Energy market overview, April 2015

Mathias Vaarmann

Market Analyst

Stable exchange prices maintained in April

In this market overview, we will discuss electricity prices, which remained mostly unchanged in April, yet rose in Estonia on the last day of the month due to a breakdown of EstLink-2. We will also take a look at prices in Latvia and Lithuania in April, which were slightly higher compared to March. In addition, we will write about how, due to the arrival of Lithuanian gas supply on the Estonian gas market, many clients have decided to exchange natural gas supplied from Russia under the existing formula for fixed-price gas from Lithuanian LNG.

In terms of news about the European energy market, we will take a closer look at the carbon market reform, on the start date of which the EU Member States have reached agreement after months of talks. The Swedish energy company Vattenfall, on the other hand, plans to shut down two nuclear power reactors, which may result in a price increase, since the company will no longer be contributing 10 TWh of electricity to the market annually.

In addition, we will analyse why the price of crude oil showed a significant rise in April and what strengthened the exchange rate of the euro last month.

News from the Baltic States will feature an overview of Eesti Energia’s business results for the first quarter. These indicate that the company doubled its oil shale sales; that it increased, through a process change, its annual mining output by 908 000 tonnes, and that its Auvere power plant produced electricity for the first time.

Furthermore, we will discuss how the Latvian government has endorsed the energy conservation draft act, proposed by the Ministry of Economics, which aims to stimulate cost-effective investments in energy conservation projects relating to energy production, transmission, distribution and final consumption. Moreover, we will report that the proposed Lithuanian LNG distributing station has gained its first client from Estonia.

This time, the major client story will profile the company Viru Õlu AS, operating in Lääne-Viru County. We will take a closer look at what the company has to consider when it comes to production and what the company has done to manage its energy costs more skilfully.

Read more about the topics below

  • April’s stable electricity prices pushed up by EstLink-2 breakdown at month’s end »

Electricity prices - down due to the warm winter and early spring this year - continued along the same trajectory also in April. Due to warm air temperatures, electricity demand decreased across the entire Nord Pool Spot (NPS) market area. The combined effect of decreased demand and sufficient electricity production has taken the price of electricity to new lows. As a result, the Estonian market area saw the average price in April come to EUR 30.50 per megawatt-hour , remaining on the same order of magnitude as the price in March (30.31 €/MWh). After March, the average price in April was the second lowest average monthly price ever seen in the Estonian market area./-/doc/8457332/news/turuylevaated/2015_04/keskmised_borsihinnad_eng.jpgYet, for access to cheaper electricity, the market areas of Estonia, Latvia and Lithuania depend on the transmission cables EstLink-1 and EstLink-2 (EL-1 and EL-2) between Estonia and Finland. Although Estonia is capable of fully supplying its electricity consumption with its own output, electricity produced from local oil shale is more expensive than electricity originating at the nuclear and hydroelectric power plants in the Nordic countries. As a result, the decline in electricity prices in the Baltic States is at least partly due to the EL-1 and EL-2 cables remaining operational.On the last day of April, however, a malfunction occurred at the Püssi converter station in Estonia, interrupting the operation of EL-2 as a result. Because of the malfunction, the transmission volume between Finland and Estonia decreased from 1000 megawatts to 342 megawatts, which in turn raised the Estonian electricity price on average 8 €/MWh above the Finnish price. As at the time of writing, EL-2 has not yet been placed back at the disposal of the market.April saw the price of electricity in Finland come to be EUR 30.09 per megawatt-hour , 2.3% up from March (29.42 €/MWh). In late April, the price in Finland was taken higher by malfunctions and the ensuing repair and maintenance on cables between Sweden and Finland./-/doc/8457332/news/turuylevaated/2015_04/kaart_eng.jpg


Average €/MWh

Change compared to previous month



Nord Pool Estonia





Nord Pool Finland





Nord Pool Latvia





Nord Pool Lithuania





**Prices in Latvia and Lithuania in April reached EUR 34.81 and EUR 35.61 per megawatt-hour**, up 8 per cent and 10.5 per cent from March, respectively. Prices in Latvia and Lithuania rose mainly because the output of the Latvian hydroelectric power plants decreased. In the Latvian and Lithuanian areas, the difference in price was caused by constraints on the cable between the two countries, which resulted in an overload on the cable between Estonia and Latvia.

To a lesser extent, NPS electricity prices were also affected by the rise in the prices of carbon dioxide emission quotas, higher coal prices due to a rise in oil prices (which began to recover from their lowest level in the past seven years in April) and work stoppages at NPS nuclear power plants (the production capacity of all NPS nuclear power plants was 15% to 25% less in April).

