Montel Magazine 1 2022 - Uproar over green investm Montel Magazine 1 2022 - Uproar over green investm - Page 15

“ It is a very clear sign the market is under stress ”

Price surge to EUR 1,000 signals Baltic supply squeeze

Record high spot prices of up to EUR 1,000 / MWh suffered by the Baltic region this winter have signalled a supply squeeze “ coming close to a situation where there is not enough generation to cover consumption ”, says Hando Sutter , CEO of Estonian utility Eesti Energia .
By Olav Vilnes
Skyrocketing prices of 3-4 times above average levels have revealed the dearth of renewable energy capacity in the region – which covers Estonia , Latvia and Lithuania – and suggests a reliance on conventional thermal plants for years to come , he adds .
“ We have recently seen hourly power prices at EUR 1,000 / MWh in the Baltic region and Finland . It is a very clear sign the market is under stress .”
The surge also indicated how reliant the three states are on imports to cover demand , as Europe suffered an energy price crisis with costs inflated by soaring gas and carbon .
Ironically , the high cost of power imports has prompted Eesti Energia to return to oil shale-fired power plants despite the cost of emitting carbon at record levels , with EUAs recently trading above EUR 90 / t .
“ We have produced with all our shale oil assets since November . Some of these plants had been idle for one and a half years [ due to weak profitability ] and only a year ago we thought they would never be used again ,” says Sutter .
“ We have to to discuss for how long they should be running ,” he adds of the technology that used to generate more than 8 TWh / year of electricity until high carbon prices started to hit profits from 2019 .
Annual output from oil shale plants fell to around 2 TWh in 2020 and is likely to stay around or slightly above this level until 2025 before being phased out by 2030 , according to a strategy report released by the group last year .
To bridge this gap , the group plans to boost existing renewables capacity nearly three-fold to 1.1 GW by 2025 across the Baltic states , Poland and Finland .
All these investments will be backed by long-term power purchase agreement ( PPAs ) undertaken by its newly listed renewables subsidiary Enefit Green .
Montel Magazine 1 – 2022
“ We were early at offering PPAs in the Baltic region and have become very successful ,” says Sutter , adding the group has agreed to sell roughly 10 TWh of power through PPAs to 2033 .
While the market for PPAs has soared in recent years , the liquidity in financial power trading in the Nordic and Baltic regions slumped to a 23-year low last year .
“[ Financial power exchange ] Nasdaq should be worried because more deals are now being done OTC and long term with less price transparency .
We are in a way moving back to 20th century trading ,” says Sutter , who made his name in the energy industry as Nord Pool ’ s regional director in the Baltics from 2010-14 , before becoming CEO of Eesti Energia .
At Nord Pool , he was instrumental in moving most of the spot market volumes in the region from OTC to exchange , after the Baltic nations joined in the early 2010s .
Long-term price hedging is more difficult , however , since local spot prices often vary a lot from the joint Nordic system price used as reference for financial contracts .
Nasdaq has for several years offered so-called price differential contracts ( Epads ) for Estonia and Lithuania but these products are little used , making it hard for companies to find counterparties at an acceptable price when they need one , says Suttter .
To overcome the problem , market participants have often traded Epads in the more liquid Finnish bidding zone due to a historical strong price correlation between the Baltic nations and Finland .
“ But recently we have seen periods of huge price differences between Finland and the Baltics , making Finnish Epads less efficient ,” Sutter says .
Regulators and TSOs should do more to improve market conditions for price hedging , for example by introducing financial transmission rights ( FTRs ) on interconnectors to Sweden and Finland , he adds .
There have been talks surrounding the introduction of FTRs for some time but “ it has been an extremely slow process ”. n