reitan Convenience Lithuania, which controls Lietuvos spauda and the Narvesen retail chain, among others. For all its green electricity, Enefit provides guarantees of origin, which certify that the energy was produced from renewable energy sources.

    In offering a new green energy product for the Lithuanian market, Enefit is supplying its customers with electricity from the renewable energy portfolio of its parent company, Eesti Energia, in which wind power constitutes essential significant part. In 2015, Eesti Energia produced 360.8 GWh of electricity from renewable energy sources. Compared with 2014, this represented an increase of 21.3 per cent and accounted for 5 per cent of the company's total electricity output.

    In Estonia, Eesti Energia controls the Narva, Alepa and Virtsu wind farms, which produce most of the company’s green electricity. Green electricity is also derived from biofuel and waste incineration CHP plants that are owned by the company, as well as from the Linnamae and Keila-Joa hydroelectric power plants. According to data from 2015, 62 per cent of all green electricity was produced by company-owned wind power plants, 2 per cent from hydroelectric plants, and 36 per cent from other renewable sources.

    The Green Energy trademark was introduced in 2001. Eesti Energia was the first company in Eastern Europe to offer its customers the possibility of using green energy.

  • The price of crude oil started rising in January, reaching its highest level, but could start falling again »

    The price of Brent crude continued rising in April. After a period of very low prices in January (USD 27.88 per barrel), the price of Brent crude reached yet another high, ending the month at USD 48.14 per barrel. The rise in crude oil prices was particularly notable because at a conference heled in Doha in mid-April, the world’s leading oil producers failed to reach agreement on regulating production. In spite of that, oil prices continued rising.

    Price-wise, the fact that no agreement was reached at Doha was also favourable as an agreement would have meant a greater price rice and volatility. In the first few days of May, the barrel price of crude oil fell sharply to USD 44.74. In part, this was due to poor industrial output figures from one of the world’s biggest oil importer, China.The fallout from the Doha meeting and oversupply of oil from the Middle East and North Sea were also felt.

  • The rising oil price bolstered the dollar in April; carbon prices increased over 15 percent »

    The constant rise in oil prices was of the key factors in the stronger dollar. The dollar started the month on the weak side (USD 1.1432 per euro). It gained against the euro up to the last week of April, reaching USD 1.1264. Poor industrial output figures from China, oversupply of oil and a drop in Australia’s central bank interest rates drove a significant decline in the dollar in the last week of the month, reaching a rate of USD 1.1569 to the euro, which for the European Union softens the rise in oil prices.

    Compared to March, carbon prices in the European Union rose 15.17 percent - EUR 4.95 - reaching EUR 5.70 per tonne. Carbon prices rose a whole EUR 0.94 from 25 to 27 April, as the EU’s leaders and international banks had discussed establishing a minimum price for CO2 quotas. In spite of the sharp rise, the carbon price fell back to its previous level over a few days.

  • Eesti Energia launches wholesale of a soil ameliorant marketed under the Enefix brand name  »

    In cooperation with the University of Life Sciences and large farms, Eesti Energia conducted extensive research into the effect of fly ash on soil. The findings confirm that a soil ameliorant made from fly ash improves uptake of nutrients, reduces spread of plant diseases and curbs moss growth.

    “Along with the Estonian University of Life Sciences and large farms, we studied how fly ash affects soil and yields.” We conducted experiments in different soils all over Estonia. Today we have confirmation from scientists and farmers regarding fly ash’s suitability and positive effects: grain yields increase and fertiliser uptake improves. Fly ash is also suitable for growing forest transplants,” said Eesti Energia’s Head of Energy Trading, Veiko Räim.

    Estonian University of Life Sciences Institute of Forestry and Rural Engineering senior research fellow Katri Ots said that from 2011 to 2015, the university tested how the soil conditioner affected the growth of coniferous trees. “In the course of the testing, we became convinced that the minerals in post-combustion oil shale are suitable for enriching fields and growing forest transplants as well as for accelerating growth of stands of trees in peat-rich soils and Christmas tree farms.”

    Marek Kruusla, agronomist with the Kaska-Luiga Farm in southern Estonia, said that the positive impact of fly ash could also be seen in harvest yields in their farm’s 80-hectare field. “The year before last, we spread fly ash and saw already the following year that plants were taking up the fertiliser better. We realised that we have to continue systematically liming fields with fly ash.”

    Compared to other ameliorants and soil conditioners, the advantages of fly ash are its high calcium carbonate content, which helps neutralise the pH level faster and thus increase availability of microelements. In addition, advantages of fly ash are its dryness, fineness, good solubility and high nutrient content. The fast acting effect and low expenditure per hectare of the soil conditioner helps keep fertiliser costs down.

    Eesti Energia can produce about 330,000 tonnes of soil conditioner per year and supply customers year-round. The fly ash from oil shale combusted in pulverised firing chambers has seen the most use as a soil conditioner. In the electricity production process, Eesti Energia separates the ultrafine high-calcium fly ash from smoke gases.The fly ash is harmless for the environment and ideal for use as agricultural lime. Thanks to its alkaline properties, the fly ash quickly neutralises acidic soils and raises the fertility of soil at the same time. Fly ash has been used to lime Estonian fields since the 1960s.

