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20.01 2017

Enefit: Three Factors to Determine Electricity Rates in Lithuania This Year

Smooth operation of NordBalt and other power links between the Baltic States will remain the prime guarantee of stable electricity rates this year, states the independent electricity supply company Enefit. Two other factors (tendency of petroleum and gas prices to rise and political decisions) may boost the increase in market electricity rates.

1. NordBalt: Lower Prices with Short-Term Leaps

Having commenced operation a year ago, NordBalt power link brought about an average of 13 per cent drop in market prices, as compared to the previous year. Companies felt its influence as of the beginning of the year, and households experienced the decrease in rates two times – in the middle of the previous year and at the beginning of this year.

Although electricity became cheaper last year, market participants had to get used to large leaps in electricity rates usually caused by unexpected malfunctions of NordBalt link. However, the highest increases in prices in the Lithuanian bidding area were recorded by Nord Pool Spot Exchange during the periods when both NordBalt and other strategically important links between the Baltic and Scandinavian countries were down at the same time. The highest electricity rate in Lithuania in 2016 reached approximately €202 per MWh, whereas the lowest rate amounted barely to €6 per MWh. The lowest price was determined by low consumption and excess supply of power on the market.

‘In 2017, the market is going to witness more short-term leaps in prices. If there are no serious failures of power link between the Baltic and Scandinavian states, such fluctuations will not have any significant impact on the average price of electricity, which should remain at a similar level as in the previous year,’ predicts Janis Bethers, Managing Director of Enefit.

LitPol Link, the power link between Lithuania and Poland, will not have any significant influence on electricity prices in the Baltic States in the nearest future due to its unsteady operation mode. In the meantime, in 2017 the construction of a new 600 MW power connection between Latvia and Estonia will be started. In a few years, this will balance out electricity prices in the Nordic countries even more.

2. Increase in Petroleum and Gas Prices Predicted

In the end of November last year, the member states of the Organization of the Petroleum Exporting Countries (OPEC) made an agreement to limit volumes of produced petroleum in order to boost petroleum prices. The rise of petroleum prices should induce the leap in gas prices. Moreover, gas consumers in Lithuania should be prepared to hear the news that a discount in gas prices provided by Gazprom in 2014 will be used up in the middle of this year.

‘In all likelihood, after the entire discount is used up, the gas price will increase both for residential consumers and companies. On the other hand, this period will be beneficial for new players to step into the market since the market attractiveness will increase. Competition among market participants will not allow for the significant rise in the gas price,’ stated Mr. Bethers.

In certain circumstances, growing gas prices may boost electricity prices. Since most electricity manufacturing capacities in Lithuania are based on gas, the rapid increase in market power demand may dictate larger electricity price fluctuations both within any specific day and within the entire season.

3. Political Decisions of This Summer to Influence Prices as Well

At the end of last year, market regulators announced some good news both for residential consumers and for businesses: rates for services of public interest were reduced from the beginning of 2017; therefore, the constituent of this rate in the final electricity price has decreased, too. Also, the price for distribution of electricity in average- and low-voltage networks was reduced. Nevertheless, the reduction of regulated rates is limited.

The new Government of Lithuania that started working not so long ago plans to upgrade the National Energy Strategy in the middle of this year. Reviewed current or established new goals in energy sector may also influence electricity rates.

‘Today Lithuania has fairly well-diversified electricity supply possibilities. However, the situation changes every year both globally and in neighbouring countries. Decisions made by politicians in order to find solutions to these challenges may dictate the final electricity price to be paid by both households and businesses,’ Mr. Bethers notes.

For example, at the end of last year, the total installed capacity of 500 MW for wind power plants was used up in Lithuania. In order to increase it, the current power network possibilities must be evaluated and the new procedure for the compensation of renewable energy must be provided.

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