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Full opening of the Estonian electricity market

SEPTEMBER 2012


Contents

Introduction.........................................................................................................................................................................02 Transition to the open electricity market..................................................................................................................02 Electricity bill........................................................................................................................................................................04 Electricity price factors.....................................................................................................................................................04 Estonia’s power system....................................................................................................................................................06 Electricity consumption and production in Estonia..............................................................................................06 Buying electricity in the open market........................................................................................................................08 Power exchange.................................................................................................................................................................09 Balance management.......................................................................................................................................................11 Tips for saving electricity.................................................................................................................................................13 Glossary.................................................................................................................................................................................14


Introduction In our everyday life, it is important to have access to electricity at all times. The quality of services related to electricity, and the security of supply, are some of the most important pillars of a modern country. Ensuring this requires sufficient production capacity, fuel supply, and external connections with neighboring countries. The principle of opening electricity markets that was adopted by the European Union (EU) assumes that competition and the open market price for electricity will make the market participants invest wisely and manage their resources efficiently, which is ultimately beneficial for everyone. An efficient market means an interconnected electricity market, where consumers are free to choose their electricity seller, and producers have possibility to serve the customers. The EU electricity market opened up fully in 2007, and Sweden, Finland and Great Britain were among the first to transition to the open electricity market. Across the EU, the opening of the electricity markets applied to large-scale consumers first, and then to all market participants. In 2003, when Estonia’s treaty of accession to the EU was signed, it was agreed that Estonia would open its electricity market partially in 2009, and completely in 2013. The partial opening of the electricity market in Estonia took place in April of 2010, when the

Estonian electricity market was opened up for large-scale consumers who consumed more than 2 GWh of electricity per year, and who, as eligible customers, currently account for approximately 35% of the entire domestic consumption. In the beginning of 2013, the Estonian electricity market will be opened up for small and household consumers, and electricity will be offered by various sellers. For Elering, the open electricity market means a need to make the effort to connect our marketplace to other markets (in the Baltic and Nordic countries), construct new international connections and thus create the overall foundations for the functioning electricity market. The availability of sufficient transmission capacity and its market-based allocation will also ensure that the price of electricity is determined by the open market. For the electricity market to function smoothly after it opens up in 2013, all parties must be ready and aware of how the market works, what the roles and necessary preparations are. Hopefully, this brochure will help you find the answers to the questions and topics related to the upcoming changes.

Transition to the open electricity market The most important and fundamental change associated with the open electricity market, compared to today, is that electricity producers and sellers will compete when selling their product. This means that consumers will be able to buy their electricity from various sellers, and choose from a variaty of packages and find the solution according to their needs. The price of electricity will be determined by market competition, same as other goods and services. The electricity networks (transmission and distribution networks) will be at the service of all market participants, and all sellers and consumers 2

will be treated equally. Unlike the electricity seller, the transmission service provider cannot be chosen by the consumer. WHO PARTICIPATES MARKET?

IN

THE

ELECTRICITY

Consumers – In the open electricity market, electricity consumers can choose between electricity providers and price offers. Producers - Producers will be able to sell their electricity output on the market. The conditions of the open electricity market assure transparent prices providing investors and producers the right


incentives for long-term investment decisions. Bilateral contracts – These contracts are based on mutually agreed-upon conditions. The reference price for a bilateral contract is often derived from financial markets or directly calculated based on electricity prices on the power exchange. Bilateral contracts allow the electricity supplier and the consumer to conclude a contract on a set of conditions that satisfies both parties. Participation in the power exchange – This opportunity is generally used by sellers, whose portfolios consist of bilateral contracts (and financial services contracts) for selling electricity to market participants, or producers who wish to sell their electricity output on the exchange.

Network operators – Although consumers will have an opportunity to choose their electricity supplier in the future, the network operator transporting electricity from the producer to the consumer will remain unchanged. Since the network service is a natural monopoly, the regulated price of network services will be set by the Estonian Competition Authority constituting approximately one third of the electricity bill. Equal treatment of market participants and access to data are important for creating an open electricity market. Elering is developing a data warehouse information system which will contain electricity metering data from consumers and network operators. In addition, to ensure that each customer has only one contract, information regarding electricity contracts will be recorded.

