07.01.2020 13:24
08.06.2015 Memorandum of understanding
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68 KBElectricity market
One of the most important aims for the energy sector in the European Union is a smoothly functioning single energy market, which is a prerequisite for affordable electricity prices.
To ensure that an affordable price is sustainable in the long term while also ensuring guaranteed energy supply, electricity producers need investment and legal certainty. Greater transparency and a clear legal framework gives consumers and producers more options to participate actively in the energy market and to react to price signals.
For Elering, this means a need to make efforts to integrate the marketplace with other markets, make decisions about the construction of new cross-border connections, and to create conditions for a functioning electricity market.
The full opening of the Estonian electricity market for all consumers took place on 1 January 2013.
The aim of the opening of the electricity market is to encourage competition in as many points in the supply chain as possible. In an open electricity market, prices of electricity as a commodity are not regulated and the price is set in competition between the buying and purchase offers, while at the same time keeping a monopoly on functions related to network infrastructure and system service. Transparency in the electricity market price is ensured by the electricity exchange, where supply and demand determines the daily electricity exchange price.
For producers, the electricity market will provide an opportunity to sell what they generate. A functioning market, along with transparent pricing, will in turn give investors and producers a basis for making long-term investment decisions.
For consumers, the electricity market will provide the opportunity to buy electricity according to both the terms of bilateral agreements and from the power exchange. As a rule, the eligible consumers themselves will not go and trade on the exchange due to high participation expenses, but instead will use the services of existing brokers.
Elering as the transmission system operator will have to work towards integrating the domestic market with other markets in the Baltics and Nordics. This primarily means decisions on the construction of new international connections, and fulfilling the obligations of Elering as the transmission system operator. The most important opportunity presented by the opening of the electricity market is the ability to use market-based solutions for offering network services (purchases of reserves, regulation).
In an open market, market participants have the chance to trade through bilateral agreements as well as on the electricity exchange. The aim of the electricity exchange is primarily to offer market participants engaged in electricity trading short-term planned and standardised trading options to complete their transactions. Compared with bilateral trading, the exchange allows trading on a neutral platform where every market participant has equal access and the counterpart is anonymous. In addition, electricity exchanges have lower transaction costs than bilateral trading, information on competition and market liquidity is made available, and information on its formation is also submitted.
Formal electricity exchanges operate in one country or region, offering market participants different products, such as the option of buying electricity for every hour, or block agreements, as well as the option of week-ahead, day-ahead, intraday or hour-ahead trading. According to Regulation 2015/1222 (CACM), operation as an electricity exchange requires the exchange operator to apply for nominated electricity market operator, or NEMO, status from the Competition Board. Each country’s legislation determines whether the electricity market organisers are national monopolies or if inter-exchange competition is permitted. Estonia has chosen the path of competition, but despite this, there is only one NEMO in Estonia, Nord Pool (see also http://www.nordpoolspot.com/).
Although electricity exchanges compete, they also work together to connect markets so that producers and consumers in different countries can trade and so that energy always moves from lower cost areas to higher cost areas. For the optimal distribution and use of cross-border transmission capacity, the next-day markets (MRC) and intra-day markets (XBID) connection projects have been created where both TSOs as well as NEMOs are involved.
Exchanges are intended for wholesale trade where electricity is purchased by large producers/consumers and traders. Ordinary consumers have three broad options for electricity purchases:
- exchange price-dependent packages;
- fixed-price packages;
- universal service.
Every consumer may sign a new agreement with a seller every month if they so wish, as there is no limit on switching suppliers in any way. Switching electricity sellers is similar to changing a telephone or mobile operator: the consumer must enter into an agreement with the new electricity seller, which itself terminates the contract with the previous seller. Consideration should be given to the fact that a home or office may be supplied by only one provider at any given time.
The electricity price is influenced by many different factors, so it is important to ensure market transparency in a market based on open competition. To ensure this, it is necessary in particular to create conditions for equal treatment of all market participants, to allow everyone access to data necessary for decision-making and effective operations.
