Electricity market overview November 2013

Power exchange and Spot Prices in the Baltic electricity market news

Electricity price in in November and Finnish Market dropped 9.5% compared to October, reaching 42.32 €/MWh Area Stabilized In prices decreased even more (-17.2%), averaging at 38.04 €/MWh Finnish and Baltic The average November spot price in The average price of Latvian and spot prices were Estonia was 42.32 €/MWh, a drop of Lithuanian bidding areas decreased the affected by nearly 10% compared to October. Latvian and Lithuanian average spot prices were most (-26.3%), to 47.32 €/MWh higher-than-average both 47.32 €/MWh, a drop of 26% Forward prices in Estonian and Finnish November compared to October. The Finnish bidding dropped in the end of the month temperatures, average spot price was 38.04 €/MWh, and Fingrid will become the new unexpected Finnish which is equivalent to a fall of 17% owners of EstLink-1 and Estonian power compared to October. New electricity purchase solution plant shut-downs and available on Latvian electricity market testing of the new In comparison to November 2012, transmission cable, power prices have risen by 12.9% in Uncertainty in Latvian household market Estonia and Latvia, 2.9% in Helsinki and opening EstLink-2. Higher air 20.3% in Lithuania. Spot prices refrained temperatures and Distribution, transmission and PSO prices from steep fluctuations. The maximum testing of EstLink-2 for 2014 were approved in Lithuania price was a relatively low 67.88 €/MWh, lowered next day occurring in Latvia and Lithuania on prices, whereas November 21. unexpected power Electricity market plant shut-downs Elering will limit Estonia to Latvia trans- impact factors increased prices. mission capacity by about 10%. The limitation, beginning from December, Nordic hydro reservoir levels remained may bring larger price differences below normal between the Estonian and Latvian Nord Crude oil price remained at a level similar Pool Spot price regions as the supply to October of Estonian power to Latvia will be restrained. Price of European carbon permits followed a downward course Commissioning of EstLink-2 will increase Price of German 2014 base energy the transmission capacity between contract declined slightly Estonia and Finland to nearly 1 gigawatt. Coal price in November similar to October The submarine cable is initially planned to be commissioned in February next year, although testing will have begun earlier. The second transmission cable may not necessarily mean a cheaper spot price Author of the market overview: Merily Murd for Estonia, but will further unify Finnish [email protected] and Estonian power markets. HOME

41.87 €/MWh. The market reached its Average power exchange price November peak on the 18th, when the price of 2014 Forward settled at 42.08 Exchange Average Change min Max (€/MWh) M-o-M (€/MWh) (€/MWh) €/MWh. During the same period the Estonia 42,32 -9,5% 5,1 90,1 Forwards for years 2015 and 2016 went Nord Pool Helsinki 38,04 -17,2% 15,8 67,9 Nord Pool Lithuania 47,32 -26,3% 5,1 90,1 through similar changes. The highest price Nord Pool Latvia 47,32 -26,3% 5,1 90,1 in the first half of November for the 2015 Forward was 39.85 €/MWh. For 2016 Forward the high was at 37.98 €/MWh.

Average power exchange price • Nord Pool Estonia price (Estonia) • Nord Pool Latvia and Lithuania price (Latvia, Lithuania) The second half of November was • Nord Pool Helsinki price (Finland) dominated by higher than average tem- EUR/MWh peratures and precipitation in the Nordic 140 120 region. These factors brought about a drop 100 80 in the energy futures market. Again, the 60 last trading day of the month, November 40 20 29, brought about the market low, at a 0 01.09 11.09 21.09 01.10 11.10 21.10 31.10 10.11 20.11 30.11 price of 39.97 EUR per MWh. This was the lowest point on the 2014 Forward market since the end of August. The price of 2015 Forward fell to 38.35 €/MWh and the price November electricity forward prices in the Power exchange and of 2016 Forward fell to its all-time low of Estonian and Finnish market areas rose 36.49 €/MWh. electricity markets significantly in the first half of the month, restoring the market fall from end of Estonian electricity year 2014 forward October. Second half of November Forward prices in Estonian and decreased by 0.1% and settled at 40.25 brought new lows. Finnish bidding areas dropped in €/MWh at the end of November, com- the end of the month pared to end of October. Forward price For Finnish bidding area, energy futures for year 2015 closed at 38.75 €/MWh market rebounded from the significant MATHIAS VAARMANN (-0.5% m-o-m) and its 2016 equivalent Market analyst drop in October. On October 31 the declined to 36.88 €/MWh (-1.0% m-o-m). energy Forward for year 2014 reached its monthly low of 40.20 €/MWh. In the The drop in the market in November first week of November the price rose to was, among other factors, affected by the