WHO OPERATES IN THE ELECTRICITY MARKET? Transmission of electricity via the transmission network (Elering) and distribution networks

ELECTRICITY PRODUCERS

ELECTRICITY CONSUMERS

POWER EXCHANGE

ELECTRICITY SELLERS

3


Electricity bill When talking about the price of electricity, it is important to distinguish its price from the total sum on your electricity bill. The electricity bill consists of network service fees, an excise duty on electricity, VAT, a renewable energy fee, and finally the cost of the electricity itself. The network service fee makes up 36% of the household consumer’s electricity bill and that will continue to be regulated by the Competition

Authority even after the market opening. In addition, the renewable energy fee and the excise duty on electricity constitute another large part, approximately 32%, of the bill, which will not be affected by the market opening. In a regulated electricity market, the price of electricity is determined by the state, and is currently about 31 EUR/MWh.

WHAT DOES THE ELECTRICITY BILL CONSIST OF? Renewable energy fee VAT and excise duty on electricity

Network service fees

35%

10%

Transmission network (Elering) fee

21% 36%

Electricity costs

65% Distribution network fee

33%

Electricity price factors The main factors that impact the price of electricity in the open market and the power exchange are the availability of production capacity and interconnectors that ensure electricity flows both within the country and between neighboring countries. Based on this, the most important factors in determining the price of electricity are as follows: AVA I L A B L E

TRANSMISSION

C A PA C I T Y

Today, Estonia has electricity connections with Russia and Latvia and we are connected to Finland via the 350 MW sea cable EstLink 1. In 2014 the EstLink 2 sea cable between Estonia and Finland will be ready, tripling the transmission 4

capacity between the Baltic and Nordic countries. As a result, electricity producers and consumers will have the opportunity to buy and sell electricity in a larger Nordic-Baltic market. This in turn enhances competition, ensuring the most competitive electricity price for the consumer. A stronger connection to the Nordic countries and use of various types of production will lead to price harmonization. In addition to EstLink 2, NordBalt between Lithuania and Sweden (2016), a third line between Estonia and Latvia (2020) and LitPol between Lithuania and Poland (2020) are in the planning phase. These projects will improve the integration of the entire region with the European Union’s common electricity market.


TRANSMISSION CAPACITIES IN NORTH EUROPE

120 MW

100 MW 50 MW

60 MW

1400 MW 1100 MW

1600 MW 1200 MW

300 MW

100 MW 1400 MW

2200 MW

1300 MW 650 MW 350 MW

1000 MW 1750 MW 700 MW

700 MW 600 MW

1350 MW 600 MW 600 MW

EstLink 2, the second sea cable between Estonia and Finland with the capacity of 650 MW will be commissioned in 2014, NordBalt, the sea cable between Lithuania and Sweden with the capacity of 700 MW is planned to be ready in 2016.

FUTURE GENERATION CAPACITIES IN THE REGION In 2015 Finland will commission a new 1600 MW nuclear power unit, which will increase the country’s nuclear production capacity by approximately 65%. Since nuclear energy has low levels of CO2 emissions, it is very competitive and will cover the basic consumption of electricity. Another important capacity addition is Eesti Energia’s new 270 MW oil-shale production unit, which will be ready by 2015. HYDRO ENERGY LEVELS IN THE NORDICS AND LATVIA Since hydro energy is the cheapest form of electricity, it has a strong effect on the region’s electricity price. For example, in the fall of 2011, the level of hydro resources in Norway and Sweden was significantly higher compared to previous years, which caused a noticeable drop in the price of electricity in the Nordic price regions. EUROPEAN UNION RULES ON EMISSIONS TRADING At the same time as the opening of the electricity market in the beginning of 2013, the European

