Bloomberg News

Baltic Dispute Over Russian Power May Delay Joint Market

January 31, 2013

The final integration of the European Union’s three Baltic states to the Nordic power exchange may be delayed past June as Estonia and Latvia disagree over whether Russia should be given import preference.

Estonia opposes Latvia’s plan to reserve part of the power transmission capacity for trade with Russia, Taavi Veskimagi, head of the grid operator Elering AS, said by e-mail yesterday. That would worsen summer overloads on the Estonian-Latvian border and lead to more Russian imports of power by Latvia and Lithuania, he said. Lithuanian grid operator Litgrid AB (LGD1L) agrees, its chief executive said today in Vilnius.

Latvia is due on June 3 to start day-ahead power trading on the Nord Pool Spot AS platform already used by Estonia and Lithuania. Connecting the Baltics to power markets and networks in neighboring European Union countries is a priority for the European Commission.

“Creating Latvia’s market area according to this model that we’ve been informed about would harm the European Union’s internal electricity market functioning,” Veskimagi said. “This would violate the aims of the political agreement between the countries in the Baltic Energy Market Interconnection Plan.”

The opening of the Latvian market must be postponed until a regional agreement has been reached on the set-up for the Nordpool Spot Latvian area, he said.

Market Integration

The absence of Latvia makes Lithuania an isolated area for power trading as it only has cross-border connections to the Russian enclave of Kaliningrad and Belarus, and none to the Nordic or EU power markets.

Integration will ensure efficient power trading and flows from low-price areas to high-price areas, with cross-border transmission set to grow as grid operators boost physical integration of the Baltic and Nordic regions with new infrastructure, Hando Sutter, Nord Pool sales manager for the Baltic countries and Russia, said last October.

“Litgrid’s position is that total Latvian-Estonian capacity - 3 lines - should be given for the Baltic market and allocated by Nord Pool Spot,” Chief Executive Officer Virgilijus Poderys said in an e-mailed response to Bloomberg questions today. “Litgrid also made a proposal on how, in such a case, to calculate and allocate capacity to third parties.”

Operator Agreement

Grid operators of the three countries plan to reach an agreement before a meeting in the middle of March, he added.

Nord Pool Spot has 370 member companies from 20 countries who trade power in the Nordic and Baltic regions, and in the U.K., with 316 terawatt-hours bought and sold last year.

Transmission capacity between Estonia and Latvia, which amounts to about 750 megawatts during the summer period, would be cut to 500 megawatts under the Latvian plan, Veskimagi said.

Last July, 92 percent of the capacity was used, showing Latvian and Lithuanian demand for Nordic electricity when Latvian hydroenergy levels are low and Lithuanian gas-fired co- generation plants can’t offer competitive prices, according to an Elering report published last week.

“This is just a game the Estonians are playing,” Jonas Garbaravicius, a member of the supervisory board of Inter RAO UES’s Baltic unit, Inter RAO Lietuva AB (IRL), said today by phone from Vilnius. “There is no technical basis for this discussion. There’s enough capacity for everyone.

Ignalina Shutdown

Inter RAO Lietuva, which sells Russian electricity supplied by state-controlled OAO Inter RAO UES, has a market share of about 20 percent in Latvia, which it plans to increase, he added.

Following the closing of the Soviet-era Ignalina nuclear plant in late 2009 as part of a deal to join the EU, Lithuania has increasingly relied on Russian electricity, with imports meeting 75 percent of local demand in the second quarter of last year, according to Elering data.

‘‘A solution would be to use a joint pan-Baltic virtual bidding area for electricity imports from Russia by distributing supply between the three markets in a way that would allow using today’s transmission capacity between Estonia and Latvia without causing overloads,” Veskimagi said.

To contact the reporters on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net; Bryan Bradley in Vilnius at bbradley13@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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