Lithuanian power premium to Latvia and Estonia to persist

LONDON (ICIS)–A premium on Lithuanian Day-ahead prices compared with the other Baltic power markets is expected to remain a feature of the Baltic market for the foreseeable future.

A split has developed in the Baltic power markets with Lithuanian Day-Ahead prices at a premium to Latvia and Estonian prices in all but six days over the past month. The premium has varied from €0.34/MWh to €20.28/MWh.

POWER DEFICIT TO CONTINUE

The underlying issue is the shortfall in Lithuanian supply compared with demand. The supply deficit will amount to 1.9TWh in 2021 and 1.36TWh in 2022, according to ICIS analytics, and grow as Lithuania joins the continental synchronous area along with Estonia and Latvia in 2025. The deficit leaves Lithuania reliant on imports.

Until December 2020, Lithuania could rely on imports from Belarus through a direct connection, but after the controversial Astravets nuclear power plant came online four months ago, Lithuania cut off all power trade with Belarus.

Connections to Sweden, Poland, Kaliningrad and Latvia remain in place.

The flow through the 700MW sub-sea NordBalt cable connecting Sweden (SE4) and Lithuania has been overwhelmingly to Lithuania, and so have the flows from Latvia and Kaliningrad.

Yet, this has not been enough to keep Lithuania‘s power prices at the lower levels seen in Lativa and Estonia.

Part of the reason is, that the Polish Day-ahead price has been at a €13.45/MWh premium to Lithuania on the average over the past month and this has caused power to flow from Lithuania to Poland.

Another reason has to do with the supply of power to Lithuania.

THE LATVIAN CONNECTION

Latvia will have a solid power surplus of 3.7 TWh, both in 2021 and 2022, according to ICIS analytics. The four interconnectors to Lithuania have a joint capacity of 1.1GW. However this represents a decrease in capacity, which was 1.35GW up until this year. During March maintenance reduced available capacity further to under 900MW, although this maintenance ended on 3 April.

Sources in Lithuania point to this decrease in capacity between the neighbouring countries as the reason for the newly developed split. There are no immediate plans to increase the capacity between the two countries.

While Latvian – Lithuanian capacity has decreased, Latvia and Estonia has become better connected and the power price is identical across the Latvian Estonian border. The north Baltic duo is helped by Estonia‘s EstLink 1GW interconnector to Finland and Latvia‘s 1GW connection to Russia.

No two Nordic connections are the same, and the spread across the Nordics has an impact on the spread between Lithuania and Latvia/Estonia.

THE SWEDISH SPLIT

Ever since Sweden shut down the Ringhals 2 nuclear reactor at the end of 2019, the price of power in Sweden has varied markedly between the Swedish regions, as the power consuming south has struggled to import enough power from the power producing north to compensate for the lack of nuclear baseload supply.

The phase-out of the Ringhals 1 reactor at the end of 2020 only compounded this issue, and this has meant that the SE4 bidding region in souther Sweden has become more expensive. During the past month, it has mostly been at a premium to Finland.

This carries over into the Baltics, as SE4 is the region connected to Lithuania while Finland is supplying Estonia. During March, a SE4 premium to Finland has been strongly correlated to a premium on Lithuanian power, most noticeably on the 20 March when the SE4 Day-ahead premium and the Lithuanian premium both reached €20.28/MWh, according to NordPool.

PREMIUM PRICES

Sweden is working to better the supply of power to the south, but it will take time, most likely years, to solve the problem.

The Latvia/Lithuanian connection is also unlikely to improve anytime soon.

Poland remains strongly reliant on fossil fuels and as the price of carbon, coal and gas stay high, so will the Polish power prices. This will encourage Lithuanian exports to Poland.

All this will keep Lithuanian supply tight and at a premium to Latvia/Estonia.

While the size of the Lithuanian premium will vary with weather and season, the split in the Baltic power prices is a new and lasting feature on the Baltic power market. Anne-Louise Stranne Petersen