Up to 350 MW of Finnish exports to Russia technically possible - Russian capacity payments skew price differentials.
OSLO/HELSINKI, Oct 23 (Reuters) - Finland's grid hopes within a year to be able to sell power to Russia, partly to earn more from underused interconnectors between the two countries, but the two markets are so different such exports may be tough to achieve.
Fingrid reported earning 6 million euros ($7.8 million) less on Russian interconnections in the first half of this year than a year earlier, as a rise in Russia's electricity prices made it less attractive to send power to its neighbour. Total revenue was 264 million euros in the first half.
The Finnish and Russian grid operators last year made technical changes to also allow power flows from Finland to Russia - a development the companies hope will boost trading volumes on their three connecting cables.
"Some trading (of exports) to Russia may well be possible within the next 12 months. But we still need to agree on the terms," Juha Kekkonen, the executive vice president of Finnish grid operator Fingrid told Reuters.
Russian power prices jumped this year partly due to an increase in payments to guarantee power plant availability, which has created a commercial need for imports and sharply reduced electricity transfers to Finland.
The technical changes have made it possible to export 350 MW of electricity from Finland to Russia, but different factors that determine prices in both market still make it unattractive for traders to send electricity to Russia, experts said.
TRADE VERY COMPLICATED
"Exports to Russia are technically possible, but as long as the designs of Nordic and Russian power markets remain so different, the trade will be very complicated," said Satu Viljainen, a professor at Lappeenranta University of Technology in Finland.
One differences is that Nordic power generators are paid for producing electricity, while in Russia producers get income both from selling power and having plants available for generation.
These so-called capacity payments are meant to guarantee that sufficient generating capacity is available to the market, but also to give incentives for investors to build new plants.
When Russian power export monopoly Inter RAO buys electricity on the market, it has to pay capacity payments on top of energy costs, and that can double prices.
Traders wishing to sell Nordic electricity to Russia, however, do not receive a capacity payment, leaving them with a high discount to prices national generators receive.
Kekkonen said capacity payments in Russia can add about 25 euros a megawatt-hour on top of the electricity price in Russia, driving total cost up to 50-60 euros a MWh during peak hours.
Wholesale power prices in Russia rose by 15 percent to 1,143 Russian roubles ($37.14) per MWh during the third-quarter from a year ago, Finnish utility Fortum, which owns power plants in Russia, said last week.
During the same period, the Nordic power prices fell by 42 percent to 20.8 euros ($27.23) per MWh, dented by abundant rain that increased supply of cheap hydro-power, it added.
The rise in Russian prices and fall in Nordic power reduced electricity imports from Russia to Finland to 3.0 terawatt-hours (TWh) in January-September, from 8.5 TWh during the same period a year ago, Finnish Energy Industries statistics showed.
"At the moment it makes no sense for Inter RAO to buy electricity from the Russian exchange and to export it (to Finland)," said Kekkonen.
Viljainen estimated that Russian exports to Finland could be profitable when prices in the Nordic market rise to at least 50 euros a MWh, an average level unlikely to be hit this winter.
In the opposite direction, Nordic power prices would have to fall below 20 euros a MWh, also unlikely as year-ahead power prices are currently trading at 38 euros a megawatt-hour.
"That creates the "dead-band" in flows when power prices in the Nordic market is between 20-50 euros a MWh," Viljainen added.
Inter RAO said power imports from the Nordics could be possible in future, but expected the impact to be modest.
"Clearly, imports (from the Nordics) might be economically feasible in certain periods," Inter RAO's spokesman Anton Nazarov said in an email to Reuters.
"In the long-run, even considering the recent exports decline, we do not have negative forecasts for future trade (balance) w i th the Nord Pool," Nazarov said, adding that the fall in the Nordic prices was seen as "cyclical".
