In the second quarter, the price of electricity in Estonia increased by 2% compared to the previous year. The price increase is greatly due to the interruption of the Estlink-2 electricity connection, which means that the Baltic States receive less of the cheaper electricity from the Nordic countries. As long as the Baltic connection with Finland is limited due to the Estlink-2 cable fault, Estonian average prices will probably still be higher than last year. There is still too little electricity production in the Baltic States, especially during the windless weather. On average, domestic electricity production accounts for less than half of the consumption in the Baltic States. Electricity is imported to the Baltic States in the maximum possible volume through all the connections from Poland, Finland and Sweden. As peak electricity prices are generally driven by fossil fuel-based power plants, rising carbon quota prices have also begun to impact electricity prices in recent months.

The completion of Estlink-2 repairs in September may mean the return of more favourable prices to the Estonian market, as the transmission capacity between Estonia and Finland will increase almost three times compared to the current situation. On the other hand, the arrival of the autumn months means cooler weather and a decrease in solar energy. The beginning of the heating season in October will lead to a significant increase in electricity consumption, which in turn may raise prices. Windy weather may have a favourable impact on electricity prices, since wind energy production is significantly increasing in the Baltics as new wind farms are being completed.

From February to May, electricity prices in Estonia decreased compared to 2023, while since May, electricity prices have increased compared to last year. As an average of the first seven months of the year, prices have remained on average 4% lower owing to a warmer winter, a lower share of fossil electricity and reduced carbon quota prices. Electricity prices in the Baltics have also been affected by the full LNG storage tanks in Central Europe and the high hydro reservoir levels.

The break in the Estlink-2 cable at the beginning of the year led to the loss of 650 MW of connectivity between Estonia and Finland. As a result, significantly less Nordic electricity reached Estonia, which in turn changed the dynamics of the Estonian electricity market. According to market analysts at Eesti Energia, the Estlink-2 disconnection could have pushed up the average electricity price by up to €24/MWh in the second quarter. The price impact in July could have been as high as €42/MWh. It is important to note that the assessment of the impact of the disconnection takes into account a number of different assumptions, which could significantly change the price impact for each of them. Completion of the repair work on the Estlink-2 cable is expected in September.

In the first seven months of the year, Estonia’s monthly electricity demand has remained at an average of 674 GWh, which is on average 2% higher than last year. Electricity consumption is likely to remain at a similar level also for the rest of the year – no particular changes in the consumption habits of people and businesses are currently foreseen.

European and Estonian climate policies continue to have a clear goal – moving away from fossil fuels and replacing them with renewable energy. Production capacity of clean wind and solar energy is on the rise, and carbon quotas that inhibit the use of fossil fuels are driving carbon-intensive but manageable capacity out of the market. Comparing the first half of 2023 and 2024, it can be seen that the average monthly electricity production of fossil fuel-based power plants in Estonia decreased by 12% to 216 GWh, while the average monthly production of renewable energy increased by 25% to 123 GWh. The production capacity of solar power plants alone has almost tripled in Estonia in five years, approaching 680 MW.

The continuous growth of unmanageable renewable energy production will bring electricity to the market at competitive prices, but will also create conditions for increasingly volatile prices. For example, in the context of record-high solar energy production in the Baltics, there are often situations where electricity prices are significantly higher in the evening than in the daytime.

As in previous years, Estonia continues to be primarily an importer of electricity. Nordic hydro, wind and nuclear power and Latvia’s springtime hydropower provide Estonia with cheaper electricity. This is the main reason why imports remain significantly higher than exports. As of the end of July, Estonia has imported 2.5 TW of electricity, 66% of which comes from Finland and 34% from Latvia. Estonia itself has exported 0.46 TW of electricity, which is approximately 4.4 times less than electricity imports. Of the exports, 57% went to the Latvian market and the rest to Finland. The percentage of electricity imported from Latvia is likely to decrease during the rest of the year, as the hydro reservoirs there empty during the summer.

Karl Joosep Randveer, Energy Trading Analyst at Eesti Energia

The market overview has been compiled by Eesti Energia according to the best current knowledge. The information provided is based on public information. The market overview is presented as informative material and not as a promise, proposal or official forecast by Eesti Energia. Due to rapid changes in the regulation of the electricity market, the market overview or the information contained in it is not final and may not correspond to future situations. Eesti Energia is not liable for any costs or damages that may arise in connection with the use of the information provided.