Union’s rules on emissions trading will also change. Electricity producers who use fossil fuels will have to start buying emissions quotas (until now they received most of their quotas for free). The price forecast for the quotas is 15−25 EUR/t, which means that the production of electricity from oil-shale might get 40−60% more expensive. Since the prices in the electricity market are determined by competition, it is currently impossible to know what the electricity price will be in 2013. Looking at current market prices for electricity, the opening of the electricity market would mean an increase in the electricity bill of approximately 20% for household and small business consumers – slightly more for bigger users of electricity, less for smaller ones. In 2011 the average price of electricity in the NPS Estonian price area was 43.37 EUR/MWh. Information about futures prices in the electricity market is available at www.nasdaqomxcommodities.com. 5


Power system in Estonia Power system in Estonia connects the power plants located in Estonia, network operators, and electricity consumers. In turn, Estonia’s power system is part of a large synchronous area named BRELL. This is made up of Estonia’s neighboring countries that are connected via alternating current lines (Latvia and Russia), and their neighboring countries (Lithuania and Belarus). Since the end of 2006, there is a direct current connection between Estonia and Finland via the EstLink 1 sea cable. In addition to its main function, it also has a symbolic value as the connector between Baltic and Nordic countries. In early 2011, construction of EstLink 2, the second sea cable between Estonia and Finland was started and the new 170-kilometer connection will become into operation in 2014.

Estonia is connected to Russia via three 330 kV overhead lines (two lines going from Narva to St. Petersburg and Kingisepp, and one line from Tartu to Pskov). We are connected to the Latvian power system by two 330 kV overhead lines (one between Tartu and Valmiera, and another between Tsirguliina and Valmiera). Elering functions as Estonian power system operator, whose task is to manage the system and plan its operations in a way that always ensures safe and reliable functioning of the network, as well as the delivery of electricity to every consumer. In addition to providing an electricity transmission service, Elering is also responsible for balance management.

Consumers

Transmission network power lines

Power plants

Substation

Substation

Substation

Substation

TRANSMISSION NETWORK

DISTRIBUTION NETWORK Consumers

Electricity consumption and production in Estonia In 2011, Estonia’s electricity consumption including network losses constituted to a total of 7.8 TWh, which is 2% less than previous year. This data is based on the electricity balance of the power system, including transmission network electricity balance and electricity production data from distribution networks. The network losses are included in total Estonian electricity consumption. Data on end-user consumption of electricity is collected and published by the Statistical Council. 6

In 2011, overall warmer winter months in the beginning and the end of the year caused decrease in electricity consumption. Therefore consumption of electricity in 2011 fell back to the level of year 2006. After the closure of the Ignalina nuclear power plant in Lithuania in 2010, Estonia became an electricity exporting system and in 2011 the amounts of electricity released into the network


EPS electricity balance, GWh

2011

2010

Change %

Total electricity output directed to network

12 886

13 050

-1%

Electricity output in Estonia

11 387

11 321

1%

Inc. Renewable energy

1159

867

34%

- Wind power

365

276

32%

- Hydro energy

31

27

15%

- Biomass, biogas

763

564

35%

Electricity output directed to network from cross-border lines

1499

1729

-13%

Total electricity output transmitted through network

12 886

13 050

-1%

Domestic consumption, including network losses

7824

8006

-2%

Electricity transmission to cross-border line

5062

5044

0%

Balance

3563

3315

7%

within the country totaled 11.4 TWh. Thus, Estonia’s power system produced 45% more electricity in 2011 than was consumed domestically, and the system’s annual balance came to 3.6 TWh. Production of renewable energy also showed a growth trend in 2011, and the increases in wind and biomass energy production resulted in an overall growth of nearly a third. Total renewable energy production for 2011 came to 1.16 TWh, and its distribution by energy source can be seen on the graph below.

Hydro energy

Wind power

31%

The Dashboard on Elering’s website, www.elering.ee, publishes the electricity balance and electricity trading balance of Estonia’s power system every month and also the real time data of production and consumption. The website’s Press Center section holds monthly overviews of the Estonian power system and the market, as well as annual reports on security of supply and electricity generation adequacy. Information on renewable electricity generated and subsidized can be found in the Renewable Energy section.

3%

Waste and biomass

66%

7


Buying electricity in the open market All changes related to the opening of the electricity market that affect consumers are set forth by the Electricity Market Act. The Act ends the sale of electricity at a regulated price as of January 1st, 2013, and creates the preconditions for the entry of new sellers into the market.

