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08.03 2017

Enefit earns record profits in Lithuania, predicts a slightly higher electricity price in 2017-2018.

Last year, Enefit, a subsidiary of the largest Baltic energy producer Eesti Energia, sold 544.3 GWh of electricity to Lithuanian customers and made a profit of EUR 2.2 million, which is almost 10 times more than the year before. The company predicts a slight increase in the price of electricity in Lithuania in 2017-2018, and is considering further development as well as the possibilities of entering the Lithuanian gas market towards the end of this year, after Gazprom's compensation has been concluded.

"2016 was a successful year for us and our consumers in Lithuania. Electricity prices in the region continued to fall, which had an effect on most private and corporate users in Lithuania, especially those customers who chose to buy electricity at the current market price. Such customers comprise almost 50 % of our portfolio. Lithuanian companies generally tend to buy electricity at the market rate. Being highly competitive in this field, we expect further growth in Lithuania in 2017", says Janis Bethers, Managing Director of the independent energy supplier Enefit.

He also claims that Enefit's certified green electricity was in high demand last year and is currently used by 18.5 % of the company's customers.

Although the company's electricity sales rose by 16 % last year, figures show that due to decreasing electricity prices, its turnover went up by only 3 % and reached EUR 23 million. Out of EUR 2.2 million in profit, operating profit amounted to EUR 0.75 million, while the remaining EUR 1.45 million constituted income from financial activities (revaluation of derivative financial instruments).

2016 was also a successful year for Enefit's parent company, Eesti Energia. Compared to 2015, in 2016 the company's electricity output rose by a fifth – from 7689 to 9071 GWh. Although the company's turnover declined from EUR 777 million to 742 million due to lower electricity prices, its profit increased by 322 % to hit a record high of EUR 171 million. This was the result of successful operation in the second half of 2016, when the plants were running at full capacity, as well as successful strategic decisions aimed at increasing the company's competitiveness, operational efficiency and innovations.

Ambitions to Enter the Gas Market

Speaking of plans for 2017, Enefit's Managing Director was optimistic. "Having concluded agreements before the end of last year, as of the beginning of this year approximately 10 % more customers are using our energy. Our key success factors are reliable power supply and competitiveness, especially when buying electricity at the market rate, and a wide range of available electricity products. Furthermore, from day one we have been recognised as the most precise energy balancing service provider, which helps us attract even more customers. I think we have a very solid basis for successful growth on the Lithuanian market", says Mr Bethers.

Enefit Development Manager Edita Brazytė claims that the company is optimistic about the possibility of supplying both electricity and gas to Lithuanian businesses. Due to compensation received from Gazprom, Lithuania's gas market has been concentrated in fewer hands. Nevertheless, there are signs that the compensation will end in the second half of 2017, and the gas market will become more active. We do not rule out participation at that point. All the more so since Eesti Energia is already experienced in this area – the company supplies gas to both households and businesses, and its domestic gas market share is about 23 %", says Brazytė.

Enefit is planning development not only within Lithuania, but also internationally, and it is the first energy company in the Baltic countries to enter the electricity and gas retail markets in Poland. "Hopefully, we will be able to successfully utilise the 10 years of experience we have gained on retail markets in Lithuania and Latvia. Moreover, Poland has a huge market. This country consumes 6 times more electricity and 4 times more gas than all the Baltic countries put together", states Mr Bethers. "Our goal is to become a reliable energy provider in the Baltic Sea region. Therefore, we are also considering entering markets in other countries in the future".

Potential increase of electricity prices in 2017-2018

With respect to electricity price trends and expectations, Enefit representatives note that the consistent decline in the price of electricity in Lithuania over the past few years has halted, and there are no signs that prices could fall in 2017-2018. On the contrary, events in Scandinavia and other countries indicate a potential rise in electricity prices.

"Due to a warm and relatively dry winter, the water level in reservoirs of Scandinavian hydroelectric power plants is about 10 TWh lower than normal at this time of the year. The electricity price in Scandinavia is expected to be higher by 3-5 %, which in turn would affect prices in Lithuania. Another threat is potential coupling replacing works taking place on the electricity connection NordBalt. Recently, we have witnessed a few cases when, due to a failure in the interconnection with Sweden, at some hours prices on the Lithuanian electricity market have risen by 500 %, up to 200 EUR/MWh", explained Mr Bethers.

Enefit’s Managing Director also points out that further risk of price increases is created by increasingly expensive fossil fuels. After the OPEC agreements to reduce oil production, oil prices have been rising in recent months. Consequently, the gas used in power generation has also become increasingly expensive. Higher gas prices in 2017 will impact Lithuania and Latvia as gas power stations operating in the Baltic States play a significant role in capping electricity prices in the region.

Finally, the international market has seen a decline in the production of coal resources as well as their use in electricity generation, which in turn has a negative effect on electricity prices across Europe and other regions.

"In fact, it has a smaller effect in Lithuania because the prices, by and large, are affected by rainfall in the region. If it is wet in Scandinavia in the summer or winter of 2017-2018 and the water level in hydroreservoirs is restored, the prices could remain at a similar level for as long as the next two years. Moreover, knowing that additional supply always has a positive effect on prices, in the long run we expect good news on a regional level, as Finland's new Olkiluoto nuclear power plant unit will be put into operation in 2019. Finally, another electricity interconnection between Estonia and Latvia will be launched in 2020, which will solve electricity bottleneck problems and, by increasing competitiveness, will help reduce electricity prices in Lithuania and Latvia", claims Enefit’s Managing Director.

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