Debate rages over impact of new Estonia market regime
Estonia is due to liberalise 35% of its electricity market on 1 April and join Nord Pool's power exchange as the Estlink price region, yet traders are waiting for the market to stabilise and become liquid before joining.
Einari Kisel, deputy general secretary of energy at the economy ministry, told ICIS Heren that competition on the Estonian market will be tougher after liberalisation and less opportunity would exist for market manipulation. The emphasis will be on short-term contracts, with Day-ahead contracts being the main product. Long-term contracts will be re-evaluated after the market opens and becomes more liquid, Kisel said.
Kaido Veldemann, CEO of Estonian-based portfolio management company Baltic Energy Services, said that utilities would be willing to trade on the exchange. But he argued the situation on the market will not be much changed as the choice for consumers will largely be between incumbent Eesti Energia and Latvian utility Latvenergo.
Eesti Energia is hoping to maintain around two-thirds of the market mid- to long-term. "We have covered 60% of the market with contracts and are hoping for that share to increase to 80% by 1 April," Margus Rink from the board of Eesti Energia told ICIS Heren, while Latvenergo is after a 10% share in the Estonian market, according to local media.
But Kisel expects more competition to emerge from Scandinavian companies. Norway's Bergen Energie has already shown interest and Finland's Fortum, which already has production in Estonia, is expected to do the same.
The new arrangements provide an opportunity for Russian utilities to increase their presence on the Estonian power market. Estonia is connected to Russia via three 330Kv (1GW) overhead transmission lines.
Russian state-owned cross-border division Inter Rao established its Estonian subsidiary Inter Rao Eesti last month. In theory, Inter Rao can sell power to the Estonian market only on the exchange but as Estonia has not been trading on the only exchange in the region - BaltPool - the Russian utility has, thus far, found the market impenetrable
InterRao would be able to offer electricity below European market rates due to a price structuring that excludes extra tax from CO2 emissions. But experts seemed certain Russian utilities would not go below the market price. "Our experience in Lithuania and Finland has shown that Russian suppliers will not go below market price, so to make sure we're achieving a fair price, we want our prices to equalise with Finland," Kisel said.
But a spokesperson from Latvian incumbent Latvenergo argued the Baltic region as well as Scandinavia will become net importers of energy in the future, causing them to be more reliant on Russian electricity.
The 350MW Estlink I and 650MW Estlink II interconnectors from Estonia to Finland should ensure there is plenty of cross-border capacity connected to the higher-priced Nord Pool region to allow prices to move closer to parity.
Eesti Energia and Latvenergo recently announced they will release their share of Estlink, thus opening up 262MW of capacity to the market (see EDEM 29 March 2010).
Analysts believe the new regime will raise Estonian prices to €42.00-43.00/MWh in the short term from €30.00/MWh at present. Over the longer terms, prices were expected to move to €40.00/MWh in 2011, €39.00/MWh in 2012 and €41.00/MWh in 2013. The price is expected be more susceptible to fluctuations from Scandinavian and Latvian hydro power levels as well as from cold weather across the region.
Complete liberalisation of the Estonian market is scheduled to take place in 2013. By that time, the market was expected to be sufficiently liquid, according to Taavi Veskimägi, chairman of Estonian transmission system operator Elering. SR
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