European Union Allowance (CO2 Price) market. The market experienced a drop Electricity forward prices Price of electricity (forward contracts in Nord Pool, Estonia price area) • compared to September and October. The Prices at 30.11.2013 • Price of electricity (forward contracts in Nord Pool, Helsinki price area) price was mainly brought down by regular EUR/MWh emission permit auctions. 53 50 48 45 The European Union is, however, plan- 43 40 ning to limit the sales of carbon permits 38 35 starting next year. Currently, the legislation Spot Next Next Q1 Q2 Year Year Year Year is still in draft stage. Member states are price week month 2014 2014 2014 2015 2016 2017 keen on passing the legislation as soon

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as possible. In case of motion passing completion of the submarine cable al- retailer or consumer in the long term. next year the price of carbon is expected lowed Eesti Energia to significantly increase to rise significantly. sales volumes. Thanks to the cable, clients were assured that electricity is at any Uncertainty in Latvian household moment accessible with the best possible market opening Elering and Fingrid will become the price,” said Liive. new owners of EstLink-1 As the Latvian government has stepped down, an uncertainty if and when the On November 27, a sales contract was New electricity purchase solution Cabinet of Minister’s regulation for finalized for the first Estonian–Finnish available on Latvian electricity market Household market opening and subsi- submarine cable, EstLink-1, making the dized energy tax benefit delivery to end Estonian and Finnish main transmission Janis Bethers customers will be approved. Although Chairman of the Management board system operators the new owners of the Enefit SIA government that has stepped down, cable as of December 30. The total cost avoids significant regulation approval, of the sales transaction was MEUR 77.6. the time frame and the fact that Latvian Latvian power company Enefit is offering Parliament has already initiated the Today, assets of EstLink belong to Nordic a new electricity purchase solution, which changes, could force Government to ap- Energy Link PLC and its subsidiary N.E.L. separates the cost of electricity from the prove the planned Regulations. Finland Oy. The shareholders of Nordic cost of transmitting it. Energy Link are Eesti Energia (39.9%), Latvenergo (25%), Lietuvos Energijos This means that companies can fix the Distribution, transmission and PSO Gamyba (25%), and Finestlink (10.1%). lowest future price of electricity on financial prices for 2014 were approved in The plan to sell EstLink-1 to the main markets. This step was taken because of Lithuania transmission system operators by the end the tendency of Trans frontier transmis- of 2013 was already made when making sion problems on the Estonian-Latvian Arturas Syvokas General Manager the initial investment decision; need for this border, thus increasing the cost of fixed Enefit UAB arose from European Union regulation on price contracts in Latvia at a time when the transnational energy trading. The regulation future price on financial markets is among included a terminal exception for founding the lowest that it has been during the past National Control Commission for prices EstLink-1 by electricity producers, valid until three years. and energy (NCC) in Lithuania approved the end of 2013. the distribution, transmission and PSO Trends in the Latvian electricity market (Public Service Obligation) prices for According to Sandor Liive, Chairman of in recent months show that the offer of 2014. Rates for business customers for Board of Eesti Energia AS, Eesti Energia, fixed price products has diminished and the services should be decreased by around Latvenergo, Lietuvos Energijos Gamyba, average price has increased. One of 9 EUR/MWh. Pohjolan Voima, and Helsingin Energia the main reasons for this is problems allocated the submarine cable to electri- with shifting transmission costs on the However the total electricity bill for city exchange already in 2010. “We are Estonian-Latvian border, which means business customers might not be reduced glad that we could establish a connecting that retailers cannot forecast the overall or will be reduced slightly because cable of fundamental importance for price of electricity in the long term and of the current situation in electricity Estonian and regional electricity market. in a sufficiently precise way. This means market. The electricity sales contracts in The completion of EstLink-1 was an that companies which buy electricity the retail market are signed with up to important breaking point in the entire for a fixed price, are forced to pay for 20% higher price for 2014 compared Estonian energy industry, opening a door uncontrollable and shifting transmission to the contracts for 2013. This is due to the Nordic energy market. The costs, which is disadvantageous for the to uncertainty in the retail market, which

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is caused by absence of financial instru- ments and changed rules of importing Hydro reservoir levels • 2010 • 2011 • 2012 • 2013 • Median** *Maximum 121,4 TWh electricity from non-EU countries. Nordic hydro- **Median values for the period 1990 - 2012 reservoir levels from maximum*, %

100 80 60 Electricity market 40 20 impact factors 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Nordic hydro reservoir levels remained below normal Crude oil price • Price of crude oil (ICE) $/bbl • Price of crude oil (ICE) €/bbl

