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

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

Changes in Baltics from 18 th June, 2012 (1) Lithuanian bidding area opening ► 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. Trading portfolio per each market participant Trading portfolio Trading portfolios per each market participant to import to Lithuania Trading portfolios per each market participant to export from Lithuania

Changes in Baltics from 18 th June, 2012 (2) ELE bidding area ► 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 Estonia (EE) Estonia Russia Import area (ERI ) Estonia Latvia Import area (ELI) Estonia Latvia Export area (ELE) Estonia (EE) Estonia Russia Import area (ERI) Estonia Latvian Exchange area (ELE) 18 June

Litgrid and Elering became the shareholders of NPS ► 1 st 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.

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

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

LT biding area from 18 th 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

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 Baltic electricity market integration steps

20 th 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

20 th 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

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 Baltic States – part of integrated European electricity market

1 Current capacity allocation principles, except changed EE/LV boarder setup Capacity allocation in Lithuania performed by NPS 23 Internal Baltic capacities allocated by implicit auction Agreement between Baltic TSO`s is required Internal Baltic capacities allocated by implicit auction Common capacity allocation rules for trade from 3 rd countries Agreement between Baltic TSO is required Baltic markets integration – 3 steps development Initial scheme

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

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

Thank you!