Linas Jegelevičius
When joining Nord Pool Spot (NPS), the electricity trade exchange, in 2012, Lithuania rightly hinged many hopes on it. But after a recent surge of electricity prices on it and the subsequent collapse of an independent electricity trader in the country, which forced Lithuania to put off the completion of electricity market liberalisation.
Vilnius says it is discontent how the exchange operates and finger–points to shortcomings of the affiliation. Lithuanian Prime Minister Ingrida Šimonytė announced this week that the third and final stage of liberalisation should be postponed for three to four years, not by one year, as suggested last week by Dainius Kreivys, the country’s Energy minister.
Yet the final decision will be made by the country’s parliament, the Seimas.
«I think we will need to postpone it not for one year, but perhaps for three or even four years – for a period of time to make it possible to install a sufficiently secure amount of local generation involving renewable sources, so that the risk to these consumers from a price shock will be as low as possible,» Šimonytė said to the public radio LRT.
Under the existing scheme, Lithuanian consumers, mainly including elder consumers, had until the year’s December 18 to choose an independent supplier. Up until now, the plan was to complete the power market liberalisation by January 1, 2023.
The PM claims that «nothing» has been done over the last 10 years to ensure that Lithuania has sufficient electricity generation capacity.
PM blames the Russian president, who started war in Ukraine, for what appears to be mayhem in electricity markets.
Previously, Ignitis Grupė (Ignitis Group), Lithuania’s state-owned energy group, criticised Nord Pool’s response to record–high electricity prices and says the power exchange’s recommendations are «formal and technically unfeasible».
«It has to be stated that Nord Pool’s reaction to the expectations expressed by Lithuanian institutions and companies is disappointing as Nord Pool has only formally provided recommendations on how to comply with their existing algorithm, which is often technically unfeasible,» the company said in a statement on August 19.
Ignitis says Nord Pool provides information on how to comply with the algorithm they use but fails to fully assess its suitability for the Baltic countries.
«We know how the algorithm works and how to submit bids to the exchange, but our question is whether the algorithm needs to be improved in the Baltic states’ case to avoid paradoxical rejections. The existing situation in the Baltic states is that the technical constraints of the gas-fired generation units prevent from complying with the algorithm and the conditions offered by Nord Pool,» Ignitis said.
Ignitis Grupė announced last week it is borrowing 224 million euros to finance the group’s need for working capital due to increased energy prices.
Meanwhile, Nord Pool says it has «carefully reviewed the auction results» that led to the record–high electricity price from 6 to 7p.m. on August 17 and can confirm that all procedures were followed in line with the applicable market coupling rules and the price calculation was correctly performed by the Euphemia Algorithm.
It says the Baltic region consists of three bidding zones with a relatively small amount of consumption and production.
«This is not uncommon within the auction however in such tight market conditions its extremely important that members take extra consideration when submitting block bids to the auction as there are scenarios where blocks orders can be excluded as a result of being paradoxically rejected,» Nord Pool said in a statement.
Approached by BNN, Ingrid Arus, Nord Pool Spot’s Market Manager Baltics, referred to an August 17 statement released by the exchange, which states that, in response to the situation, the primary measure to ensure market functioning and reduce the probability of paradoxically rejected blocks is to ensure that there is a sufficient volume offered in single-hourly orders (also called «curve» orders).
«That would allow avoiding situations when bids are paradoxically rejected and that would lead to lower electricity prices on the power exchange,» she emphasized.
The Nord Pool representative said earlier that the main reasons for August 17 record electricity prices are repairs to generating units and low generation of wind power, as well as low water level in Latvia, which has reduced the supply of hydropower to the market.
Local experts say that record high prices of natural gas and carbon allowances, also at record highs, are also to be blamed for the surge – many power plants are trying to use cheaper energy resources available on the market to generate electricity. At the same time, hot weather, scarce wind and water resources, as well as simultaneous repairs at several power plants in the Baltic countries have created a situation of deficit in power generation, which is also reflected in the high price levels on the Nord Pool power exchange.
To address the contingency, Lithuanian Energy Minister Dainius Kreivys asked the National Energy Regulatory Council (VERT) to investigate whether the NPS algorithm used to calculate electricity prices on the power exchange is not another reason for high electricity prices in Lithuania.
Renatas Pocius, head of VERT, said earlier that talks with Nord Pool would be held to adapt the algorithm specifically for the Baltic region as it’s difficult to change it on a European scale.
The collapse of Perlas Energija, the independent electricity provider, in the wake of the price surge has also prompted the Ministry to swiftly review the whole process of liberalisation.
The ministry says the firm has made «an unlawful move» to abolish fixed-price plans for electricity for its customers The Ministry said it will draft legal amendments raising financial and capital requirements for energy suppliers.
Perlas Energija explained it was changing plans for its all customers, and those on fixed-price plans would be moved to the variable-price plan ‘Exchange’, in response to a surge in electricity prices. The latter’s tariffs depend on the price of electricity on the power exchange.
Vilius Juraitis, the CEO of Perlas Energija, says that the decision was made due to the fact that electricity prices on the power exchange had been steadily edging up since the end of last year, making it no longer possible to offer fixed-price plans to customers.
According to the CEO, financial instruments used by the company to hedge against electricity price fluctuations in Finland make up around 96 percent of its assets.PM Ingrida Šimonytė says subsidising electricity and natural gas bills may cost the Lithuanian government between 500 million euros and one billion euros for the next year.
The government sees keeping energy prices under control as a top priority for next year’s budget, the PM emphasised.
So far this year, the government has allocated 570 million euros to subsidise electricity and natural gas bills for households and businesses in the second half of 2022.