    The greater recycling of oil shale ash will help boost the value from oil shale and use the byproducts from generating energy in a clean and efficient manner. For more information and to watch a video about the Enefix soil conditioner, see www.enefix.eu.

  • Baltic news »

    Eesti Energia subsidiary Enefit SIA marks 10th year of operation

    Eesti Energia’s Latvian subsidiary Enefit SIA continues to hold a 15 percent market share, putting it second after the state energy company Latvenergo. The Enefit SIA power sales portfolio includes 28 local government units and large business customers from the private and public sector, including the city of Riga and the Latvian state television and radio broadcasting centre. In 2015, Eesti Energia sold electricity to a total of 14,000 points of consumption in Latvia.

    Eesti Energia selling its majority holding in the Jordan electricity project

    Eesti Energia will sell 45% of the shares in the Jordan oil shale power plant and quarry ot a company of Chinese origin, Yudean Group (Yudean) and remain a minority shareholder with 10 percent of the shares. According to the agreement signed on 6 May in China, the co-investor YTL International Berhad (YTL) will increase its holding from 30 percent to 45 percent and the existing minority shareholder Near East Investments will exit the project.

    “Estonia’s first export of oil shale related knowhow is becoming a reality. In the course of eight years of development, we have prepared for the establishment of an oil shale strip mine and construction of a power plant that will cover 10% of Jordan’s electricity needs. It is no less important that we have found investors for carrying out the USD 2.1bn project,” said the Chairman of the Eesti Energia Management Board, Hando Sutter.

    The total projected investment by Eesti Energia into the Jordanian electricity project from beginning to completion is close to USD 31 million.

    Eesti Energia posts net profit of EUR 19 million for the quarter

    The operating profit before depreciation in Q1 of 2016 was EUR 60 million, which is 31% less than last year. Net profit was EUR 19 million. The company’s turnover was EUR 197 million.

    Eesti Energia generated 2.2 terawatt-hours of electricity in the first quarter - 5% less than in the first quarter of 2015. The lower market price of electricity resulted in a drop in the group’s power output. “In the beginning of the year, the Nordbalt cable between Lithuania and Sweden went into operation, bringing cheap hydroelectric and nuclear power from Scandinavia to the Baltics. The cable’s effect on the lower electricity prices in Latvia and Lithuania could clearly be seen. At the same time, the NordBalt cable reduces load on the long-overburdened transmission lines between Estonia and Latvia and will allow more electricity to be imported to Latvia from Estonia,” said Eesti Energia CFO Andri Avila.

    The average price in the Estonian market area of the Nord Pool exchange was EUR 31.8 per megawatt-hour, which is 2% less than a year before. “In the case of electricity sales, it is positive that we have been able to grow sales by 31%. Sales have grown as a result of additional customers. In Latvia, Eesti Energia’s market share has grown to 15 percent and in Lithuania to 6 percent, as a whole in the Baltics, market share is 27 percent,” said Avila.

    Eesti Energia’s turnover dropped by 10% compared to the first quarter of 2015; and operating profit before depreciation by 31%. The decrease in operating profit before depreciation was due to lower sales of electricity and oil products and lower market prices.The comparison base last year was also impacted by transactions of a one-time nature.

    Launch of Latvia’s compulsory electricity purchasing system on hold

    The compulsory electricity purchasing system that was to have been launched in January will probably not go ahead until the European Commission approves Latvia’s principles for subsidising renewable energy.

    Estonia and Finland moving toward final investment decision on Balticconnector

    On 27 April, Elering announced that the developers of the Estonian-Finnish gas connection Balticconnector - Elering and Baltic Connector OY - submitted an application with the European Commission for receiving CEF co-financing for building the connector. This is a precondition for making a final investment decision.

    According to Elering, the project developers have, in productive cooperation, refined and updated the Balticconnector financing application, reflecting the latest organisational and legal developments. Additional technical and economic studies have also been prepared. In addition, the project’s Finnish developer has strengthened its organisational and financial capability and the project’s maturity level.

    Elering and the Finnish state-owned Baltic Connector Oy are applying to the European Commission for 75 percent of the 250 million euro price of the project. The European Commission previously allocated EUR 5.4 million for Balticconnector studies.

    Balticconnector, which will connect the Estonian and Finnish natural gas networks, is planned to be completed in 2019. The connector is the precondition for establishing a Finnish-Baltic gas market and will increase reliability of supply of gas throughout the region.

    International symposium “Oil Shale 100” is major event in anniversary year

    Tallinn will host an international symposium, “Oil Shale 100”, on 20-21 September that will draw delegates from countries with oil shale processing operations and reserves from all over the world. The event is being held as part of the oil shale industry’s centennial year and it is being spearheaded by Eesti Energia, Tallinn University of Technology and the University of Tartu. Read more »

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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