Consumers will be able to choose their new electricity seller starting from the second half of 2012 and any time afterwards the market has opened up. A contract with a new seller can be signed every month and there is no limitation on changes. At the same time, remember that a seller can only be changed at the start of a calendar month, and the contract with a new seller must be signed no later than 21 days before that.

Starting from 2013, the small-scale consumer will be able to buy their electricity in one of the following ways:

Exchange-related package;

Fixed price package;

General service, if no seller is selected.

Switching your electricity seller is similar to switching your phone or mobile operator: the consumer must sign a contract with the new electricity seller, who will then cancel that consumer’s contract with previous electricity seller. Note that only one seller can deliver electricity to a household or office at a time.

Before the market opens up, consumers can negotiate the product and the price with a suitable seller.

Selecting an electricity seller is like selecting any service provider: it is best not to decide after the first offer you receive. It makes sense to get offers from at least three electricity sellers.

TRADING IN THE OPEN ELECTRICITY MARKET

ELECTRICITY PRODUCERS NETWORK OPERATORS

SELL TO EXCHANGE

CONTRACT WITH NETWORK OPERATOR CONTRACT WITH NETWORK OPERATOR

BILATERAL CONTRACTS

MAJOR CONSUMERS

BILATERAL CONTRACTS

BUY FROM EXCHANGE BUY FROM SELLER

EXCHANGE HOUSEHOLD CONSUMERS BUY FROM EXCHANGE

ELECTRICITY SELLERS

8

CONTRACT WITH SELLER


If the customer wants the new seller to have access to their detailed electricity consumption data when making an offer, the customer must approve the data access, and the company must submit an access request for that consumer’s data to the data warehouse being created by Elering.

provision of the universal service together with reasonable profit margins are added to the price calculated. The provider of a universal service calculates the universal service fee on the basis of the energy consumed. Where a transmission system operator lacks measured data on the electricity consumed by a small consumer during the previous calendar month, the transmission system operator forecasts the amount of energy required to provide a universal service on the basis of the consumption schedule.

It is best to prefer electricity sellers who have joined the good faith agreement on the opening of the electricity market, and have voluntarily pledged to avoid misleading the consumers. Such sellers have the right to use the “Avatud 2013” logo. A list of electricity sellers who have joined the good faith agreement can be found at www.avatud2013.ee. In the Electricity Market Act stands the following about the universal service: One important factor in the selection is the price offered by the electricity seller. Specific price offers The universal service is the consumer’s right are expected in the second half of 2012. Offers can to buy electricity and the network operator’s be compared to the prices reached at the Nord obligation to sell electricity to the consumer; Pool Spot power exchange, which can be found at www.nordpoolspot.com. The universal service can only be used by smallscale consumers; UNIVERSAL SERVICE FOR ELECTRICITY The universal service is provided by the network Consumers who do not wish or do not manage to operator. If it does not sell electricity itself, it will choose an electricity seller before 2013 will not be authorize a licensed seller to provide that service; left in the dark on January 1st of that year. In this case, small-scale consumers will buy electricity as The standard conditions of universal service a universal service. apply to all the network contracts that are valid after January 1st 2013; Small consumers include residential consumers, apartment associations, apartment owner Both the universal service’s standard conditions unions and business consumers whose electrical and the price of the electricity sold as a general installations are connected to the grid via a low service, along with its calculations, must be voltage main circuit breaker below 63 A. published on the network operator’s website by the 9th day of every month. The price of electricity sold as a universal service is calculated on the basis of the weighted average Large-scale consumers who do not wish or do price of per-hour amounts of electricity sold as a not manage to select an electricity seller before universal service in the previous month and per2013 will receive their electricity from the network hour electricity prices on the energy exchange. operator, at the balance energy price (see page 12). Reasonable expenses in connection with the

Power exchange Power exchange is an organised market for trading electricity. Elering as a system operator has decided to join the Nord Pool Spot (NPS) power exchange, which has been operating in the Nordic countries for 15 years. NPS is one of the world’s largest

power exchanges trading with physical energy, and operates in the Nordic countries (Norway, Sweden, Finland and Denmark), Germany, Estonia, Lithuania and Great Britain. NPS intends to open price area also in Latvia. 9