  • Client numbers increase for Lithuanian gas competing with attractive offers for next few months »

According to Artur Teesalu, Director of the Large Business Customer Department at Eesti Energia , with the arrival of the Lithuanian gas supply on the Estonian gas market, several clients have decided to exchange natural gas supplied from Russia, under the existing formula, for fixed-price gas from Lithuanian LNG, also offered by Eesti Energia. “Gas supplied from Russia depends on the changes in the price of oil in the past nine months and on the exchange rate of the dollar, as a result of which it cannot compete with the prices of supplies from Lithuania over the next few months,” Teesalu explains. “For most of our major clients, it is important to identify efficiencies and savings in their energy costs, something that is guaranteed through Lithuanian gas supply,” said Teesalu, explaining why many clients have decided to turn to gas from Lithuania and take advantage of a good quotation for the next few months. “Today, we can provide our gas clients with immediate gains compared to the other gas price formulas in effect in Estonia,” said Teesalu, citing a reason for the competitiveness of Lithuanian gas.To identify the gas purchase solution best suited for their companies, clients should contact Eesti Energia’s corporate client managers, who will provide the details on the options for purchasing energy.

  • Shutdown of two Swedish nuclear power reactors may push up electricity prices »

The Swedish national energy company Vattenfall announced at the end of April that since the decreased prices of Nord Pool Spot (NPS) have hit the energy company hard financially, the shutdown of two nuclear power reactors is being moved up from the originally planned date. Whereas the original plan was for Sweden’s oldest nuclear power reactors, Ringhals-1 and Ringhals-2, to be shut down around 2025, under the new plans this will happen as early as 2018 to 2020./-/doc/8457332/news/turuylevaated/2015_04/Vattenfall.jpgRinghals nuclear power plant. Photo: Vattenfall.seThe shutdown of the two reactors will take 1.75 GW of electric output off the NPS market. Annually, the reactors produce approximately 10 TWh of electricity, more than the annual electricity requirement of all of Estonia.In the context of decreased electricity prices and rising costs, it no longer makes commercial sense for Vattenfall to keep the nuclear power reactors in operation. According to the company, previous future transactions will continue to safeguard against low prices for some time yet; however, these contracts will be expiring soon. The shutdown of the reactors will entail the cutting of around a thousand jobs by Vattenfall.Because of the shutdown of the nuclear power reactors and the added submarine cables, the NPS market area is likely in for a price increase. The Norway-based consulting firm THEMA estimates that the shutdown of just two Swedish nuclear power reactors may raise the average NPS market price by EUR 3 per megawatt-hour .

  • EU once more reaches interim agreement on when carbon market reform to begin »

After several months of negotiations, the European Commission, European Parliament and Member States reached agreement as to the start date of the reform of the European carbon market. By agreement, the reform of the world’s largest market for trading carbon quotas will launch on 1 January 2019.The interim agreement, reached by the EU already last February, set the beginning of the market reform at the end of 2018. This, however, was vehemently opposed by the Eastern Bloc of the EU led by Poland, whose economies depend on coal, which contains extremely high quantities of carbon dioxide The Eastern Bloc countries wished to push the market reform into the early years of the next decade. During April, however, the Czech Republic changed its mind, throwing its support behind an earlier start for the market reform. This greatly fuelled plans by the Western Bloc Member States to move up the beginning of the reform to this decade.The objective of the reform is to create a Market Stability Reserve (MSR), which will operate on the principle of removing carbon quotas from the market and releasing them onto the market. Through this kind of activity, the EU is able to control the market price of CO2 if it should drop too low or rise too high. The creation of the MSR was instigated by the current large surplus of quotas on the market, as a result of which the price of carbon dioxide has descended to the lowest levels in recent years. This quota surplus was caused by the global economic crisis, as a result of which demand for emission quotas declined. At the same time, EU Member States kept dumping quotas on the market at the same rates and in the same quantities./-/doc/8457332/news/turuylevaated/2015_04/co2_eng.jpgRight before the economic slowdown, a tonne of CO2 cost approximately EUR 30, whereas the price of the quota had dropped below EUR 7 by the beginning of 2015. During April, the price of emissions quotas rose gradually and reached EUR 7.39 per tonne by the month’s end.

  • 2015 sees price of oil reach its highest level and dollar exchange rate drop »

