The range between the cheapest and most expensive hours for electricity widened in September

Although the average monthly electricity price in September remained moderate, daily price fluctuations are becoming increasingly pronounced, according to data compiled by the energy company Enefit. The average electricity price in Latvia in September was approximately 108 EUR/MWh, which is 27% higher than in August. A significant increase in wind power brought down the average price, but low wind power generation had to be offset by more expensive imported electricity or electricity generated at thermal power stations, which contributed to a wider spread between the lowest and highest prices.

Weather conditions influence the market

In September, as daylight hours shortened, solar power generation fell; air temperatures also dropped, and demand for more expensive thermal power rose across Europe. At the start of autumn, natural gas prices rose, whilst water levels in the reservoirs of Nordic hydroelectric power stations reached their lowest point in 30 years ahead of the peak consumption season. Although electricity prices were not consistently high throughout this period due to these circumstances, the system’s sensitivity to changes in weather conditions increased significantly.

Wind and solar power together accounted for almost half of the Baltic region’s electricity consumption, which helped to keep the monthly average price lower than would be expected under conditions where the market is influenced by higher gas prices and low water reserves in the Nordic countries. However, the impact of solar and wind energy was uneven over the course of the month: solar energy generation was 39% lower than in August, whilst wind energy generation was 29% higher. The increase in renewable energy lowered the average price, but during periods of low wind power generation, there was a greater reliance on imports and more expensive electricity from thermal power stations, which contributed to a wider gap between the cheapest and most expensive hours.

“As the heating season gets into full swing, the balance in the electricity market will be increasingly influenced by weather conditions. Solar power generation will continue to decline, and colder, darker working days will mean higher demand during the morning and evening hours. Wind will become the main source of cheap renewable electricity. A mild, windy and rainy autumn may reduce consumption, increase the generation of renewable and hydroelectric power, and limit the number of hours during which prices are driven by expensive thermal power generation,” predicts Romāns Tjurins, Head of Portfolio Management and Market Research at Enefit.

Repair works are hindering the import of cheaper energy

Price fluctuations were further exacerbated by scheduled maintenance work: the NordBalt interconnector between Sweden and Lithuania was operating at reduced capacity, whilst maintenance work at several Finnish nuclear reactors limited the volume of conventional electricity generation across the wider region. This reduced the market’s ability to replace the shortfall in renewable energy generation with cheaper imports. The impact was most pronounced at times when plant outages coincided with low wind power generation: supply chains quickly switched to more expensive local power stations, causing prices to rise in the short term. As wind and solar power generation recovered, a surplus re-emerged and prices fell.

The ever-increasing capacity of battery storage systems in the Baltic states reduces, but does not entirely prevent, extreme price fluctuations within a single day. Current storage capacity is insufficient to cover prolonged periods without wind or significant import restrictions.

The gas market could trigger a price rise

European gas stocks increased in September, but levels remained significantly below the seasonal norm of recent years.

“This does not automatically mean higher electricity prices in the Baltics: if there is sufficient renewable energy generation and cheaper imported energy is available, gas-fired power stations may have little impact on the market price. However, prices will rise if cold weather increases demand for gas whilst, at the same time, wind power generation in the Baltics is low and hydropower production in the Nordic countries is limited. Under such circumstances, gas-fired power stations will have to be used more frequently, and changes in gas prices will be reflected much more directly in electricity prices. “Overall, the market situation in September provides an early insight into winter trends: the monthly average price may remain moderate, but the range of hourly prices is becoming increasingly wide,” concludes Romāns Tjurins