PUC and ECA position
On 22 July 2021 National Energy Regulatory Council (Lithuanian National Regulatory Authority, hereinafter – NERC)) published the information based on “Analysis of the price difference between the Latvian and Lithuanian electricity price zones” (hereinafter – Analysis).
The Public Utilities Commission (Latvian national regulatory authority, hereinafter – PUC) and Estonian Competition Authority (Estonian national regulatory authority, hereinafter – ECA) are particularly concerned about the NERC’s approved and published information as it continuously fails to address serious methodological shortcomings and demonstrates worrying level of lack of objectivity and systemic review of all factors in play. On 16 August 2021 the letter that includes detailed explanation on the failures including in the Analyses have been send to NERC and other parties involved.
PUC and ECA therefore agreed to publish the following statements regarding the NERC’s misleading information:
The difference in electricity prices between Lithuanian and Latvian bidding zones occurred during the period of January-May 2021 is the result of such a factors as capacity restrictions in Sweden, decreased generation capacity in Baltic States, significant changes in electricity flows on Lithuania – Poland interconnection and overall trends in Nordic and Baltic electricity markets. PUC and ECA therefore conclude that the differences in prices between 2020 and 2021 is not the result of the implementation of CCM with RU.
The PUC and ECA want to remind that congestion revenue is not a sum of money paid by producers or consumers in one country, as both countries are involved. European Union regulation strictly prescribes how the congestion income should be used to ensure benefits are attributed to the consumers – guaranteeing the actual availability of the allocated capacity including firmness compensation; maintaining or increasing cross-zonal capacities through optimisation of the usage of existing interconnectors by means of coordinated remedial actions, where applicable, or covering costs resulting from network investments that are relevant to reduce interconnector congestion; or if neither of those are possible, they can be considered while setting network tariffs.1
Higher prices in Lithuania in 2021 is an inevitable result of Lithuania’s decision to reduce its import capacity significantly. It is a basic principle of electricity market functioning that when a bidding zone in deficit reduces its import capacity via one entry point, flows from other borders increase to cover the electricity demand still present in the bidding zone. It is peculiar for the PUC and ECA that NERC blames CCM with RU on that, when the actual reason for the congestions on LV-LT border and, therefore, comparatively higher prices in Lithuania are the direct cause of Lithuania’s own actions.
PUC and ECA are confident that the activities of Latvian and Estonian TSOs comply with EU regulations, including Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management and Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity.
[1] Regulation (EU) 2019/943 of the European Parliament and of the Council, see article 19.