Juhan Aguraiuja: High electricity bills are a symptom of the energy hunger of the region

January and February brought unexpectedly high electricity bills to many households and businesses in Estonia. However, this was not simply the result of fluctuating exchange prices, but rather the combined effect of broader and deeper factors. Cold weather, a shortage of generation capacity in the region and a strong reliance on imported electricity created a situation in which prices rose rapidly – affecting most those whose homes are heated with electricity and who are on the exchange package.

Both January and February this year were among the coldest in Estonia in the past 25 years, increasing electricity consumption by around a fifth compared with December. A surge in electricity demand is always a significant driver of prices in the electricity market, as cold weather raises energy needs not only in Estonia but across the entire Baltic and Nordic region. Due to the rapid increase in consumption, fossil fuel power plants had to be brought online, as there is not enough affordable renewable energy available in our region. As a result, price formation shifted towards more expensive gas- and oil shale-fired power plants: output from gas-fired plants in the Baltics increased several-fold in January and February compared with December. Consequently, average monthly exchange prices rose by as much as 110% compared with December, reaching approximately 15.4 cents per kilowatt-hour in both January and February.

High prices cannot be blamed on wind energy. On the contrary, wind energy is one of the few generation sources that helped drive prices down even during the cold months. During the seemingly windless months, electricity generated from wind covered more than a fifth of the Baltics’ consumption in January. If we had more wind farms, the share of wind energy would be even greater and some of the more expensive fossil fuel plants would not need to enter the market.

The decline in renewable energy output was also driven by Latvian hydropower, which fell by half compared with January and February last year due to freezing conditions. While hydropower covered around 13% of regional demand in January and February 2025, this year it accounted for only about 6%.

People are also quick to blame the high prices on the Auvere Power Plant, which was indeed offline for much of January due to a fault, but was replaced by other power plants in Narva. However, when the Auvere Power Plant returned to the market on 6 February, it did not bring any noticeable relief to electricity prices. Although every additional megawatt is important in a situation of significant generation deficit, the price impact of the Auvere outage remained limited due to the availability of substitute plants. In March, we have seen that the plant has been unable to enter the market for much of the time, as market prices have simply been lower than those offered by the plant.

We are part of the Baltic electricity system where consumption exceeds 5,000 megawatts during the cold winter months. At such times, our prices are often aligned with those in Finland where consumption levels also reach record highs and there is a shortage of affordable electricity generation. At the same time, we are seeing structural dependence on imports in both Estonia and the wider Baltic region. Around 30% of electricity consumption in the Baltics in January and February was covered by imports, but neighbouring countries were also experiencing severe cold, leading to high consumption and elevated electricity prices.

Households relying on electric heating and electricity exchange prices were most affected by high bills. For these consumers, a double risk materialised: cold weather increased consumption while, at the same time, the cost of each kilowatt-hour rose. For customers on fixed-price packages, the situation was considerably more stable – although consumption increased, prices remained under control.

Although consumers cannot control the weather, everyone can protect themselves from price spikes. In January and February, electricity on the exchange often cost 20–30 cents per kilowatt-hour during daytime hours and in the worse cases even 40–50 cents. Customers on fixed-price contracts consume electricity at a stable rate of around 10–12 cents per kilowatt-hour, depending on when the contract was signed. This is several times lower than what consumers on exchange-based pricing were paying. While on an exchange package, it is possible to reduce costs by shifting higher-load activities to off-peak hours. However, during prolonged cold spells, low-price windows are scarce and it is not possible to move all consumption to nighttime hours.

Naturally, consumers want to take advantage of the low exchange prices in spring and summer. However, this does not mean that exchange-based pricing must be used throughout the year. Many customers have chosen to use the exchange package for half the year and fix the price for the other half. For such customers, a special Seasonal Secure electricity package has even been introduced, which automatically makes this switch twice a year.

If we want to ensure that future winters do not leave us reeling from high electricity prices, Estonia needs a systemic and long-term solution. As long as we remain in a generation deficit and depend heavily on imported electricity, price spikes will continue to occur. We need more modern and competitive electricity generation capacity to meet our own consumption needs. This means additional renewable energy production, which would keep prices down, as well as rapidly dispatchable gas-fired power plants that would ensure supply during periods when renewable generation is insufficient.

Without revenue certainty, ie in opposition to market forces, it is virtually impossible to develop any type of electricity generation in Estonia, whether it is a wind farm, a nuclear power plant or a gas-fired power plant. In addition, the lengthy and uncertain planning process hinders the development of new generation capacity. To bring electricity prices under control, we must overcome these obstacles. The longer we wait, the more expensive and risky this becomes for Estonia.