Energy market overview, March 2015

Mathias Vaarmann

Market Analyst

The market prices of electricity at an all-time low in the Baltic States

This overview will look at what happened to the electricity prices of Estonia, Latvia and Lithuania in March. It can be said right away that they reached an all-time low. We will also cover the electricity prices in Finland, which where the lowest in the past three years. Furthermore, we will take a closer look at why it is wise to make an early decision when it comes to the purchasing of electricity for the next period.

As for news on the European electricity market, we would like to announce that the start of the reform of the European Union Emission Trading System, having been poorly received by the Member States, is still undetermined. It is also worth mentioning that for the first time in 40 years, the increase of carbon emissions has stopped in the world.

We will cover the construction of the submarine cable between Norway and Great Britain and analyse the price of crude oil, which is once again moving lower. At the same time, we will address the issue of the common European currency, which experienced the worst quarter in its history.

As for news concerning the Baltic States, we will describe how Eesti Energia became a member of the Lithuanian gas exchange, and the planned merging of the Lithuanian natural gas trading companies Lietuvos Duju Tiekimas and Litgas, and the merger of the Lithuanian distribution network operator LESTO and the Lithuania gas enterprise Lietuvos Dujos into a joint distribution network company. The government of Latvia is planning to split up the company Latvijas Gaze, which is engaged in the sale of natural gas.

This time the major client story will feature the Saint-Gobain Group, which operates in 64 countries with 190,000 employees, and describe how the company’s Estonian branch has made their energy purchase decisions.

Read more about the topics below

  • Electricity prices sank to an all-tome low in March »

Electricity prices, which had been experiencing a downward trend this year, continued on the same course in March. The average price of the Nord Pool Spot in the Estonian market area dropped 9.3 per cent month on month, reaching an all-time low point by the end of the first quarter at EUR 30.31 per megawatt-hour. In January and February the average exchange prices remained between EUR 33 and 34, while in December the average price of electricity was EUR 37.42 per megawatt-hour./-/doc/8457332/news/turuylevaated/2015_03/keskmised_borsihinnad_eng.jpgIn Latvia, Lithuania and Finland, electricity prices also experienced a steep fall. While in Finland the average market price of electricity dropped to EUR 29.42 in March (EUR 33.18 in February), then in Latvia and Lithuania the prices were a total of 18.3 per cent lower in March, when compared to February. In Latvia and Lithuania , the exchange price evened up at EUR 32.22 in March, having been EUR 39.43 and 39.44 in February, respectively. For Finland, this was the lowest price in almost three years; while in Latvia and Lithuania, as well as Estonia, the prices reached an all-time low./-/doc/8457332/news/turuylevaated/2015_03/kaart_eng.jpg


Average €/MWh

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Nord Pool Lithuania





The rapid decline in the prices of electricity is the result of a very warm winter and early spring, which have kept electricity consumption low in the NPS market area. At the same time, the production of electricity has remained high in each of the countries in the common market area. Relatively abundant precipitation in Scandinavia has contributed to it by filling and maintaining the water reservoir levels of Swedish and Norwegian hydroelectric power stations.

Due to the high water level of the hydroelectric power stations (which supply more than half of the electricity in the NPS market areas) they are able to produce large amounts of cheap electricity and release it to the market at a moment’s notice.

The declining coal prices resulting from the rapid drop in oil prices have also contributed to the decline of electricity prices. In March, the average price of a tonne of coal cost a little less than USD 60, or 30.4% less than a year ago, and a total of 44.5% less than in March 2013. This is the lowest point the price of coal has reached in the last nine years.

In March, prices remained equal in Estonia and Finland for 85.8% of the hours. The same figure was 96.9% in February. The large month to month difference was a result of the decreasing production volume in Estonian power plants, which placed a greater load on the cables between Estonia and Finland in March, pushing the EstLink cables to their maximum capacity for a greater number of hours than in February.

  • Make an early decision on an electricity purchase strategy »

According to Artur Teesalu, Director of the Large Business Customer Department at Eesti Energia , a large portion of the clients currently have an electricity contract which is valid until the end of the year or even longer, which is why he encourages all clients to get an early jump on making a strategic decision on their electricity purchase in the following period. “Our 5-year experience on the open electricity market has assured us that those clients who address the issue of electricity purchase early on are the ones who get the best results”, explains Teesalu. “By planning ahead, the client will have better opportunities for finding the best moment to make the purchase decision in terms of price,”In finding the most suitable energy purchase solution from the market, the clients are assisted by Eesti Energia’s corporate client managers who act as a partner to their clients in all matters concerning energy.

