Market Overview, July 2015

Mathias Vaarmann

Market Analyst

Record low prices on the Nord Pool Spot market in July

Very low electricity prices have become a trend this year and July was no exception. Although in the electricity sector, the summer months are considered vacation time, or in other words a period when the electrical industry carries out production equipment and infrastructure maintenance, this year the three Baltic states did not experience any significant electricity price increase due to maintenance works. Interestingly, the only area in the Northern European united Nord Pool Spot (NPS) market to see a major electricity price increase was Finland.

Hence this Market Overview will provide a thorough analysis of this record July price decrease. In addition, we take a closer look at how businesses could benefit from favourable electricity prices in terms of future electricity contracts.

In an overview of European news we explore interim developments in the carbon market reform planned for 2019. We also take a look at the oil market where the prices of Brent crude oil fell to a record low. The liquid fuel markets witnessed a constant decrease due to production that became available for OPEC Member State consumption, an agreement between the West and Iran to cancel sanctions and the ever-deepening stagnation of the Chinese economy.

In the Baltic States section, we review the 2nd quarter financial performance of Eesti Energia where profit was maintained despite difficult conditions. We also provide additional information on the decision of Litgas and Statoil to enter the Baltic Sea liquefied natural gas (LNG) market.

In our client sector we speak about an Eesti Energia corporate client — glass processing company Marepleks.

Read more about these topics below

  • Finnish electricity prices rose remarkably, Latvian and Lithuanian prices stayed put and the Estonian market price stayed at an all-time low in July »

The average market prices of Sweden and Norway dropped to a record low – on average in Sweden and Norway, one MWh of electricity cost approximately EUR 9. The cheapest area was Tromsø at 8.80 €/MWh, whereas the most expensive area of the two countries was the 4th market area of Sweden at 9.19 €/MWh (Sweden is divided into 4 market areas). In July, the prices of these regions were 13.31 and 20.14 €/MWh respectively.In the two price areas of Denmark, the average July market prices were 13.65 and 13.79 €/MWh. Prices during the last period for these regions were 19.13 and 21.51 €/MWh respectively.
In July, the average price per MWh on the Finnish market saw an increase of more than 28 %, resulting in an increase to EUR 27.57. The highest price per hour in July was reported in Finland — EUR 75.56 per MWh, which was also the highest hourly rate of the NPS and exceeded the price on the Baltic market by approximately EUR 10.For Finland, planned maintenance of the cable between the 1st market area of Sweden and Finland served as the decisive factor. In addition to this, several maintenance works were conducted in Finnish electricity stations and these also contributed to the price increase. Finland does not have enough electricity production capacity to cover its own electricity needs, hence it greatly depends on electricity imports (mostly from Sweden).Due to a higher price in the Finnish market area, during several hours electricity exports from Estonia to Finland took place though sea cables EstLink-1 and EstLink-2. In general, when the two countries are compared, Estonia is more expensive, which is why electricity moves through the sea cables mostly towards Estonia.In Estonia and Finland, electricity prices in July were equal during 699 hours and different during 45 hours. This means that the prices of the two regions matched 94 % during July. In June this indicator was 69 % and in May a mere 48 %. The May indicator was so low due to the EstLink-1 and -2 maintenance works that month.


Average €/MWh

Change compared to previous month



Nord Pool Estonia





Nord Pool Finland





Nord Pool Latvia





Nord Pool Lithuania





As compared to the previous month, July prices in three Baltic states stayed in the same price range. **While the price in Estonia experienced a monthly 3 % rise, resulting in EUR 28.06, prices in Latvia and Lithuania increased slightly above 3 %, in July reaching EUR 44.26 per MWh.** Record low hourly rates were reached as well in Estonia, amounting to EUR 1.03, and in Latvia and Lithuania at 4.05 EUR/MWh.

Ample production in Norway and Sweden has led to constant price decreases on the NPS market as a whole, which in July gained more speed. Since spring and summer temperatures were rather low this year and snow melted off the mountains of both countries later than usual, mostly in July. The rapid increase in water caused hydroelectric stations working on rivers to produce large amounts of electricity, which in July among other factors also caused the EUR 1 hourly rates on the NPS market.