Reservoir levels in November remained €,$/bbl between 72-75% of the maximum, 120 long-term median being 79-83% of 110 100 the maximum level. Though Nordic 90 hydro reservoir levels remain below 80 normal, there have been signs that 70 60 temperature and precipitation levels 01.01 15.01 29.01 12.02 26.02 12.03 26.03 09.04 23.04 07.05 21.05 04.06 18.06 02.07 16.07 30.07 13.08 27.08 10.09 24.09 08.10 22.10 05.11 19.11 are approaching to what is usual to the time of the year. Weather in November was warmer than usual, but in the second December 2013 CO emission price CO emission price • 2 half of the month there was more pre- 2 cipitation and therefore it is expected €/t that hydro reservoir levels will start 8 reaching their normal levels. 7 6 5 Crude oil price remained at a level 4 similar to October 3 2

01.01 15.01 29.01 12.02 26.02 12.03 26.03 09.04 23.04 07.05 21.05 04.06 18.06 02.07 16.07 30.07 13.08 27.08 10.09 24.09 08.10 22.10 05.11 19.11 There were no significant changes in Brent crude oil prices in November, the price remained at the same level as limited supply from the OPEC countries, The maximum level remained below October, fluctuating between 103.5 and especially from Libya and Saudi Arabia 5 €/t – on November 5th and 7th, the 111.5 $/bbl. The end of month closing drove the price up. contract closed at 4.8 €/t. The end of price was 109.7 $/bbl and total monthly month closing price was 4.37 €/t and the increase was 0.85 $/bbl, or 0.78%. The total monthly decline was 0.45 €/t (-9%). change in EUR was 0.58 €/bbl (0.73%). Price of European carbon permits followed a downward course Even though member states of the The slight increase of crude price was European Union have taken strong steps affected by a significant growth of After the rally that ended in the middle towards removing 900 million tons of demand in China, reaching an of October, the price of European car- permits from the market, formulation 18-month peak in November. Further, a bon permits followed a downward course. of legislation still takes time, and the

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withdrawal of permits is currently not expected before the middle of next year. Base energy price • Price of baseenergy for the year 2014 in EEX, Germany

€/MWh The price of German 2014 base 50 energy contract declined slightly 45 40

The slight decline of the price of German 35 2014 base energy contract continued 30 throughout the month of November. 01.01 15.01 29.01 12.02 26.02 12.03 26.03 09.04 23.04 07.05 21.05 04.06 18.06 02.07 16.07 30.07 13.08 27.08 10.09 24.09 08.10 22.10 05.11 19.11 The price moved between 36.8 and 38 €/MWh, and at the end of month closed at 36.8 €/MWh. The total monthly decline Coal price • Price of coal for year 2014, $/t was 0.73 €/MWh or -1.9%. • Price of coal for year 2014, €/t

€,$/t

120

Coal price in November similar to 100 October 80

60

The price of 2014 coal contract in 40

November was stable and similar to the 01.01 15.01 29.01 12.02 26.02 12.03 26.03 09.04 23.04 07.05 21.05 04.06 18.06 02.07 16.07 30.07 13.08 27.08 10.09 24.09 08.10 22.10 05.11 19.11 prices of October. Coal price remained between 81 and 83 $/t and closed at the end of month at 82.3 $/t. The monthly decline in both, euros and dollars was less than 0.1%.

EXPLANATION OF TERMS Base energy is the sale/purchase of 1 MWh of electricity each hour within the given period. MWh i.e. megawatt hour equals 1,000 kWh. GWh i.e. gigawatt hour equals 1,000 MWh. An electricity exchange price area is a part of the electricity market with a uniform electricity price. Estonia price area is the Nord Pool price area in Estonia. Nord Pool is a power exchange that consists of price areas in Finland, Sweden, Norway, Denmark, Lithuania, Estonia and the Estonian-Latvian border. ICE i.e. the Intercontinental Exchange is the largest commodity exchange in Europe. OPEC is the Organization of Petroleum Exporting Countries. Peak hours describes the period of increased electricity consumption. The Nord Pool exchange regards the period between 08:00 and 20:00 Central European Time (one hour behind the Eastern European Time used in Estonia) as peak hours. Closing price is the price of the last contract of the day. A forward contract is a contract that binds the parties to sell/purchase specific assets at a specified time in the future at an agreed price. The forward price i.e. the forward contract price is the price at which the assets specified in a forward contract are sold/purchased. Brent crude oil is the reference product for several oil products from the North Sea.

DISCLAIMER The market review has been prepared by an analyst of Eesti Energia to the best of their knowledge. It is not an official standpoint of Eesti Energia. The information given is based on public information and the sources specified in the overview. The market overview has been presented as informative material and it has in no case whatsoever been presented as a promise, proposal or official forecast of Eesti Energia. The standpoints contained in the market overview may change and the person presenting them reserves the right to amend said standpoints. Due to the fast changes in the electricity market regulation, the Market Overview or the information contained herein are not final and they need not correspond to situations emerging in the future. The market overview does not create, terminate or amend legal relationships (incl. contracts). Eesti Energia cannot be held liable for any expenses or damages that may emerge as a result of the use of the information contained in the Market Overview.

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