  • News from the European energy markets »

The construction of a submarine cable between Norway and Great Britain has been confirmed

At the end of March, Statnett, the Norwegian electricity system operator, announced that the project for constructing an electricity cable between Norway and Great Britain had been approved. The 730-kilometre cable will be completed by 2021, at the latest, and its capacity will be 1.4 gigawatts. For comparison: The cables between Estonia and Finland are able to carry a total of 1 gigawatt of electrical energy. The new submarine cable is also going to be the world’s longest submarine electricity transmission line./-/doc/8457332/news/turuylevaated/2015_03/kaabel_kaart_eng.jpgAs Norway is a cheaper market area, it is highly likely that for the majority of the hours electricity will be moving from Norway to Great Britain, supplying electrical energy for nearly 750,000 British households. From the moment the cable is opened, Great Britain will have better access to green Norwegian hydropower, and large-scale exports to the island could slightly lower electricity prices in Britain. For Norway and the NPS, however, it could mean higher electricity prices as less electricity will be supplied to the local market.Statnett announced that the prospective cable would help to alleviate the surplus on the electrical markets of the Nordic countries, which has forced electricity prices to the lowest point seen since 2007. The cable will also help to protect the Nord Pool Spot market from a potential electricity shortage in the years of low precipitation.

  • For the first time in 40 years, the increase of carbon emissions stopped in the world »

In the first half of March, the International Energy Agency announced that last year the increase of carbon dioxide emissions in the energy sector stopped for the first time in 40 years (not counting the years of economic recession). What makes the achievement remarkable is that limiting the increase of emissions was achieved during a period of economic growth – in general, economic growth is accompanied by an increase in CO2 emissions.According to the Energy Agency, 32.3 billion tonnes of carbon was released into the air globally in 2014 and 2013. Stopping the increase in the volume was mainly achieved by greener electricity consumption in China and the emerging markets. In China, for example, electricity in 2014 was produced in a larger scope than before with the aid of hydroelectric power plants, as well as with solar panels and wind generators. The use of coal plants has, on the other hand, decreased.The International Energy Agency expressed hope that the news would provide good momentum for countries to arrive at better agreements on future climate policies at the international climate conference being held in December.When compared to the rest of the world, the amount of carbon emissions in European Union Member States dropped by 4.5 per cent in 2014. This means that the European Union could reach the goal set for 2020 – to reduce the amount of carbon emissions by 20 per cent from the 1990 level – six years earlier. By continuing on the same course, the EU could achieve a 25 per cent decrease in emissions by 2020.According to the Union, the Emissions Trading System (ETS), through which the emitters of CO2 are required to purchase emission quotas, has contributed to nearly two thirds of the reduction in CO2 emissions in Europe.

  • Start of the European Union carbon exchange reform unconfirmed once again »

In February, the politicians of the European Union adopted the decision that the carbon exchange reform, limiting the availability of quotas on the market, will begin in 2018. In March, however, the reform was met with serious opposition from the members of the Union’s Eastern block, home to many coal-fired and other types of power plants emitting large amounts of carbon dioxide. This is why the politicians are looking for a compromise on the start date of the market reform which would be acceptable for all members of the Union. At the time this overview was compiled, a compromise had not yet been reached./-/doc/8457332/news/turuylevaated/2015_03/co2_eng.jpgIn March, the average carbon price was EUR 6.85 per tonne . When compared to February, the monthly average price dropped by 6.5 per cent (in February, the price was EUR 7.33 per tonne). The fall in prices was caused by the uncertainty at the beginning of market reform.

  • The price of crude oil is in decline again, partly resulting from the stronger dollar »

While the price of Brent crude oil rose quickly in February, and ended the month at USD 62.58, the price of liquid fuel found a downward course and ended March at USD 55.11 per barrel. /-/doc/8457332/news/turuylevaated/2015_03/toornafta_hind_eng.jpgThis downturn in the prices of crude oil was primarily caused by the significantly stronger US dollar, making crude oil more expensive for those whose primary currency is not the dollar (which is the currency crude oil is traded in). To a lesser extent, it was also the result of the current geopolitical tensions in the Middle East, especially Saudi Arabia’s decision to start bombing Yemen with their allies. This created fear on the markets concerning the region’s instability and the resulting supply risks and lifted oil prices.At the end of March and the beginning of April, however, oil prices were brought down once again by the Iranian nuclear sanction talks, where an initial agreement was reached. Once the sanctions are lifted, Iranian oil will regain access to western markets, bringing with it a significant increase in supply. This, in turn, adds oil to markets that have already been saturated. Still, it may take a long while until Iranian oil reaches western markets: in general, it is believed that this will not happen before 2016.