The Estonian electricity system’s figures and day-ahead prices for the Nord Pool electricity exchange’s Estonia price area can be followed on the Elering Live app. In addition, all information on Nord Pool system prices (including the intra-day market and quick market information) is available in English on the Nord Pool website. The European Commission Regulation no. 543/2013 of 14 June 2013, which deals with the submission and publication of electricity market data, sets out the minimum data on electricity production, transmission and consumption that must be made available to market participants. According to the Regulation, the principal owners of the data are required to submit data to the system operator, after which the system operator is obliged to process the data if necessary and then submit it to ENTSO-E for publication. The ENTSO-E Transparency Platform is a centralised electricity market and system information publication platform developed for the collection and publication of data, where Elering also sends data on the Estonian electricity market and system.
It is important to distinguish between the different components of the total cost of electricity.
In addition to the electricity price, an electricity bill also includes a network services fee, electricity excise, renewable energy fee, and VAT. The network services fee approved by the Competition Authority makes up to 40% of a typical residential customer electricity bill, electricity costs make up about one third of a bill. The exact proportion of the network services fee and electricity costs for each specific customer depends on the network area they are located in and which network services and electricity package they have chosen.
The price of electricity is shaped by the demand and supply, like the price of any other good on the market. Electricity is a unique good, unlike consumer goods that can be bought from any supermarket, and it has the following characteristics:
- Electricity is being produced and consumed continuously, at every moment
- Electricity is consumed at the same moment it is produced
- Electricity cannot be stored in large quantities in an economically reasonable way
- The consumption of electricity depends on time, and it follows certain consumption patterns: day/night, weekend, time of year, year
- It is impossible to track electricity, i.e., to know at which power station the electricity that has reached the consumer was produced
- Large scale emergencies can always happen and have to be accounted for in the electricity system management
The main factors influencing the price of electricity in the open market and in the power exchange are the availability of production capacity and interconnections that ensure electricity flow both within the country and between neighbouring countries. In addition, there are various other factors that influence how the price of electricity is formed in a shorter and longer perspective. For the consumer, the price of electricity is primarily determined by the agreement between the seller and buyer.
Electricty price factors in Estonia
TRANSMISSION CAPACITIES
- EstLink 1 and EstLink 2 (EE-FI)
- LitPolLink (LT-POL)
- SwePolLink (LT-SE)
- and EE-LV, LV.LT, Ru/BL - Baltic states
CLIMATE
- consumption change (heating season)
- wind turbines
- the level of hydroelectric power
PRODUCTION CAPACITIES MAKEUP
- addition of new production capacities
- closure of old production capacities
- change in consumption (incl. on a daily basis)
THE PRICES OF PRIMARY FUELS
- gas, wood chips, oil shale, etc.
- EU emission trading rules (CO2)
The full opening of the Estonian electricity market for all consumers took place on 1 January 2013.
The aim of the opening of the electricity market is to encourage competition in as many points in the supply chain as possible. In an open electricity market, prices of electricity as a commodity are not regulated and the price is set in competition between the buying and purchase offers, while at the same time keeping a monopoly on functions related to network infrastructure and system service. Transparency in the electricity market price is ensured by the electricity exchange, where supply and demand determines the daily electricity exchange price.
For producers, the electricity market will provide an opportunity to sell what they generate. A functioning market, along with transparent pricing, will in turn give investors and producers a basis for making long-term investment decisions.
For consumers, the electricity market will provide the opportunity to buy electricity according to both the terms of bilateral agreements and from the power exchange. As a rule, the eligible consumers themselves will not go and trade on the exchange due to high participation expenses, but instead will use the services of existing brokers.
Elering as the transmission system operator will have to work towards integrating the domestic market with other markets in the Baltics and Nordics. This primarily means decisions on the construction of new international connections, and fulfilling the obligations of Elering as the transmission system operator. The most important opportunity presented by the opening of the electricity market is the ability to use market-based solutions for offering network services (purchases of reserves, regulation).
In an open market, market participants have the chance to trade through bilateral agreements as well as on the electricity exchange. The aim of the electricity exchange is primarily to offer market participants engaged in electricity trading short-term planned and standardised trading options to complete their transactions. Compared with bilateral trading, the exchange allows trading on a neutral platform where every market participant has equal access and the counterpart is anonymous. In addition, electricity exchanges have lower transaction costs than bilateral trading, information on competition and market liquidity is made available, and information on its formation is also submitted.