The main objective of a power exchange is to offer all market participants equal opportunity to sell or buy electricity, thus also being an alternative to bilateral contracts. The power exchange ensures that electricity receives a transparent and marketbased price, providing investors and producers market-based signals for long-term investment decisions. There are different options for trading in an open market: participating in a power exchange or signing bilateral contracts between producers and consumers. According to the Estonian Electricity Market Act, the preconditions for a power exchange operator are as follows: According to an agreement concluded with the system operator Elering, power exchange operator must ensure the operation of the power exchange and the possibility of trading with electricity; Prior experience operating an international power exchange; Annual trading volumes of at least 50 TWh in the case of an exchange trading in next-day and at least 0.5 TWh in same-day deliveries. The power exchange is primarily designed for electricity wholesale sellers, because participation fee for small-scale customers is high and requires daily trading activity.

PRICE OF ELECTRICITY

DETERMINING THE PRICE OF ELECTRICITY

Total offers from electricity sellers

Total consumer demand

10

AMOUNT OF ELECTRICITY

This means that exchange traders are mostly: - Producers; - Retailers; - Traders; - Large-scale consumers (in Estonia, consumers who uses more than 2 GWh of electricity per year). All exchange traders must sign an appropriate contract with NPS. TRADING ON THE NPS POWER EXCHANGE If the power network infrastructure between the Nordic countries and Estonia was strong and the transmission capacity was sufficient, then ideally all price areas would have the same price for electricity. In reality, there are bottlenecks between various price areas because every market participant can only operate in their own area and place buy and sell offers on the power exchange in that area. Therefore, Nord Pool Spot has split the Nordic countries into different price areas. The flow of electricity between different price areas is always in the direction from the lower-price area to the higher-price area, and the energy flow cannot exceed transmission capacity. If one area has a higher level of demand and the transmission capacity between two areas is insufficient to cover the demand, the prices between those areas diverge. To avoid large price differences between price areas, NPS has employed the implicit auction method. Since every price area calculates its price as the intersection point of placed sell and buy offers, there may be situations where one area has a surplus of electricity (lower-price area) and another has a deficit (higher-price area). This system optimizes the prices between price areas and as a next step includes the transmission capacity between two price areas when calculating prices, which evens prices out. Thus, transmission lines between areas provide the ability to channel the surplus of electricity from a lower-price area to a deficit higher-price area.


Balance management In the power system the amount of electricity entering the network and exiting it (the consumption/export and the production/import) must always be balanced. This is called the power system balance, and as the system operator, Elering is responsible for this. The purpose of balance management is to ensure that the power system is balanced at all times.

Open supply means:

In practice, it is not possible to ensure that market participants always produce and consume electrical energy according to the plan, so the balance is maintained as an open supply, through the uninterrupted open supply chain.

Buying from a market participant all the surplus electricity they have within a trading period.

Selling to a market participant all the electricity they require, or Selling to a market participant all the electricity they are missing in order to maintain their balance within a trading period, or

ENSURING A BALANCE Elering ensures a balance between the production/import and consumption/export of electricity. This ensures that the frequency of the Estonian power system is maintained at 50 Hz.

50Hz

ELECTRICITY CONSUMERS

ELECTRICITY PRODUCERS

OPEN SUPPLY CHAIN SYSTEM OPERATOR LEVEL Responsible for the balance of the Estonian power system

System Operator Elering AS

BALANCE PROVIDER

Electricity Seller, a.k.a. Open Supplier

Market Participant

Market Participant

BALANCE PROVIDER

BALANCE PROVIDER

OPEN SUPPLIER LEVEL Responsible to the balance provider for maintaining the balance within their balance area, and has signed an open supply agreement with the balance provider

Electricity Seller, a.k.a. Open Supplier

Market Participant

Network Operator

BALANCE PROVIDER LEVEL Responsible to the system operator for maintaining the balance within their balance area, and has signed an open supply agreement with the system operator.