  • Worst quarter in history for the euro »

At the beginning of March, the US dollar once again gained strength rapidly. While the euro to dollar exchange rate was 1.124 (USD 1.124 = EUR 1) at the end of February, then by the middle of March the European Central Bank placed it at 1.0557. This mean that the dollar had become 6 per cent stronger in a period of two weeks. /-/doc/8457332/news/turuylevaated/2015_03/euro-dollar_eng.jpgAt the beginning of March the joint currency was pulled into a rapid decline by the European Central Bank’s money printing programme, initiated at the end of February and the beginning of March, in the course of which more than EUR 1 trillion will be released into the economy of the Eurozone to combat deflation and economic deceleration.At the end of the month, the dollar experienced a slight drop due to the comments made by Janet Yellen, Chair of the Federal Reserve, that the central bank may postpone the long-awaited increase of the base rate. The markets gained momentum from the statistics on jobs created in the United States, stating that 126,000 new jobs were added during March, while a much larger number was expected (245,000). The fact that the number of additional jobs was lower than expected, indicated to the markets that the Federal Reserve may actually postpone the raising of the base rate, which is why the dollar experienced a slight drop. In general, an increase in the central bank’s base rate raises the value of a currency, as it increases the currency’s appeal to investors.

  • News from the Baltic States »

Eesti Energia became a trader on the Lithuanian gas exchange

In March, Eesti Energia became a member of GET Baltic, the Lithuanian natural gas exchange. As a member of the gas exchange, Eesti Energia can make both purchase and sales transactions involving gas.“Similarly to the power exchange, on the gas exchange the price is formed in a transparent manner, on the basis of supply and demand. For the gas clients of Eesti Energia, it will provide a sense of security that the offers made to them reflect the actual market price of the gas,” said Heikko Mäe, Director of Energy Trading at Eesti Energia.“In addition to the market price being formed in free competition, another important aspect is an improvement of the security of supply. In January, we concluded a gas supply contract with the liquefied natural gas terminal in Klaipéda, which is now supplemented by the Lithuanian gas exchange. There are an increasing number of alternatives to Russian gas now available,” Mäe assured.The Lithuanian natural gas exchange GET Baltic, which started its operations in 2013 as the first gas exchange in the Baltics, now has almost 50 traders. On average, 10 million cubic metres of gas are traded on the market each month, which is roughly a fourth of Estonia’s monthly gas consumption.Eesti Energia has been selling gas in addition to electricity to its major Estonian corporate clients for three years. In January of this year, Eesti Energia concluded a gas supply cooperation contract with the LNG terminal in Klaipéda, according to which the company will annually receive 5.8 million cubic metres of gas from Lithuania.

LESTO and Lietuvos Dujos will be merged

The Supervisory Board of Lietuvos Energija approved the vision of the Lietuvos Energija Group to conduct a revision of the current principles of operation, meaning that LESTO, the operator of the Lithuanian distribution network, and Lietuvos Dujos, the Lithuanian gas company, will be merged into a joint distribution network enterprise. It is expected that a detailed merger plan will be adopted this month and the changes implemented by the end of 2015.According to Lietuvos Energija, the merger is mainly beneficial for the end client. The aim of the merger is to raise the efficiency of the group as a whole, to reduce management costs, and to create additional opportunities for the consumers of electricity and natural gas.

The plan to merge Litgas and Lietuvos Duju Tiekimas

Last month, it was revealed that the Lithuanian government is planning to merge two of the natural gas trade companies managed by the national energy company UAB Lietuvos Energija – UAB Litgas and UAB Lietuvos Duju Tiekimas (LDT). LDT, with 100% of its shares owned by Lietuvos Energija, and Litgas, with 66.67% of its shares belonging to Lietuvos Energija, have currently not confirmed or refuted this information. “We are considering all options which would enable us to achieve maximum efficiency and to bring merit to the end client,” Ernesta Dapkiené, Communications Manager of Lietuvos Energija , told VZ. In September of last year, Lithuanian Prime Minister Algirdas Butkevičius also mentioned the plan to merge Litgas and LDT.

The Latvian government decided to split up Latvijas Gaze

At the beginning of March, the Latvian government approved the initiative to split up Latvijas Gaze, a company engaged in the transport and distribution of gas. After the approval of the report by the Minister of Economic Affairs, the government decided to approve the decision to split up the gas infrastructure by 3 April 2017, provided that the operator of the gas supply would also manage the natural gas storage infrastructure.The decision of the government foresees the creation of a subsidiary engaged in the supply of natural gas and the storage infrastructure. Given all this, the Minister of Economic Affairs has been granted a period of time until the beginning of June to develop the new regulatory package which would be the basis for the future liberalisation of the gas market.

