For the first time in history, a negative wholesale electricity price has been observed in Latvia – on July 6 this year, from 5 am to 6 am, the electricity price on the Nord Pool exchange in the Latvian price zone was minus 0.09 euros per megawatt hour (MWh), LETA told the Public Utilities Commission (PUC). This means that even the producer of electricity consumed during that hour even had to pay extra.
IN SHORT:
- For the first time in history, a negative wholesale electricity price in Latvia.
- From From 5 to 6 in the morning, the price on the Nord Pool exchange in Latvia was – 0.09 euros / MWh.
- Prices began to gradually decline from midnight.
- This situation arose because demand was lower than supply.
- Such situations are not uncommon in Denmark and Sweden.
- Whether such a situation will recur for Latvian consumers is difficult to predict.
- The more solar and wind energy there is on the market, the more often these situations will occur.
- This year, in general, electricity consumption in the Baltic States has decreased.
For the first time in history, a negative wholesale electricity price has been observed in LatviaLinda Zalane
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This atypical situation is observed for the first time, PUC noted.
The Commission notes that a gradual reduction in electricity prices has been observed since midnight on 6 July. At night from 3 to 4 o’clock the price of electricity was 0 euros per MWh, reaching its record low at 5 o’clock in the morning.
Jānis Negribs, Head of the PRK Market Surveillance Department, said that for those users who have chosen variable exchange price agreements, a zero price and a negative electricity price on the exchange provide significant benefits. In the case of a zero price, these users do not pay for electricity generation.
However, he explained that this price on the stock exchange does not affect the trade mark-up and the cost of system services. This means that the user still has to pay for these services.
“The user feels the greatest benefit if the price on the stock exchange is negative. When producers compensate for electricity consumption, users feel it as compensation for the cost of system services, further reducing the users’ electricity bill,” Negribs said.
“This is a rather historic event, because until now the price had approached the zero mark, but had never reached it or fallen below this zero mark,” admitted Rolands Irklis, Chairman of the PUC Council.
In the first half of this year, the average price of electricity on the stock exchange was 28.24 euros per MWh, which is 39% lower compared to the corresponding period of 2019 (46.07 euros per MWh). In addition, PUC market data confirm that interest in exchange-traded contracts, including among households, has grown significantly this year.
PUC reminded that in variable price contracts the price changes according to the price changes on the stock exchange. When choosing a variable electricity price, the user must be prepared to bear the risks of price fluctuations affected by market events. At the same time, however, it is an opportunity to save in cases where the exchange price decreases or consumption habits change, for example, by consuming more electricity during the night and on holidays, when the electricity price on the exchange is most often cheaper.
In the case of a fixed price contract, the price of electricity is fixed for a certain period. Thus, its choice provides predictable electricity costs. A fixed price is usually chosen by users who do not want to take the risk of price fluctuations. A fixed price protects in cases when the price on the stock exchange increases, but at the same time does not provide an opportunity to save if the price on the stock exchange decreases, including at night and on holidays, explained PUC.
Reinis Āboltiņš, a researcher at the Institute of Environmental Protection and Heating Systems of the Faculty of Power and Electrical Engineering of Riga Technical University (RTU), explained that such a situation arose because the demand for electricity was lower than the supply, thus a negative electricity price was set on the exchange.
Prices this time fell so low because “in Latvia, summer is natural, in the Baltics it is natural that there is lower electricity consumption. It is especially low at night. And at that point, transmission connections are enough to transport this cheap electricity in full. And this cheap price could reach the Latvian price zone, ”explained Irklis.
The price of electricity can be low when everyone is asleep and no one is using electricity, but not only that.
“In this case, most likely, it is wind energy, thanks to which the price is so low in Latvia as well. But not only in Latvia. Also in Lithuania, Estonia, Sweden and Denmark. Wind turbines, which are the so-called offshore or offshore wind, are able to produce larger volumes and more electricity, ”explained Reinis Āboltiņš, an energy expert and RTU researcher.
Thus, both the strong offshore wind in the south of Sweden and the wind power superpower Denmark and subsidies have rested on low prices.
“Some of these stations are not so easy to close inside and out. It is more profitable to work for a while with a negative price, ”explained Irklis.
It is precisely state support for renewable resources that is the reason why electricity producers continue to produce it even when it is not profitable for themselves.
“However, this is not typical for the Latvian price area, because wind energy production is not fully developed in Latvia. At present, no type of support is planned for newly built power plants in Latvia, ”Āboltiņš pointed out.
Therefore, for the time being, only wind from the Scandinavian seas can rest on Latvia with electricity prices with a minus sign.
Situations where the price of electricity is well below zero are not uncommon in Denmark and Sweden. Whether such a situation will recur for Latvian consumers is difficult to predict.
The RTU researcher emphasized that electricity producers are definitely not profitable in such a situation, it is a buyer’s market, and for those who choose to pay for the electricity exchange price, it is important to follow the changes in exchange prices.
Andris Bite, co-owner of the canned fish manufacturer SIA “Karavela”, admitted that it is a kind of lottery to pay at the stock exchange price, but his company has chosen to pay for electricity at a fixed price. He also added that a large part of the bill is made up of distribution costs and a mandatory procurement component, not just the price of electricity.
In Latvia, approximately 10% of all electricity users have chosen the tariff attached to the Nord Pool exchange, which fluctuates every hour.
Exchange-linked electricity tariffs do not always mean savings. For example, a few weeks ago, the price per megawatt hour on the Nord Pool exchange was even five times higher than the price of the most popular – fixed – tariff for electricity users.
Mārtiņš Āboliņš, an economist at Citadele Bank, emphasized that this year, electricity consumption in the Baltic States as a whole has decreased compared to the previous two years.
Mārtiņš Āboliņš said that in general, electricity prices in the Baltic region were low this spring, but the situation this night, when it is negative, is a short-term situation.
The more solar and wind energy appear on the market, the more often these situations are likely to recur.
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