Economist: Wind Strength to Largely Decide Latvia's Winter Electricity Prices
Peter Strautiņš, an economist at Luminor bank, expects electricity prices in Latvia in late winter and spring to depend closely on the weather because natural gas is expensive. If winds stay weak, prices will be high, since links with the Nordic countries are too limited to even out prices.
Electricity prices in Latvia this coming winter will depend largely on the weather, especially wind strength, because natural gas is expensive. This was explained by Pēteris Strautiņš, an economist at Luminor bank, on the programme "Ziņu TOP". In his view, the power grid links with the Nordic countries do not always allow price differences to be evened out, so price swings may be felt particularly strongly by Latvian consumers.
Gas prices pull electricity up
Latvia began this year with a natural gas price of about 30 euros per megawatt-hour. In October it briefly reached 100 euros on the exchange, and it now stands at around 80 euros per megawatt-hour. Strautiņš stresses that gas this expensive cannot fail to show up in electricity prices. At gas-fired power plants, generating electricity costs at least twice as much as the gas itself when measured in energy units, because losses and technical costs must be taken into account.
Renewable energy sources have very low variable costs, so when the exchange price falls to zero, producers have no incentive to switch such plants off. Gas plants, in turn, are started mainly when other resources cannot meet demand and market prices rise. In summer, gas cogeneration plants mostly sit idle. October data show they are occasionally connected to the grid again, but for most of the time they are still switched off.
Price gaps in Scandinavia
The economist notes that prices differ greatly within Scandinavia itself. During the high-price period, electricity in Finland and northern Scandinavia cost only a few tens of euros per megawatt-hour. In Norway, which has large interconnections, for example with Denmark and the United Kingdom, part of the country lies in a different price zone, and southern Sweden is in a similar position. Strautiņš is surprised that the Scandinavian countries have not built sufficiently powerful internal links. He suggests there may be political reasons, such as a wish to protect energy-intensive industry in the north.
Outlook
The economist does not think everything will turn out badly: food commodity markets still show a surprising calm. Still, gas prices give cause for concern. Toward the end of this winter, through spring and up to the spring flood period, electricity prices will be closely tied to the weather. "If strong winds blow, prices can be low. If winds do not blow, prices unfortunately have to be high," Strautiņš concludes.