  • Economic level of exchange prices — a good opportunity for fixing electricity prices »

EstLink-2, the sea cable between Estonia and Finland, enables the Estonian market to access the electricity production capacity of other Nord Pool Spot countries more efficiently,. Following the principle of electricity moving from cheaper areas to more expensive ones, as a result of sufficient hydroelectricity and nuclear energy production, more cheap electricity has been distributed to Estonia as well. At the same time, one must not forget that the markets connected with Finland are dependent on Sweden and Norway as well as the transmission lines between the regions.As in July, hydroelectric plants produced a lot of electricity and at the same time demand was low due to the trough in exchange prices, so electricity prices on the exchange were advantageous to clients. The fact that from month to month large fluctuations in electricity prices on the exchange may occur also needs to be taken into account. As electricity prices are largely low right now, the prices of long-term forward contracts are down as well.Currently, the next period of concluding a new electricity contract for most clients starts in 2016 or even later. According to Artur Teesalu, Head of Large Business Customer Services at Eesti Energia, this is why we need to consider fixing prices now while prices of forward contracts are down and not wait until the end of the currently valid contract."When thinking of electricity purchases, we need to take into account that the electricity price in July 2015 plays no role in price development, as we cannot predict the situation of water reservoir levels of 2016 nor the production potential of cheaper electricity right now," Teesalu explains. "Based on experience, we can say that the approaching autumn seems like a good moment for fixing electricity prices during upcoming periods. For companies that do not want to take on additional risks when purchasing electricity, we recommend a popular option of electricity purchase offered by Eesti Energia — part-fixing the price."Key account managers of Eesti Energia help their clients compose a strategy of purchasing electricity for upcoming periods that takes market inputs and clients' business needs into account.

  • European Parliament set to back carbon market reform in 2019 »

In July, the European Parliament accepted the plan to push carbon emission trading market reform to the beginning of 2019. Over the course of the reform, the carbon market shall apply a Market Stability Reserve (MSR).
The carbon market is one of the central tools the European Union uses in fighting CO2 emissions. The EU's ambitious plan is to decrease CO2 emissions by 40 % by 2030 and the freshly adopted MSR will contribute to achieving this.The underlying principle of the MSR is to remove and return carbon allowances from and to the market. By doing this, the EU has control over the CO2 market price if it should drop too low or rise too high. The creation of the MSR was initiated because of a current surplus of carbon allowances on the market, which has caused carbon prices to reach their lowest point in recent years. The surplus was caused by the global economic crisis, which resulted in decreased demand for allowances. At the same time, EU Member States continued putting allowances on the market at the same speed and in similar amounts.

  • Crude oil experienced rapid price decrease in July »

This spring brought recovery to the liquid fuels markets, and the second month of summer witnessed plummeting prices for crude oil. At the beginning of May, Brent crude oil achieved its highest level this year, reaching USD 67.77 per barrel. This was a recovery from the January low of over 45 % when a barrel cost USD 46.6.By the end of July, the Brent price fell again and the month ended at USD 52.21. On the 1st trading day of August, the price of oil fell below USD 50, closing at USD 49.52 per barrel. This means that by the end of July, the spring recovery of oil prices disappeared as if it had never existed in the first place.
The liquid fuel markets were in constant decline due to record production from OPEC Member State consumption, an agreement between the West and Iran to cancel sanctions and the ever-deepening stagnation of the Chinese economy.In July oil production in OPEC countries reached a historic high, rising to 32.01 million barrels a day on average. In light of low oil prices, the OPEC countries together with Saudi Arabia chose to maintain their market share. Essentially this means that the organisation did not limit its oil production, which would result in higher oil prices. Since this decision was made in November 2014 in a joint meeting, OPEC production has risen to 1.7 million barrels per day (BPD). The international supplier has stood by its decision despite the current price trends for oil. This measure is designed to force several small producers (whose entrance onto market led to a decrease in the price of oil that started last summer) out of the market.At the beginning of July, the West and Iran achieved an agreement which requires Iran to dismantle its nuclear programme in exchange for continuing the export of its oil products to Western countries. Iran is one of the largest OPEC producers and in July the potential addition of production from this Islamic country fuelled further drops in the price of oil. Iran's returnmight mean production growth at a level of one million barrels per day on a market where supply already greatly exceeds demand.The continued stagnation of the Chinese economy strongly affects oil demand. China is one of the largest oil consumers and its economic slow down translates into less demand for oil. Due to the size of the Chinese market, a decline in demand can be clearly felt on the liquid fuels market.
In July, the euro-dollar rate was largely volatile . The euro exchange rate increased a bit and reached USD 1.0967 by the end of month (at the end of June, the rate was USD 1.1189). July 20 was the strongest day, when the European Central bank noted its Euro-Dollar rate at 1.0852. In July, the European single currency was influenced by the Greek debt crisis as well as the slowdown of the Chinese economy.