Market Participant

Network Operator

MARKET PARTICIPANT LEVEL The producer and consumer who have signed a contract with the seller a.k.a open supplier; includes the network operator who buys electricity to cover their losses.

11


BALANCE RESPONSIBILITY PROCESS It is Elering’s obligation to ensure the security of supply and balance of the Estonian power system at all times. The amount of the production, consumption, export and import in the system depends on the portfolios of the balance providers and the balance plans they have submitted. The total sum of Estonian consumption and production is divided among the portfolios of the balance providers. As of August 2012, the Estonian power system has 5 balance providers: Eesti Energia AS, Baltic Energy Services OÜ, Latvenergo Kaubandus OÜ, Nordic Power Management OÜ, and the Estonian branch of EGL Nordic AS. The system operator executes the balance responsibility of the Estonian power system via balance planning, management, and settlement.

The purpose of balance planning is to use the data provided by balance providers and create a balance plan of the system, ensuring that it matches all requirements. The purpose of balance management is to maintain the balance of the Estonian power system in real time, using reserve capacity if necessary. The purpose of balance settlement is to determine the amount and cost of the open supply provided by the balance providers across the Estonian power system and within their balance areas, for the trading period. The balance responsibility rules, deadlines and mutual obligations for balance providers are set forth in the standard conditions of the electrical energy balance agreement.

SYSTEM OPERATOR’S BALANCE HANDLING PROCESS Balance Planning Balance Management Balance Settlement

IMBALANCE ENERGY PRICE The imbalance energy price is the price at which Elering buys electrical energy from balance providers or sells it to them, with the purpose of maintaining the balance. This price is calculated by Elering. In order for the market to function, the balance energy price must always be the highest price in the system, so that market participants are motivated to submit more accurate plans. The imbalance energy price is determined by the “Common Methodology for Calculating the Balance Energy Price”, as approved by the Competition Authority.

12

Today, the purchase and sales prices of imbalance energy for each trading period are published on the Elering website two business days after the end of the trading period in question.


Tips for saving electricity Regardless of the opening of the electricity market, it is a good idea to look for opportunities to save electricity. Some recommendations are provided below. Do not heat rooms that nobody is using. For example, when going on a trip, it makes sense to turn off the floor heating in your bathroom, turn down the temperature in the rooms, etc. Approximately 5−10% of the electricity used in the home goes to appliances that are not doing anything useful, but are left in standby mode, such as monitors, television sets, digital TV boxes, music players, etc. Turning off these devices will decrease energy consumption. When buying home appliances and electronics, have a look at the electricity consumption of different models: energy markings are mandatory even for TVs, not to mention refrigerators and washing machines.

or heat accumulators. The purchase cost of new devices may be covered quite quickly by savings from reduced electricity costs. Select an energy package that matches your electricity consumption. Because both your consumption patterns and your current electricity seller’s packages may have changed, ask your contract partner for a comparative offer based on your actual current usage. Several electricity sellers have added a calculator to their online service environments, and these will suggest the most affordable price package for each consumer. If possible, use energy-saving devices, such as lighting regulators, or a heating system controller that prevents wasting electricity by heating and cooling a room at the same time.

Old incandescent bulbs may be cheap to buy, but operating them can account for up to a quarter of your electricity bill. By choosing energy-saving or LED bulbs, you can reduce the electricity used for lighting by up to 80%. If you are using electricity for heating, take a close look at the energy efficiency of the building and the heating system. By investing into a building’s heat retention and renovating its heating system, it is possible to reduce a building’s energy consumption by up to 30−40%. State subsidies are available for increasing the energy efficiency of buildings, and you can find more details about them at the KredEx website, www.kredex.ee. KredEx also features an energy savings competence center, which can advise you on increasing your property’s energy efficiency. Since Estonia’s climate requires heating for half the year, an economical heating system is just as important as heat retention. If you are using Sovietera oil radiators or old heat blowers for electric heating, you should consider replacing them with modern devices, be they air heat exchange pumps 13


Glossary Balance – the equivalence between the amount of electricity purchased and/or supplied to the network by a market participant during a trading period and the amount of electricity sold and/ or acquired from the network by the market participant during the trading period.

consumer designation, the same consumer will continue to buy electricity under a purchase obligation, and at such sites the consumer cannot switch open suppliers. Starting from January 1st, 2013, all consumers are eligible consumers.