In April, the price of crude oil mostly charted a constant upward trend, rising to USD 66.78 per barrel by the month’s end, the highest level this year. For oil, March closed at a price of USD 55.11, whereas in mid-January a barrel of liquid fuel still cost approximately USD 47. As at the time of writing, the price of crude oil is rising to near the 70 dollar mark./-/doc/8457332/news/turuylevaated/2015_04/toornafta_hind_eng.jpgThe heady month-on-month rise (21.2%) in the price of crude oil was brought on by the significantly weakened dollar, which made oil more affordable for those for whom the base currency is not the United States dollar. On the last day of trading in April, the European Central Bank recorded the rate between the euro and the dollar at 1.1215, the weakest performance by the dollar since late February (the exchange rate was 1.1240 on 27 February). As recently as mid-April, one euro bought 1.05 dollars, the lowest level at which the euro has traded against the dollar in the past ten years./-/doc/8457332/news/turuylevaated/2015_04/euro-dollar_eng.jpgMostly, the dramatic rise of the euro against the dollar was due to the economic results published for the United States in April, which indicated that the rapid growth of the US economy is slowing. The information published included, for example, downward trending investment plans of US companies, disappointing sales figures for the retail sector, and disappointing statistics on job creation.During the month, crude oil was also supported by the political conflicts in the Middle East, including the air strikes on Yemen planned by Saudi Arabia and the unrest in Libya. The conflicts in the Middle East cause concern in the markets, as they fear a slowdown in the production of crude oil. This, in turn, results in prices rising, since oil traders hedge availability risks by purchasing crude oil in advance.The attention of the markets is also turning toward the meeting of OPEC (Organization of the Petroleum Exporting Countries) in June. By and large, the expectation for the meeting is that the cartel will continue its current strategy, meaning, among other things, that no limits will be set on production.

  • News from the Baltic States »

Eesti Energia doubles sale of shale oil

Compared to the same period last year, the sale of shale oil by Eesti Energia doubled in the first quarter of 2015. The larger sales volume of liquid fuels significantly mitigated the negative effect that low electricity and oil prices had on the Group’s business results.In the first quarter of 2015, Eesti Energia produced 85,000 tonnes of shale oil in total, with nearly one-third, i.e. 28,000 tonnes, coming from the company’s new oil plant. In total, oil production grew by 37% compared to the same period last year, while oil sales doubled. In the first quarter of this year, Eesti Energia produced 2.3 TWh of electricity, which is 3% less than in the same period last year.

Process change boosts annual mining output by 908 thousand tonnes

Eesti Energia’s Oil Shale Day, held in April, presented information about changes implemented at the Narva quarry and the Estonia mine to increase the efficiency of oil shale mining, thanks to which the total volume of annual output is significantly higher. Thanks to the innovations, total output at the Narva quarry rose by 908 000 tonnes in 2014. Since the summer of 2014, the Narva quarry has been operating two massive excavators in two mining trenches simultaneously. The technologies utilised at both the Narva quarry and the Estonia mine have been designed to meet the demand for oil shale.

Auvere Power Plant produces electricity for the first time

In early May, Eesti Energia’s Auvere power plant, under construction, was connected to the power grid, and electricity produced at the new plant reached the electricity system for the first time. Tests and set-up at the plant continue. Compared to power plants running on the technology of burning oil shale dust, the plant operating on fluidised bed technology is more environmentally-friendly and efficient in terms of production. For fuel, the plant will use oil shale, which may be replaced with biofuel by up to 50%.Auvere Power Plant will be completed by the end of this year. The power plant is being built by a consortium led by Alstom, under a turn-key contract. Companies in the Eesti Energia Group have also contributed toward the completion of the new power plant./-/doc/8457332/news/turuylevaated/2015_04/auvere_energiakompleks.jpgAuvere energy complex

Karla Agan takes over helm at Eesti Energia’s Energy Sales

On 11 May, the helm of Eesti Energia’s Energy Sales Unit, which operates in all three Baltic States, was taken over by Karla Agan, who for nearly four years managed Eesti Energia’s product development team in Estonia and Eesti Energia’s businesses in Latvia and Lithuania. Margus Rink, who had been managing Eesti Energia’s Energy Sales on the Baltic markets for the past seven years, decided to accept new challenges in pharmaceutical sales. Hando Sutter, Chairman of the Management Board of Eesti Energia, pointed out that although the electricity market is open and competition on the gas market, too, has taken off, both markets are in for some interesting times: “Karla brings to our team strong management ability with respect to development projects. He has great experience in organising pan-Baltic collaboration; in addition, as a former staff member of Eesti Energia’s Energy Sales, he knows well the areas important to us.”/-/doc/8457332/news/turuylevaated/2015_04/Karla_Agan.jpgKarla Agan

Latvian government supports draft act on energy conservation

Last month, the Latvian government endorsed the energy conservation draft act, proposed by the Ministry of Economics, which aims to stimulate cost-effective investments in energy conservation projects relating to energy production, transmission, distribution and final consumption. According to the draft act, the state will promote and update the national energy conservation plan and define the activities that Latvia needs to implement in order to reach its stated energy conservation objective of 2.474 GWh of final consumption in 2020. The draft act awaits approval by the next cabinet and the parliament. Under the plans, several regulations are proposed to complement the energy conservation legislation, to define more detailed relevant provisions.

