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However, Paulius Blažys, an advisor to VERT’s Market Development and Monitoring Division, who presented the investigative report to the Seimas Energy and Sustainable Development Commission on Thursday, stated that Lithuanian consumers were not affected.
The simulation commissioned by Nord Pool on March 4, which would be affected by the change in the Latvia-Russia price flow, showed that there were no significant changes in the Lithuanian price zone. “One hour, the price went up a few cents, the next, it went down,” he said.
Energy Minister Dainius Kreivys added that at present, after changing the permitting methodology, Lithuania does not overpay Latvians, and Latvians do not get anything cheaper either.
“And before those 6 million. There was roughly the same difference between the commercial zones of Lithuania and Latvia.
The price divergence occurred on days when there was a large flow. They were going from the north, by Estlink, and at the same time the trade would come from Russia, then our cross section would be obstructed and the price difference would appear. Because electricity not only does not come from Russia, Finnish electricity does not come. We are very well connected. The Russians are selling their electricity at a priceless offer. This means that they normally sell large amounts of electricity at the average market price, ”said D. Kreivys.
A price difference was formed
Mr. Blažys presented the VERT report approved by Seimas in July, which showed that the price difference between Lithuania and Latvia was due to the methodology used by Latvia and Estonia to calculate capacity with Russia.
“We saw a problem that developed at the beginning of the year, that is, significant price differences between the price zones of Lithuania and Latvia. They have been affected by extremely high trade volumes from third countries.
In April, market participants Ignitis, Eesti Energia and all independent providers approached the European Commission regarding the unilateral application of the Latvian and Estonian methodologies. The main argument was that congestion is developing between the price zones of Latvia and Lithuania. This generates losses for suppliers.
In May, we had meetings with Latvians and Estonians at the managerial level. It was decided to launch an investigation, but Latvian and Estonian regulators showed little enthusiasm to contribute to the investigation. We also commission stock operator Nord Pool, which performs daily stock price calculations, models and requests access to confidential data that is not publicly available. For example, to market orders sent by importers from third countries to the Latvian price zone. Discussions were also held with the Latvian regulator on this issue. We did not get access to the final result.
During June, an investigative report was prepared and consultations were held with Latvians and Estonians. In the end, we approved the report through a VERT resolution and appealed to the European Commission and the Agency for the Cooperation of Energy Regulators (ACER) ”, he said.
P. Blažys recalled that there are currently three methodologies for calculating yield in the Baltic region.
“There is a European methodology according to the requirements of the network, which includes the calculation of bandwidths in internal connections (Latvia-Lithuania, Estonia-Latvia).
There are also two different methodologies in force with third countries since September. These are the Latvian-Estonian methodology for trade with Russia approved in November last year and Lithuania’s performance calculation rules with Kaliningrad and Belarus, which came into force on September 15.
The reason why the problem arose and what has changed since November 2020, when the first kilowatt-hour of electricity was produced at the Astrava power station, is that the power outlet was moved to the Latvian price zone . Previously, both Russian and Belarusian electricity were traded through the Lithuanian price zone, following a tripartite methodology.
The decision to carry out such trade through the Lithuanian price zone was taken in 2013, from the beginning, when the permits to trade with third countries were issued in order to make optimal use of the network infrastructure. However, Latvia and Russia have a technical commercial capacity of about 320 megawatts (MW), and since November the capacity used according to the methodology has reached 970 MW. They were especially highs at night.
In the study, we found that it was the entire Belarusian-Lithuanian technical capacity, ie 1250 MW, that was used unreasonably in Latvia’s trade with third countries. This information is publicly available and published by the Nord Pool Exchange operator. It will be declared by each operator of the transmission network. The investigation period was from November 5, 2020 to May 31, 2021, ”said P. Blažys.
Congestion detected
The rapporteur noted that the use of Lithuanian-Belarusian technical capacity had unreasonably increased the supply in the Latvian price zone.
“Therefore, lower priced electricity could not enter Latvia from Lithuania and there was business congestion. In this way, extremely high prices were formed in the Lithuanian price zone. Congestion increased dramatically at the beginning of the year, accounting for about 10 percent. All hours. Compared to the previous period, this figure was less than 1%.
