Letter to Commissioner Simson on Electricity Market

REPUBLIC OF ESTONIA MINISTRY OF EcoNoMIc AFFAIRS AND COMMUNICATIONS Kadri Sirnson [email protected] Our Ref: 30.08.2022 No 17-9/2022/5357-1 European Comrnission, Rue dc la Loi 200, 1040 Brussels, Beigium Dear Commissioner Simson, Due to the ongoing Russian aggression towards Ukraine, European energy markets are working under severe distress. Understandably, such extraordinary conditions also reveal some shortcomings of the cornmon energy market regulation. Estonia is concerned about the functioning of the electricity market and some of the rccent corresponding trends we find worrying. It is our responsibility to seek and find solutions to the shortcomings in the system to maintain the public trust towards Energy Union. The electricity prices on the Nord Pool power exchange in the Baltic and Finnish region have recently reached extremely high leveis and the same trends are emerging in other EU Member States. This has raised valid questions and concerns across the whole region. The most notable and extreme price hike so far took place recently on the 17hh1 of August, where the price of electricity on the Nord Pool Baltic power exchange peaked at € 4,000 per megawatt-hour. Price fluctuations on this scale are highly problematic for our economy and for the society as a whole. Therefore, to avoid the occurrence of such events in the future, 1 would kindly ask you and your team to take into consideration the following observations. Firstly, the market transparency needs to be increased. This would be crucial in order to restore public confidence in the market system. Even when considering the general underlying causes of the increased energy prices, it is difficult to understand and justify the extraordinaiy peaks and extrerne fluctuations on the electricity market. Therefore, 1 kindly ask the Commission to analyse and employ different possibilities to improve the transparency of the functioning of the power exchange and electricity market. In our view, to ensure higher transparency, more information should he made public on the bids placed on the power exchange, including but not limited to their origin, source and volume. We agree that such publication should also be made in such way that fair competition and functioning of the market would not bejeopardized, but we are certain a solution can be found here. Secondly, 1 see a need for immediate changes to the price setting regulation for determining the maximum hourly clearing price of power exchanges. In our view, the current system whereby the hourly price ceiling is automatically raised once the previous ceiling is reached, cannot be considered reasonable at these times. The price ceiling should function in a way that it protects the market from cxtreme fluctuations and is raised only if the previous ceiling is Suur-Arneerika 1 / 10122 Tallinn / ESTONIA Phone: +372 625 6342 / Fax: +372 631 3660 / E-rnail: [email protected] / http://www.nikm.ee unsustainable over a longer period oftime. As it is currently, an extreme and questionable short terrn price hike, which reaches the price ceiling. autornatically triggers a raise in the price ceiling. At the same time the reason for the fluctuation might not have been rnarket-driven and therefore also no fundamental reasons requiring a raise in the price ceiling for the times to come. Therefore, 1 would kindly ask the Comrnission to explore possible alternatives that on the one hand could provide the necessary safeguards for investments and energy producers, but on the other hand would not overburden the consumers by facilitating ever higher extrerne prices that serve no purpose. Considering the previous, an increase in the price ceiling should perhaps not be an automatic process and should instead be preceded by a thorough analysis, establishing that raising the price ceiling is necessary to ensure the efficiency of the market in the long-terrn. The electricity markets in the EU are regulated by the Electricity Regulation and by the corresponding delegated acts. Therefore, we encourage the Comrnission to consider proposing changes to related regulations in order to ensure the better functioning of the electricity market and to encourage investments into new generation capacities. Thirdly, we would also highlight some of our initial concerns regarding the recent announcement by some of the countries in the EU or in the EEA to possibly restrict electricity trade and the availability of capacity, which in our view could he significantly counterproductive towards the functioning of an efficient common energy market. While we of course understand the concerns of energy security in light of the upcoming winter. we strongiy believe that the steps taken should not he at the cost of dismantling the common energy market, which has been built up over the years. We would kindly ask the Commission to take an active role in safeguarding the work done so far and to ensure that ali steps taken are based on wider solidarity and not on unilateral short-terrn gains. We are grateful for considering our questions and concerns and we are looking forward to youi feedback. With best regards, Riina Sikkut Minister of Economic Affairs and Infrastructure Katry Ahi +372 625 6374 [email protected] 2 (2)