Explicit auction (capacity auction) – a method whereby the market participants submit their offers for purchasing the cross-border transmission capacity for a certain time period, when they may use the transmission capacity to transport electricity across borders to the extent purchased. The winner(s) is/are the market participant(s) whose offers fit within the limits of Balance provider – a person who, pursuant to the the transmission capacity put up for auction. procedure provided in the Electricity Market Act and legislation established on the basis thereof, Imbalance energy – electrical energy that the has entered into a balance agreement with a system operator buys and sells in order to maintain system operator to maintain its balance. a balance, based on a balance agreement signed with the balance provider. Balance responsibility – the obligation of a market participant to ensure that the amount of electricity Implicit auction – a method whereby it is possible purchased and/or supplied to the network by to even out the prices between various price areas, the market participant during a trading period and which allows transmission lines between price is equivalent to the amount of electricity sold areas to be used for channeling surplus electricity and/or acquired from the network by the market from a low-priced area to a high-priced area that is participant during the trading period. experiencing a deficit. Balance agreement – an open supply contract between the system operator and a balance provider by which the system operator undertakes to sell to or purchase from the balance provider the amount of imbalance electricity necessary to maintain its balance during each trading period.

Balance settlement – determining the balance in a way that allows a market participant balance to be created for each trading period, for the size of the open supply to be defined, and if the balance is not maintained, then for a report to be created about that.

Market participants – producers, consumers, electricity sellers, exchange operators and network operators (transmission and distribution network operators).

Open supplier – an electricity seller or balance provider who provides an open supply to their Connection point – a specific, defined point where customer, with the purpose of ensuring that the an electrical installation of a market participant amounts of electricity purchased and sold within and the network connect,, or a set of connection the customer’s balance area are balanced. points that are interconnected via the market participant’s electrical installation. Open supply – the sale to a market participant of the total amount of electricity needed by the Eligible consumer – a consumer who uses market participant or, in order to ensure the electricity at a given consumption site at least balance of a market participant, the sale to the in the amount set forth in legislation as the market participant of an amount of electricity consumption amount for eligible consumers. The that the participant lacks in a trading period or definition of an eligible consumer is established the purchase from the market participant of the at the consumer’s connection point (metering surplus amount of electricity during a trading point). At consumption sites without an eligible period. 14


Overload – a condition where the connection between transmission networks cannot contain all the actual electricity flows demanded by market participants in the course of international trading, due to the lack of corresponding inter-network connections and/or capacity in the national transmission networks.

it to another seller. The delivery of the electricity from the producer to the consumer may occur in a number of ways.

Power exchange – an organized market for trade in electricity to be supplied on the same or next day or within the hour..

Up- and downregulation – the selling/buying of additional energy amounts by the system operator, caused by the energy consumption or production exceeding/undercutting the plans.

Power exchange operator – a person who, pursuant to an agreement entered into with the system operator, ensures the operation of a power exchange and the possibility of trading electricity at the power exchange.

Trading period – a full hour. The first hour of a day is from 00.00 to 01.00, and the last hour is from 23.00 to 00.00.

Power system – the technical system for the generation and transmission of electricity, which is comprised of power stations located in the territory of Estonia, of the network which connects the power stations to one another as well as consumers and the power systems of other countries, and the corresponding control, protection and communication systems. Producer – an electricity company engaged in the generation of electricity by means of one or several generating installations and providing/supplying the produced electricity to the operators of transmission and distribution networks. System operator – the operator of the transmission network who carries the responsibility for the system; in Estonia, the system operator is Elering AS. System responsibility – the actions of the system operator that fulfill the obligations set forth in legislation, the most important of which is ensuring the system’s supply security and balance. Trader – a market participant who buys and sells the electricity belonging to them during trading. For example, a trader may buy electricity from the producer and sell it on to the seller; or they may buy the electricity from one seller and sell 15



Full opening of the Estonian electricity market