Lithuanian power market after June 18th, 2012

Lietuvos energija, AB

Riga, 2012

Agenda

1. Changes in Baltic energy market after the opening of NPS Lithuanian bidding area on June 18th, 2012

2. Practical example of Lithuanian market isolation

3. Possible suggestions for solving mentioned problems

1. Changes in Baltic energy market after the opening of NPS Lithuanian bidding area

*Data from June 18, 2012 till September 18, 2012

Lithuania works as an isolated area which implicitly is not connected with any other bidding area in Nord Pool Spot market, therefore further developments are necessary for properly functioning common Baltic electricity market.

Risk for market

participants

No coupling - No liquidity

Limited EE/LV capacities

FI

SE3

After the introduction of NPS Lithuanian bidding area capacity netting mechanism has been applied on EE/LV interconnection (both directions between EE and ELE), unfortunately EE/LV cross-border capacity still remains to be one of the major limiting factors for efficient electricity exchange in the Baltic region.

Price coupling of ELE and LT bidding areas has not been introduced, hence electricity volumes traded in these areas have to be shared between them. That decreases liquidity of both ELE and LT bidding areas and increases the unpredictability of electricity prices in those areas.

Isolation from other NPS bidding areas as well as lack of competitive local generation consequently increase the probability of high prices in LT bidding area.

Prices depend on the trading

strategies

Prices in ELE and LT bidding areas are formed not by the fundamental situation in the market, but by certain trading strategies of market participants.

2. Practical example of Lithuanian market isolationJu

n-18

Jun-

21

Jun-

24

Jun-

27

Jun-

30

Jul-0

3

Jul-0

6

Jul-0

9

Jul-1

2

Jul-1

5

Jul-1

8

Jul-2

1

Jul-2

4

Jul-2

7

Jul-3

0

Aug-

02

Aug-

05

Aug-

08

Aug-

11

Aug-

14

Aug-

17

Aug-

20

Aug-

23

Aug-

26

Aug-

29

Sep-

01

Sep-

04

Sep-

07

Sep-

10

Sep-

13

Sep-

16

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

300.0350.0400.0450.0500.0550.0600.0650.0700.0

20th of August – average price in LT was 123 EUR/MWh

Implicit Capacity EE/LV EE ELE LT

€/MWh MW

1. Delayed implementation of Latvian NPS bidding area.

2. Lithuanian and Estonian bidding areas are not

coupled.

1. Lack of competitive generation in Lithuania.

2. Insufficient development of physical EE/LV transmission

capacities.

Illiquidity of ELE and LT

bidding areas

Limited capacity on EE/LV border

1. Limited EE/LV implicit capacities – only 270 MW.

2. Reduced amounts of electricity imports due to

line outage in Russia

Integration of isolated Lithuanian market into common Baltic energy market shall benefit both producers and consumers.

LIMITING FACTORS – SHORT TERM LIMITING FACTORS – MEDIUM TERM LIMITING FACTORS – LONG TERM

3. Possible suggestions for solving mentioned problems

LT

EE

Suggestions:

a) NPS introduction in Latvia should be seen as a priority, although coupling of ELE and LT bidding areas could be used as an interim solution.

b) Cross border capacities on EE/LV border should be increased (for example, by changing capacity allocation mechanism for electricity transit from third countries, or by amending TRM calculation mechanism).

Open questions:

c) What is the timeline and key milestones for opening of Latvian NPS bidding area?

d) Is price coupling of ELE and LT areas feasible in order to temporarily increase liquidity in the spot market?

e) How is congestion income from EE/LV bottleneck used for the development of infrastructure?

Development of common Baltic electricity market

NPS LV