Formal electricity exchanges operate in one country or region, offering market participants different products, such as the option of buying electricity for every hour, or block agreements, as well as the option of week-ahead, day-ahead, intraday or hour-ahead trading. According to Regulation 2015/1222 (CACM), operation as an electricity exchange requires the exchange operator to apply for nominated electricity market operator, or NEMO, status from the Competition Board. Each country’s legislation determines whether the electricity market organisers are national monopolies or if inter-exchange competition is permitted. Estonia has chosen the path of competition, but despite this, there is only one NEMO in Estonia, Nord Pool (see also http://www.nordpoolspot.com/).
Although electricity exchanges compete, they also work together to connect markets so that producers and consumers in different countries can trade and so that energy always moves from lower cost areas to higher cost areas. For the optimal distribution and use of cross-border transmission capacity, the next-day markets (MRC) and intra-day markets (XBID) connection projects have been created where both TSOs as well as NEMOs are involved.
Exchanges are intended for wholesale trade where electricity is purchased by large producers/consumers and traders. Ordinary consumers have three broad options for electricity purchases:
- exchange price-dependent packages;
- fixed-price packages;
- universal service.
Every consumer may sign a new agreement with a seller every month if they so wish, as there is no limit on switching suppliers in any way. Switching electricity sellers is similar to changing a telephone or mobile operator: the consumer must enter into an agreement with the new electricity seller, which itself terminates the contract with the previous seller. Consideration should be given to the fact that a home or office may be supplied by only one provider at any given time.
The electricity price is influenced by many different factors, so it is important to ensure market transparency in a market based on open competition. To ensure this, it is necessary in particular to create conditions for equal treatment of all market participants, to allow everyone access to data necessary for decision-making and effective operations.
The Estonian electricity system’s figures and day-ahead prices for the Nord Pool electricity exchange’s Estonia price area can be followed on the Elering Live app. In addition, all information on Nord Pool system prices (including the intra-day market and quick market information) is available in English on the Nord Pool website. The European Commission Regulation no. 543/2013 of 14 June 2013, which deals with the submission and publication of electricity market data, sets out the minimum data on electricity production, transmission and consumption that must be made available to market participants. According to the Regulation, the principal owners of the data are required to submit data to the system operator, after which the system operator is obliged to process the data if necessary and then submit it to ENTSO-E for publication. The ENTSO-E Transparency Platform is a centralised electricity market and system information publication platform developed for the collection and publication of data, where Elering also sends data on the Estonian electricity market and system.
It is important to distinguish between the different components of the total cost of electricity.
In addition to the electricity price, an electricity bill also includes a network services fee, electricity excise, renewable energy fee, and VAT. The network services fee approved by the Competition Authority makes up to 40% of a typical residential customer electricity bill, electricity costs make up about one third of a bill. The exact proportion of the network services fee and electricity costs for each specific customer depends on the network area they are located in and which network services and electricity package they have chosen.
The price of electricity is shaped by the demand and supply, like the price of any other good on the market. Electricity is a unique good, unlike consumer goods that can be bought from any supermarket, and it has the following characteristics:
- Electricity is being produced and consumed continuously, at every moment
- Electricity is consumed at the same moment it is produced
- Electricity cannot be stored in large quantities in an economically reasonable way
- The consumption of electricity depends on time, and it follows certain consumption patterns: day/night, weekend, time of year, year
- It is impossible to track electricity, i.e., to know at which power station the electricity that has reached the consumer was produced
- Large scale emergencies can always happen and have to be accounted for in the electricity system management
The main factors influencing the price of electricity in the open market and in the power exchange are the availability of production capacity and interconnections that ensure electricity flow both within the country and between neighbouring countries. In addition, there are various other factors that influence how the price of electricity is formed in a shorter and longer perspective. For the consumer, the price of electricity is primarily determined by the agreement between the seller and buyer.
Electricty price factors in Estonia
TRANSMISSION CAPACITIES
- EstLink 1 and EstLink 2 (EE-FI)
- LitPolLink (LT-POL)
- SwePolLink (LT-SE)
- and EE-LV, LV.LT, Ru/BL - Baltic states
CLIMATE
- consumption change (heating season)
- wind turbines
- the level of hydroelectric power
PRODUCTION CAPACITIES MAKEUP
- addition of new production capacities
- closure of old production capacities
- change in consumption (incl. on a daily basis)
THE PRICES OF PRIMARY FUELS
- gas, wood chips, oil shale, etc.
- EU emission trading rules (CO2)