  • Saint-Gobain Glass Estonia, a major client of Eesti Energia: cooperation provides the best solutions »

Saint-Gobain Glass Estonia SE, a major client of Eesti Energia, is a part of the Innovative Materials Sector of the Saint-Gobain Group. The Saint-Gobain Group, operating in 64 countries with 190,000 employees, provides work to almost 1,000 people in Estonia. In Estonia, the group includes Saint-Gobain Ehitustooted AS, Optimera Estonia AS or Ehituse ABC, Vennad-Dahl AS, as well as Saint-Gobain Glass Estonia SE, which we will be covering in the client story this time.There are nine business entities under Saint-Gobain Glass Estonia. Saint-Gobain Sekurit Eesti produces windshields and side windows for all of the most common car models, and Saint-Gobain Glassolutions Baltiklaas is engaged in the production of sealed glass units and tempered glass, the cutting of glass panels according to measurement, and the sale of specialised glass products in Tartu and Mäo. The business unit Saint-Gobain Autover-Autoklaas is engaged in the sale (under the name “Autoklaasi logo”) and installation (under the “Glassdrive” brand) of windshields and car windows in Tartu and Tallinn. The business unit Saint-Gobain Autover Leedu is engaged in the installation (under the “Glassdrive” brand) of windshields and car windows in Lithuania./-/doc/8457332/news/turuylevaated/2015_03/Saint-Gobain-Glass1.JPGSaint-Gobain Glass Estonia SE is an export-oriented company, with more than three-quarters of its production being exported to more than ten countries. This is why, according to Director Andi Kasak , the company’s success is largely dependent on the general viability of the economy in the target countries. “Regardless of the challenging economic environment in Europe, over the past few years we have continued to invest in the overall growth of production volumes, diversification of the product portfolio, as well as increasing our productivity, which provides evidence of the fact that we are firmly looking towards the future,” assures Kasak.Saint-Gobain Glass Estonia SE has been a buyer on the open electricity market since the market’s opening in 2010. “We were one of these major companies who ended up on the open market along with the first wave. Electrical energy comprises a large part of our expense portfolio, which is why the price increase which accompanied the opening of the market had a significant impact on our operations,” describes Purchasing Manager Toivo Kreen . “On the one hand, we needed to adapt to the rules of the open market, and on the other, manage the abrupt and significant increase of expenditure on energy. Kreen highlights that for a company like Saint-Gobain Glass Estonia, which realises most of its production outside Estonia, it also meant a significant impact on competitiveness. “First, the open electricity market was still in its initial stages. There were few suppliers, and the opportunities provided, that is the products, were also limited,” admits Kreen, while also noting that there were many learning opportunities for both the suppliers and purchasers of electricity.“Since the most important factor for us in buying electrical energy is its price, then in the beginning stages of the open market, we chose the electricity seller who made us the best offer at the time,” explains Kreen. He notes that the market changed in time, opening to all consumers and bringing about changes in the products offered on the market. “Mainly, the sellers became more flexible,” gives Kreen his assessment./-/doc/8457332/news/turuylevaated/2015_03/Saint-Gobain-Glass2.JPG“As the electricity market opened, we started the joint purchasing of electrical energy will all the enterprises belonging to the Saint-Gobain Group in Estonia. Our total annual consumption volume is around 32 GWh,” explains Kreen. “Joint purchasing made it possible for us to merge the consumption schedules of the different enterprises, which was also positively reflected in the offers we received,” explains Kreen. He adds that the joint contract also decreased the general administrative burden in the management of electricity purchasing.With their current contract, the company has chosen an electricity purchasing strategy in which around 75% of total consumption comes from basic energy and the remaining portion of the consumption is covered with the electrical energy purchased with the Nord Pool Spot price. “The choice of the strategy is based on the analysis of the overall consumption schedule created as a result of merging the consumption schedules of our companies, ” explains Kreen, adding that while the strategy could be subject to changes in the future, given the company’s consumption at the time the contract was concluded, the current option was the most efficient solution. “Our current cooperation experience with Eesti Energia has been positive for us in every respect. In addition to what we have sourced ourselves, we have received additional information on the electricity market and the factors influencing it,” cites Kreen, confirming that cooperation has helped to make the best choices from among the possible solutions.

The market overview has been prepared according to the current market knowledge of the Eesti Energia analyst. 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.