High renewable energy generation in October helped to limit the rise in electricity prices

Although natural gas prices rose sharply in October and water levels in the reservoirs of Nordic hydroelectric power stations (HES) remained low, strong wind-generated electricity production in the Baltic states helped to limit the rise in electricity prices, and in Latvia the rise was relatively small, according to data compiled by the energy company Enefit. The average electricity price in October reached 11.3 cents per kilowatt-hour, which is 4 per cent higher than in September and 7 per cent higher than in the same period last year. In the coming months, the greatest risk of price rises may come from cold, windless weather, as well as high natural gas prices.

Renewable energy generation has helped to avoid a sharp rise in prices

One of the main factors that helped to keep electricity prices at a lower level in October was high wind and hydro power generation. Wind power generation in the Baltics reached approximately 724 GWh, which is around 11 per cent more than in September and 50 per cent more than last year. This was also driven by the commissioning of new capacity – the Enefit Kelmė II wind farm in Lithuania, with an installed capacity of 87 MW, and the Laflora wind farm in Latvia, with a capacity of 108 MW.

Solar power generation totalled approximately 244 GWh – 50 per cent more than last year, but 44 per cent less than in September, due to a reduction in daylight hours. Wind and solar energy together accounted for 40 per cent of electricity consumption in the Baltic States, compared with 28 per cent a year earlier, whilst electricity generation from fossil fuels in the Baltic States fell by approximately 58 per cent.

Hydropower also made a significant contribution in Latvia – domestic electricity generation accounted for 73 per cent of the country’s consumption, compared with 56 per cent the previous year. Consequently, net electricity imports fell from 44 per cent to 27 per cent of consumption; however, electricity prices in Latvia were significantly affected by higher electricity prices in Sweden’s SE4 price zone, where the average price reached 14.1 cents per kilowatt-hour.

In Lithuania, the electricity price was similar to that in Latvia – 11.4 cents per kilowatt-hour (c/kWh) – whilst in Estonia it was lower – 8.2 c/kWh.

The amplitude of daily fluctuations in electricity prices has decreased

Morning and evening exchange price peaks in October were significantly lower than a year earlier, with the average difference between the highest and lowest hourly prices over a 24-hour period narrowing to 13.2 c/kWh compared with 23.4 c/kWh the previous year. Furthermore, the increasing capacity of battery energy storage helped to reduce price volatility by shifting the balance between electricity supply and demand across different hours. However, these factors did not prevent significant price fluctuations over longer periods: the weekly average electricity price in Latvia continued to fluctuate between 4.7 and 16.7 c/kWh.

Electricity prices will continue to depend on wind power generation and natural gas prices

In October, there was a clear correlation between wind power generation and electricity prices. On days when wind power generation in the Baltics exceeded 30 GWh, the average electricity price in Latvia was 5.2 c/kWh, whilst on days with generation below 15 GWh, the price averaged 16.1 c/kWh.

“As the heating season continues, electricity consumption will rise, whilst solar power generation will continue to fall. This means that during periods of low wind power generation, the Baltic states will require greater electricity imports and will have to rely more frequently on more expensive fossil fuel-based generation capacity,” explains Romāns Tjurins, Head of Portfolio Management and Market Research at Enefit.

Additional price pressure is coming from the natural gas market: the TTF natural gas price averaged 86.6 EUR/MWh in October, which is 15 per cent higher than in September and approximately 2.7 times higher than a year earlier. By the end of the month, the price had approached 100 EUR/MWh, reaching its highest level since December 2022. At the same time, EU natural gas storage levels were unusually low.

“Natural gas is a vital source of electricity generation during periods of low wind power output, but its rising cost directly increases the cost of electricity generation. High CO₂ emission allowance prices have an additional impact, as increased operation of gas-fired power stations also boosts demand for emission allowances. In October, higher wind and hydro power generation offset this rise in costs, so electricity prices have not yet risen as sharply as in the natural gas market. A cold, windless spell, compounded by high natural gas prices and limited availability of hydroelectric power in the Nordic countries, could trigger a sharper rise in electricity prices across the Baltics, whereas a windy and mild winter would help to limit the rise in electricity prices,” predicts Romāns Tjurins.