From 2013, the price of electricity in Estonia on the Nordic and Baltic power exchanges has been formed as a ratio of supply and demand. The market price of electricity changes every hour and depends on the price of CO2 quotas, coal, and gas as well as the general situation in the electricity market, i.e. the availability and demand of production capacities.
Electricity is one of the few products whose price can be fixed for up to three years. The reality is that in three years the world economy as a whole has changed, so with the first emotion it may seem that the rise in electricity prices for the new period is unexpected, especially when electricity prices were last addressed three years ago.
The price of CO2 is breaking new records
The increase in the market price of electricity at the beginning of 2021 is strongly caused by the increase in the price of CO2 allowances. If three years ago CO2 cost 13 € / ton, today the price is 53 € / ton, i.e. the price level has increased by 307%, which is also reflected in the price of electricity.
The price increase started already in November, when the European Commission announced an increased climate target to reduce greenhouse gas emissions to at least 55% by 2030 compared to 1990.
The target has already been agreed in principle by the Member States, the European Parliament, and the Commission. In the next two years, detailed regulatory changes will also be agreed, which will make it possible to achieve this goal.
In addition to the political implications, the growing number of speculative investors is also fueling the rise in the price of the CO2 quota market.
Graph: CO2 price increase from August 2020