Lithuanian TSO view on the Baltic electricity market development

1. Lithuanian TSO view on the Baltic electricity market development Robertas Staniulis 14th Baltic Electricity Market Mini-Forum, Riga September 21, 2012

2. From 18th June, 2012 Lithuania – in the Nord Pool Spot map

3. Changes in Baltics from 18th June, 2012 (1) Lithuanian bidding area opening Trading portfolios per each market participant to export from Lithuania Trading portfolio per each market participant Trading portfolios per each market participant to import to Lithuania Trading portfolio • LT–LV: Separate trading portfolio for each market participant trading from (to) Latvia or (and) Estonia. Trade results are netted. • LT–KAL (RU): One trading portfolio for one participant trading • LT–BY: Separate bidding areas for import export with portfolios per each market participant.

4. Changes in Baltics from 18th June, 2012 (2) ELE bidding area Estonia Russia Import area (ERI) Estonia Russia Import area (ERI) 18 June Estonia (EE) Estonia (EE) Estonia Latvia Import area (ELI) Estonia Latvian Exchange area (ELE) Estonia Latvia Export area (ELE) • ERI (Estonia Russia import area stays the same) • ELE represents Estonian Latvian import-export area • ELE price is calculated and flow between Estonia and Latvia is published

5. Litgrid and Elering became the shareholders of NPS • 1st August, 2012 Litgrid and Elering became the shareholders of Nord Pool Spot AS • Baltic TSOs have bought 2 % of shares each • There will be one rotating Board member from the Baltics • It means participation in the decision-making process, contribution to Nord Pool Spot corporate activities in development of the regional and European power market.

6. Comparing prices in 2011 and 2012 • Price after NPS area opening slightly differs from the same period last year • However, price from January 1st is lower in year 2012 • The prices are fluctuating due to the seasonal impact in Nordic countries • Price in LT differs only slightly through the whole year

7. Estonian-Latvian cross-border as a limiting factor • EE-LV cross-border capacity is the limiting factor in Baltic region • EE-LV cross-border capacity is severely limited during the summer time • Typical Baltic market situation: • Lowest price in EE • Higher price in ELE because of limiting EE-ELE capacity • The highest price in LT as it receives only a part of electricity from EE 2012-08-23

8. LT biding area from 18th June • Prices in ELE and LT should be the same because of “unlimited” transmission capacities • However, prices differ almost all the time, some days – dramatically • As there is no direct linkage between ELE and LT areas market players’ trading strategy decides the price, but not the markets itself

9. The specific situation of the isolated Lithuanian market • Some days despite the higher price in LT, the commercial flow goes in LT-LV direction • It could be explained as pre-agreed amounts • However, such situation shows the need of further Balticelectricity market integration steps 2012-08-26

10. 20th August – average price in LT 123 EUR/MWh • Hourly price fluctuated from 149,91 to 200,59 EUR/MWh • Limited electricity supply from Estonian bidding area: • Severely limited EE-LV capacities (270 MW) because of line outage in Russia • Less delivery from RU (deficit in Lithuanian market ~100 MW/h) • Due to limited interconnection capacities • The demand grows – market participants are trying to buy • electricity in the power exchange • Limited local generation • Limited availability of Kruonis HPSP • Lithuanian PP blocks not working • Increased demand in Latvia • Riga TE2 planned outage – 175 MW

11. 20th August – lessons to learn • August 20 not a disaster, but in a short run it indicate the need for: • Better coordination among Baltic TSOs • Better information for market participants via UMMs • Enhanced responsibility of biggest market players • In the long-term shows a need for: • Further market integration • Competitive local generation

12. Further integration steps • Short-term steps: • Coupling of Lithuanian and Estonian bidding areas • NPS Latvia establishment • Long-term steps: • Creation of intraday-market • Creation of financial market • Infrastructure development 2014-2016 Baltic States–part of integrated European electricity market

13. Baltic markets integration – 3 steps development Initial scheme 1 2 3 • Current capacity allocation principles, • except changed EE/LV boarder setup • Capacity allocation in Lithuania performed by NPS • Internal Baltic capacities allocated by implicit auction • Common capacity allocation rules for trade from 3rd countries • Agreement between Baltic TSO is required • Internal Baltic capacities allocated by implicit auction • Agreement between Baltic TSO`s is required

14. The importance of Latvia joining NPS • The direction of the commercial flows would be logical and determined by the forming price in bidding areas • The price would reflect the real situation and as would be formed by power exchanges but not by the traders and their trading policy • The power market would become more liquid because of supply from Latvian bidding area • Latvia joining NPS is extremely important step for creating the efficient, liquid and integrated Baltic electricity market

15. Further market development steps – intra-day market • Intra-day opening is a further step after creating the common Baltic market • Intra-day allows more efficient market and more real time trading • Allows minimizing imbalance risk • Lithuanian market participants see the need of intra-day market opening as soon as possible • Intra-day opening is very important and requested – date has to be agreed

16. Thank you!