Expert explains: why is there such a large surge of electricity prices?

The surge of electricity price on Nord Pool exchange was caused by the power supply situation in Finland, specifically the restrictions on operations of multiple power plants, and the increased demand for electricity because of significantly colder weather, comments Latvian Ministry of Climate and Energy (KEM).
The ministry notes that on Friday, the 5th of January, there was a significant surge of electricity prices on Nord Pool exchange in Baltic and Scandinavian price zone – the surge started on Thursday and continued on Friday.
The ministry also explains that in Nordic Countries air temperature has dropped as far as -40 C in some areas. This situation affects demand for electricity, as electricity is also used in indoor heating. At the same time, the intense frost also affects the transportation of electricity, causing prices to go up significantly.
According to the Public Utilities Commission (SPRK), consumption is significantly up in Finland. On top of that, temporary shut-downs of individual power plants was also observed, which caused unplanned unavailability of electricity generation capacity for several medium sized power plants. Based on data from Nord Pool, restrictions on operations were set for multiple medium-large (power output of up to 240 MW) fossil fuel and biomass power plants.
KEM Energy Market Office Director Gunārs Valdmanis explains that power generation output in Latvia is sufficient – it still exceeds demand. It is provided by the water level in Daugava River, which allows hydroelectric power plants to operate at full capacity. Thermal power plants continue generating energy as well.
“Today, on the 5th of January, there will be multiple hours during which electricity price in Finland and Estonian price zones will be much higher than prices in Latvia. The positive situation in Latvia allows for limiting the influence of Finland’s electricity market on Latvian consumers,” said Valdmanis.
KEM also explains that Baltic regional energy supply security will improve significantly after the 15th of January, when it is planned to complete repairs on of the blocks of Riga Second Thermal Power Plant. Testing is scheduled for the start of next week.
At the same time, KEM notes that the power price ceiling was the highest in summer 2022. SPRK turned to Nord Pool with a request for information. In its response, the exchange mentioned that authorities have yet to notice any signs of market manipulations. Still, it is planned to perform an in-depth analysis of available information.
Hourly prices are important for users who chose to pay for electricity at prices of the exchange, because these prices affect their monthly bills based on their actual consumption. Users who pay for electricity at fixed prices are not affected by this surge of prices.
Also read: Price of power. Electricity prices on exchange will exceed one euro per kWh
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