Electricity market

1. Electricity is sold to the wholesale market

In the open market, producers sell electricity to the wholesale market, where purchasers (mostly electricity traders) can buy electricity. Estonia is part of the single Nordic market for electricity, Nord Pool, with the largest hydroelectric power plants, wind power producers, nuclear stations in the Baltic Sea region, as well as Estonian oil shale power plants and the Iru waste incineration unit.

Electricity generators supply the wholesale market every day with information on how much and at what price they can generate electricity every hour of the next day.

2. Wholesale electricity prices are established on the wholesale market

Since the wholesale market has to bid on the basis of its own production costs, power plants cannot determine their own prices. Buyers of electricity have calculated the amount of electricity consumed each hour by customers the following day and the maximum price at which they are willing to buy electricity – based on the demand from the electricity sellers and the supply by the electricity producers, the wholesale price of electricity (or the next day's market price of electricity per hour) is established and calculated by Nord Pool.

Wholesale electricity prices can fluctuate several times within a 24-hour period, as the supply by producers and the demand by generators can vary by dozens of times overnight.

3. Retail price of electricity is determined by competition

Electricity traders buy electricity from wholesale markets. On the retail market, the following is added to the wholesale price: the electricity trader's margin, which covers operating costs and generates profits; a graph of the customer's electricity consumption, which is necessary because electricity is charged differently every hour and customers also consume different amounts of electricity per hour, and VAT.

The final price is determined by the competition between the electricity traders – just like with any other product.

4. Customer chooses the electricity trader

On an open electricity market, the customer can choose which electricity trader to buy electricity from. It is also possible to change the electricity trader at any time. On the open market, however, there is another partner besides the electricity trader – the network operator who transports electricity along the wires to your point of consumption.

Unlike electricity traders whose numbers may be unlimited on the market, network operators are natural monopolies on the open market since maintaining one electricity network is much cheaper for society compared to multiple such networks.