Business Miks Gabdullins: How to explain the negative price of...

Miks Gabdullins: How to explain the negative price of electricity on the ‘Nord Pool’ exchange

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On July 6 of this year, between 5.00 and 6.00, for the first time in Latvia, a negative price of Nord Pool exchange electricity was observed in the Latvian trading zone. Although negative prices have been observed in other Nord Pool exchanges in the past, this has not yet been the case in the Baltics. This situation is facilitated by three factors: 1) high uncontrolled generation in the NordPool area, 2) transmission capacity in the Baltic market and the wider region, and 3) low electricity consumption.

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The integration of the Baltic region into other markets, such as Scandinavia, provides electricity transmission from areas where electricity production costs are cheaper to areas where it is more expensive, so in some hours we can obtain electricity at significantly lower prices than we can produce ourselves. This situation is clearly favorable for the electricity consumer, while for producers who do not have the flexibility to change their production capacity, it creates difficult conditions and will become increasingly challenging in the future.

Wind generation in the NordPool area on Monday (06.07.2020) has reached the highest level of the last 30 days. The amount of electricity produced under conditions of limited product storage creates overproduction, which saturates the market by significantly reducing electricity prices.

Significant AES (nuclear power plant) generation capacity is available in Scandinavia, which ensures constant electricity generation because it is difficult to shut it down or rather start up, so NPPs continue to generate electricity even at low prices, further creating overcapacity in the market.

Electricity consumption is also affected by seasonality, where less electricity is consumed in the warm and light months of the year than in the cold and dark seasons, so in addition to the high electricity generation factor, there is low electricity consumption, which resulted in low prices. The usual holiday season in Scandinavia has also had an impact, with many technological processes being suspended for a month, leading to a reduction in consumption as electricity prices continue to fall. In Lithuania, on the other hand, there is a holiday on Monday, and instead of the usual weekday electricity consumption, there is a much lower holiday consumption.

In summary, this situation has arisen due to the significantly high generation capacity and low electricity consumption, as well as the fact that Latvia is integrated into the wider energy market.

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