  • News from the Baltic States »

2nd quarter financial performance of Eesti Energia: profit maintained despite difficult conditions

Due to the low energy market season, during the 2nd quarter Eesti Energia sales revenues decreased, but earnings before interest, taxes, depreciation, amortization (EBITDA) and net profit increased. During the 2nd quarter of 2015, the company's sales revenue was EUR 181 million, which is 12 % less than last year. Despite the drop in turnover, earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 2 %, reaching EUR 69 million. Eesti Energia's net profit was EUR 7 million, which is 10 % more than a year before."When evaluating financial performance, we must take into account the surrounding difficult context — as compared to earlier results, electricity and oil market prices have dropped considerably," said Hando Sutter the Chairman of the Management Board. He admitted that during the last quarter the company did relatively well and managed to maintain a profit. "This was mainly because of finished risk management deals and thoroughly considered cost management," Sutter affirmed.

Remarkably stable wind at the beginning of the year caused record production of renewable energy at Eesti Energia

Innar Kaasik, the head of renewable energy and small scale cogeneration at Eesti Energia, said that the first half of the year was satisfactory for windfarm owners. "Whereas 2014 was less windy than usual, 2015 has made up for it in every way," Kaasik told us. "During the first six months, Eesti Energia windfarms produced 124,466 MWh of electricity, which is a quarter more as compared to 2014. We can compare it to the yearly consumption of 41,488 households with average consumption."Eesti Energia is the second largest wind energy producer in Estonia. The company altogether owns four windfarms: in Narva, Aulepa, Virtsu and Paldiski. Producing electricity from wind saves Estonian oil shale for conducting activities that create bigger added value, e.g. producing oil in Enefit plants. Just during the 1st half of 2015, with the help of electricity produced from wind, 146,430 tons of oil shale and 117,144 tons of carbon have remained unused. Over 100,000 barrels of oil can be produced from this amount of oil shale.

Latvian Government supports proposal of lowering the energy consumption of 60 companies

In the middle of July, the Latvian Government gave its support to a draft act on decreasing the energy costs of 60 companies that consume the most energy (incl. KVV Liepajas metlaurgs, Valmieras stikla skiedra, Cemex and Latvijas finieris). According to the government, the draft can help diminish the negative impact on electricity prices and other factors for economic development and to enhance overall well-being. The aim of the draft act for the Latvian companies with the largest consumption is to improve the competitiveness, attractiveness in the eyes of investors and the amount of well-paid workplaces, as well as keep the sector sustainable in general. Already in 2016 the state budgets need an extra EUR 12.51 million to achieve this and apply the law.

Litgas and Statoil are preparing a joint business to enter the Baltic Sea liquefied natural gas market

Litgas, the supplier and seller of natural gas, Lietuvos Energija, partly belonging to State of Lithuania, and Statoil, the Norwegian oil and gas production company, signed a common memorandum describing the establishment of a joint business with the aim of entering the Baltic Sea liquefied natural gas (LNG) market. The joint business shall be established in Lithuania by the end of the year and its goal is to supply LNG as fuel to ships, to smaller Baltic Sea terminals and to mainland clients, using trucks. According to the plan, the joint business will start its supplies during the last quarter of 2017 at the latest.

  • Glass processing company Marepleks: Any successful cooperation is based on quality in its broadest sense »

In the current clients' sector, we introduce the glass processing company based in Elva: Marepleks. Marepleks, a corporate client of Eesti Energia, deals with glass cutting, drilling, toning, opacifying, polishing, indurating, laminating, printing as well as painting. The company offers products from glass chips to full solutions, as well as produces glass packets and mirrors; it also does wholesale of ready-made products and fills individual orders from Estonia, Latvia and Finland. Marepleks' recent work includes the glass partitions of the ultra modern Expo and Convention Centre Helsinki, the light boxes of the Tartu Pauluse Church columbarium and the glass façade details of Premium 7 gas stations.
Source: Marepleks OÜAccording to head of Marepleks, Tõnu Aigro, over a hundred of the best experts in the field, who give their best to achieve the best end result, work for the company. "During production we cooperate closely with our suppliers who are well-known in Europe. I believe that quality is the basis of all successful cooperation, requiring professional and functional work, flexibility, correctness and preciseness," Aigro emphasizes. He adds that all their products are made according to clients' wishes, following architectural goals of creating private zones, options for sound or heat installation, functioning as interior design elements or ensuring safety, security or sunscreen.Aigro describes the rich possibilities of processing glass: "In our plant, we process glass in many different ways to ensure its necessary functions — protection from heat and cold, sound isolation or security, or to guarantee design with the correct tone, colour, embossing and form." This is how mass toned or coated, decorative and other types of glass are made.
Source: Marepleks OÜAigro believes that electricity costs are inevitable in a production company as well as in the glass business and in addition to economising electricity, that they help economise on workforce intensification. "Here we also need to observe the market situation and make sure that the company is economically balanced in every way," Aigro explains. He ensures that Eesti Energia, the partner of Marepleks, has played an important role in managing its energy costs. Its account holder helps keep an eye on the glass producer's electricity costs and if necessary, helps find quick suitable solutions.

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