The situation has always been such that Lithuania had higher prices compared to the Latvian price zone. This change is statistical; you can see that it is related to November 5. Basically the electricity supply and consumption went to the Lithuanian price zone, but all trade and supply increase, electricity reduction was done through the Latvian price zone.
Until the start of the Astrava Nuclear Power Plant, trade was conducted through the connections between Lithuania and Belarus. In this way, the infrastructure is fully used, electricity enters the largest deficit of the Baltic countries, that is, Lithuania. And the relocation of this point, especially through the use of capacity in other countries, has meant that trade is not being carried out in the most efficient way. The surplus electricity generated by trade between Latvia and Russia also placed a commercial burden on the Latvia-Lithuania connection.
Trade between EU countries should be prioritized and trade with third countries should not be adversely affected. In this case, the Latvia-Lithuania connection was used not only for the traffic that occurs in Latvia or comes from Finland and Estonia, but also for the volume of trade with third countries, ”he explained.
Prices should be the same
P. Blažys presented the conclusions of the investigation:
“The fully utilized Latvian-Lithuanian trading capacity created the conditions for the formation of (trading) market congestion in separate hours only in the Latvian-Lithuanian flow, as a result of which the price in the Lithuanian trading zone in certain periods was of 60% or more. higher compared to the commercial area of Latvia.
The technical capacity of the Russia-Latvia connection is about 320 MW, but the commercial traffic entering Latvia reaches 970 MW. This excess flow of commercial electricity entering Latvia’s commercial zone from third countries hinders the optimal use of the transport system infrastructure, increases the probability of (commercial) market congestion, resulting in a price difference in the commercial areas of Latvia and Lithuania.
Trading orders from third countries on the stock exchange (Kaliningrad-Lithuania) were presented at significantly lower prices than other trading orders from market participants. Data on the use of Russian-Latvian commercial bandwidth also showed the advantage of commercial orders from third countries in the Baltic electricity market, which is especially evident during off-peak hours. Due to the lower marginal costs for producers, import volumes from third countries are limited by the competitiveness of non-EU producers (which is not possible due to different operational requirements), but rather by the capacity allocation.
Although the connections between Lithuania and Latvia are not fully exploited from a technical point of view (physical traffic accounts for only 46% of commercial traffic), market (commercial) congestion still occurs on the Latvian-Lithuanian leg.
The calculations and evaluation carried out during the study showed that when calculating and allocating the interconnection capacity according to the technical capacity (when the available transmission capacity (ATC) of Russia-Latvia is 320 MW):
no congestion revenue would be generated from transmission system operators, ie equal to 0 EUR; Prices would be the same between these areas and market participants would receive the same treatment; From January 1, 2021 to May 31, 2021, Lithuanian electricity providers would have experienced no more than 6 million. Congestion costs in euros; Trade with other EU countries (Sweden, Estonia, Finland) would increase; Half of the reduced imports from third countries would be replaced by increased imports through EU connections (Finland, Sweden, Poland).
It was established that the price differences between Lithuania and Latvia were formed not only due to the lack of physical capacity of the Lithuanian-Latvian interconnectors, but also due to excessive (commercial) market congestion. Furthermore, the application of the Latvian and Estonian methodologies is contrary to ACER principles. “
Decreased 5 times
A VERT spokesperson said that with the new methodology coming into effect on September 15, the bandwidth previously used by Latvians to calculate bandwidth for trade between Latvia and Russia had been reduced by about five times.
“Now it only meets the scope necessary for the technical flow. In our opinion, this also affected the change and the fall in prices.
Clearly, we now have an extraordinary situation in the electricity market. Increase in gas prices, but we believe that there are other factors here, it is not directly related to the fact that there is excess capacity emitted ”, explained P. Blažys.
He added that so far he only has statistical information for the last few weeks.
“But we see that now the quantities traded between Latvia and Lithuania are basically covered by the flow coming from Latvia,” he said.
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