Baltic Power Market Faces Scrutiny Amidst Anomalous Price Spikes
Electricity prices on the newly established Baltic frequency reserves market have experienced dramatic and unusual fluctuations, prompting investigations into potential market manipulation. The price volatility, observed across Estonia, Latvia, and Lithuania, comes just months after the region launched a joint market aimed at stabilizing power grids following disconnection from the Russian grid.
New Market, Familiar Concerns
The joint Baltic frequency reserves market, launched in February, was designed to ensure a consistent balance between electricity production and consumption. However, recent price spikes – ranging from negative values to several thousand euros per megawatt-hour – have raised concerns among system operators and market participants. A spokesperson for Elering, the Estonian system operator, stated on Thursday that the price surges stemmed from frequency reserve offers originating in Latvia, with prices “increasing significantly” in recent days.
Investigation Launched into Latvian Bids
Elering is actively collaborating with Latvia’s system operator, AST, and has contacted the market participant responsible for the high bids. According to officials, all market offers must adhere to competition rules, and the Latvian energy market regulator is assessing the Latvian participant’s compliance.
“There seem to be sufficient offers on the market, but apparently not all of them can be used, for technical reasons, while one small Latvian bidder with high prices has been activated who is constantly raising the prices of their bids,” noted a partner at trading company Baltic Energy Partners. “In this case, it may also be a matter of market manipulation, and the Latvian competition authority should investigate whether making bids in this way is justified.”
Reserves Available, But Market Transparency Lacking
Despite the price spikes, initial assessments suggest no actual shortage of frequency reserves. A project manager for energy storage at renewables producer Sunly, told an energy publication that hundreds of megawatts of capacity remained available during the periods of high prices. However, the expert cautioned against speculation regarding bidding strategies.
The market’s immaturity and lack of transparency are also contributing factors. “And prices depend too much on the decisions and reactions of system operators and regulators, which do not seem fast enough given the rapid changes in market situations,” one analyst observed.
Impact on Consumers and Producers
The increased costs of maintaining grid balance will likely be passed on to consumers through higher electricity prices. This will increase costs for electricity buyers and reduce revenues for producers. The recent fluctuations, including a negative price of -€4.473 per megawatt-hour on Sunday and a spike to €9.976 per megawatt-hour on Monday evening, are far outside the typical range of +1000 to -1000 euros for manually activated frequency restoration reserves (mFRR).
Regulatory Response and Jurisdictional Issues
The Estonian Competition Authority clarified that investigations into potential market manipulation will be led by the regulatory authority in the country where the manipulation occurs – in this case, Latvia. However, the authority emphasized its ongoing cooperation with Latvian and Lithuanian counterparts.
“In supervisory activities and in detecting market manipulation, we actively cooperate with both Latvia, Lithuania, and the cooperation agency of regulatory authorities in the energy sector,” said an advisor at the Estonian Competition Authority’s energy markets department. The authority refrained from commenting on specific ongoing investigations.
Understanding Frequency Reserves
Frequency reserves are essential power plants and storage facilities that respond rapidly to imbalances in the power grid, such as unexpected plant outages. These reserves maintain the critical 50-hertz frequency. Up-regulation occurs when production falls short, prompting the system operator to activate bids to increase output. Conversely, down-regulation addresses excess production, with the operator activating bids to reduce output. Negative pricing indicates that surplus electricity is so abundant that parties must pay to consume it.
The launch of the joint Baltic market followed the region’s disconnection from the Russian grid in early February, marking a significant step towards energy independence. However, these recent price anomalies underscore the challenges of establishing a stable and transparent market in a rapidly evolving energy landscape.