First client of Lithuanian LNG distributing station hails from Estonia

The smaller liquefied natural gas terminal to be built by AB Klaipėdos Nafta on land in Lithuania has gained its first client – JetGas OÜ, Estonia-based importer of LNG who also delivers natural gas to those consumers beyond the reach of the natural gas network. According to Klaipėdos Nafta’s report, the companies have concluded preliminary agreements, with JetGas planning to transport LNG from the distributing station to companies and, thereby, expand the LNG network in the Baltic States. The Estonian company plans to begin importing gas in 2017, when the LNG terminal, to be built on land, is scheduled for completion.

  • Viru Õlu, major client of Eesti Energia: buying electricity and gas from one supplier greatly simplifies handling business »

In this market overview, we are profiling Eesti Energia’s major client AS Viru Õlu, one of Estonia’s three biggest producers of beer and soft drinks. In addition to its beer output, the beverage plant at Haljala also turns out ciders, lemonades, energy drinks and syrups. The company considers its best known brand to be Puls, which it acquired from Pärnu Brewery in 2008 and to which it has increasingly added new beers. Besides the Puls beers, Puls ciders, the Mõmmi lemonade, and the Hustler energy drink are also well-known. Furthermore, the syrups Ambrosia and Päiksemarja are produced. Other beer brands – such as Tasuja and the retro beer Žiguli – are produced as well.In summary, according to Ott Licht , the chief executive of the company, it may be said that Viru Õlu’s traditional range of beers is complemented by gourmet-style beers, flavoured beers and non-alcoholic beers. Since Viru Õlu is part of the Denmark-based Harboe Group, several products made at other plants of the Group – such as Pure juices – also reach Estonia./-/doc/8457332/news/turuylevaated/2015_04/puls_snak.jpgSnacks by PulsLicht believes that, in order to remain successful in the food and beverage industry of today, the company has to stay up to date on the consumer’s wishes and be capable of producing efficiently. “For the consumer, quality and price are important; however, we wish to be constantly trying something new and interesting. For instance, now the high season – summer – is about to kick off, and the sun is the best salesperson in our business, since if the weather is good, consumption will go up, too. Spring is a time of positive expectations, and the expectations for summertime consumption are always high,” Licht explains. He adds that the present-day plant is not important just locally: Beers, ciders and soft drinks produced by Viru Õlu also reach our neighbouring countries: Latvia, Lithuania, Finland, Sweden and Denmark. “The variety of products and a wider sales reach are becoming more and more important – especially now, when the beer market in Estonia is trending downward and state-level decisions on excise duty increases on alcohol products are difficult to forecast,” Licht elaborated./-/doc/8457332/news/turuylevaated/2015_04/Viru_Olu_Brewery.jpgViru Õlu’s production facilities at HaljalaAs the chief executive of a production and commercial enterprise, Licht believes that price continues to be an important consideration for the person who goes to the shop to buy food and drink. “Offering an attractive price at the shop is directly linked to the competitiveness of the company on the market. As a result, recent years have given rise to a situation where costs incurred in the production process have become very important,” Licht points out. “Whereas the change in the price of electricity is clearer to see for the household consumer, it is considerably more difficult to tell the change in the price of electricity from products sold at the shop. Whereas generally information about changes in the price of electricity is known on the local market, it is more difficult to justify changes in the price of electricity through a change in the price of a product on the export market. Today, efficiency is a daily keyword, as a result of which it is extremely necessary to look for opportunities for savings and for monitoring and managing costs better,” Licht believes and points out that generally electricity and gas costs make up approximately 15% to 20% of the total production cost of final products, as a result of which energy costs play a very important role in the daily life of the company.A buyer of both gas and electricity from Eesti Energia, Viru Õlu says it is monitoring very carefully the developments on the energy market, that is, how prices are moving and how costs can be influenced by managing purchasing processes skilfully. “Our daily tasks also include the identification of less energy intensive equipment and processes. It is always easier to save on costs within your own company than to go and raise prices on products for your clients,” the chief executive of the company believes. “We meet with various suppliers in the energy sector at annual negotiations and keep up to date on all the advantages on the market through them. Based on them, we decide how to continue and with whom,” Licht explains. “With the advent of the free market, luckily there has been a substantial increase in the number of options. In buying both our electricity and gas from one supplier, we have found ourselves to have more sway during negotiations, and it is also simpler to handle business this way,” Licht admits, pointing to the fact that the company currently buys both its gas and electricity from Eesti Energia.“The seller of strategic energy carriers for our company – Eesti Energia – has been a good partner for us. During negotiations, we have been able to discuss various possibilities in terms of the prices and future trends of these products, we have been able to simply interact, and invoicing and the settlement of payments through one supplier have been convenient, too,” Licht describes the business relationship with Eesti Energia. “At the same time, is it not insignificant that Eesti Energia has many years of experience in the area of electricity and also a desire to be a gas supplier to be reckoned with on the market. Since, additionally, the people are also nice, you can well say that they are a suitable partner for us!”

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.