Electricity market
Open electricity market creates the best conditions for customers
How does the open electricity market work?
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.
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.
Retail price of electricity is determined by competition
Electricity traders buy electricity from wholesale markets.
Customer chooses the electricity trader
On an open electricity market, the customer can choose which electricity trader to buy electricity from.
How does the open electricity market work?
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.
Exchange price of electricity
The exchange price of electricity is volatile, depending, for example, on
maintenance and emergency work on power plants or submarine cables,
transnational transmission
capacities, the general economic climate and weather.
EESTI ENERGIA'S WEIGHTED AVERAGE EXCHANGE PRICES
| Price per night | Price per day | Nightly rate |
|---|
Prices cent/kWh
Sales marginal is added
to prices
Hourly exchange prices
If you have a remote reading meter installed at your consumption point, the point of consumption has been switched to remote reading, and you have selected the hourly rate Exchange or Combined package, your electricity bill will depend on how much electricity you consume per hour and the exchange price for that hour. Hourly wholesale market prices are published on the Nordic Power Exchange, i.e., on the website of Nord Pool. You can also check the hourly rates for the next day with Eesti Energia's mobile app.
Important! The common Nordic electricity market, Nord Pool, operates in the Central European Time Zone (CET), which is one hour behind the local Estonian time. In order to calculate the electricity bill correctly, Nord Pool Spot's hourly prices must be shifted one hour in advance to reflect the electricity consumption in the Estonian time zone.
On the wholesale market, very large quantities of electricity are traded on, thus, prices are expressed in megawatt hours (1 MWh = 1000 kWH). For example, if the wholesale price of electricity is EUR 43 per megawatt-hour, that would be 4.3 cents per kilowatt-hour in kilowatts. It is worth remembering that the wholesale price of electricity does not include VAT and does not take into account the customer's electricity consumption.
Effect of exchange prices on the invoice
Universal service and balancing energy
Universal service or balancing energy is used by those electricity consumers who
have not contracted with any electricity trader.
In that case, the electricity is sold by the network
operator or its authorised electricity trader.
PRICES FOR THE UNIVERSAL SERVICE
| Price per night | Price per day | Nightly rate |
|---|
Prices cent/kWh
Prices include the sales margin for
the universal service
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Prices for the universal service
| Price per night | Price per day | Nightly rate |
|---|
Prices cent/kWh
Prices include the sales margin for the universal service