"In a way, it's a test case that reveals a lot of how two markets of different designs can interact or not," Viljainen said of two-way power trading between Russia and the Nordic market. ($1 = 30.7750 Russian roubles) ($1 = 0.7638 euros) (Additional reporting by Anastasia Lyrchikova in Moscow; Editing by Anthony Barker)
Source: Reuters
By Nerijus Adomaitis and Terhi Kinnunen
OSLO/HELSINKI, Oct 23 (Reuters) - Finland's grid hopes within a year to be able to sell power to Russia, partly to earn more from underused interconnectors between the two countries, but the two markets are so different such exports may be tough to achieve.
Fingrid reported earning 6 million euros ($7.8 million) less on Russian interconnections in the first half of this year than a year earlier, as a rise in Russia's electricity prices made it less attractive to send power to its neighbour. Total revenue was 264 million euros in the first half.
The Finnish and Russian grid operators last year made technical changes to also allow power flows from Finland to Russia - a development the companies hope will boost trading volumes on their three connecting cables.
"Some trading (of exports) to Russia may well be possible within the next 12 months. But we still need to agree on the terms," Juha Kekkonen, the executive vice president of Finnish grid operator Fingrid told Reuters.
Russian power prices jumped this year partly due to an increase in payments to guarantee power plant availability, which has created a commercial need for imports and sharply reduced electricity transfers to Finland.
The technical changes have made it possible to export 350 MW of electricity from Finland to Russia, but different factors that determine prices in both market still make it unattractive for traders to send electricity to Russia, experts said.
TRADE VERY COMPLICATED
"Exports to Russia are technically possible, but as long as the designs of Nordic and Russian power markets remain so different, the trade will be very complicated," said Satu Viljainen, a professor at Lappeenranta University of Technology in Finland.
One differences is that Nordic power generators are paid for producing electricity, while in Russia producers get income both from selling power and having plants available for generation.
These so-called capacity payments are meant to guarantee that sufficient generating capacity is available to the market, but also to give incentives for investors to build new plants.
When Russian power export monopoly Inter RAO buys electricity on the market, it has to pay capacity payments on top of energy costs, and that can double prices.
Traders wishing to sell Nordic electricity to Russia, however, do not receive a capacity payment, leaving them with a high discount to prices national generators receive.
Kekkonen said capacity payments in Russia can add about 25 euros a megawatt-hour on top of the electricity price in Russia, driving total cost up to 50-60 euros a MWh during peak hours.
Wholesale power prices in Russia rose by 15 percent to 1,143 Russian roubles ($37.14) per MWh during the third-quarter from a year ago, Finnish utility Fortum, which owns power plants in Russia, said last week.
During the same period, the Nordic power prices fell by 42 percent to 20.8 euros ($27.23) per MWh, dented by abundant rain that increased supply of cheap hydro-power, it added.
The rise in Russian prices and fall in Nordic power reduced electricity imports from Russia to Finland to 3.0 terawatt-hours (TWh) in January-September, from 8.5 TWh during the same period a year ago, Finnish Energy Industries statistics showed.
"At the moment it makes no sense for Inter RAO to buy electricity from the Russian exchange and to export it (to Finland)," said Kekkonen.
Viljainen estimated that Russian exports to Finland could be profitable when prices in the Nordic market rise to at least 50 euros a MWh, an average level unlikely to be hit this winter.
In the opposite direction, Nordic power prices would have to fall below 20 euros a MWh, also unlikely as year-ahead power prices are currently trading at 38 euros a megawatt-hour.
"That creates the "dead-band" in flows when power prices in the Nordic market is between 20-50 euros a MWh," Viljainen added.
Inter RAO said power imports from the Nordics could be possible in future, but expected the impact to be modest.
"Clearly, imports (from the Nordics) might be economically feasible in certain periods," Inter RAO's spokesman Anton Nazarov said in an email to Reuters.
"In the long-run, even considering the recent exports decline, we do not have negative forecasts for future trade (balance) w i th the Nord Pool," Nazarov said, adding that the fall in the Nordic prices was seen as "cyclical".
"In a way, it's a test case that reveals a lot of how two markets of different designs can interact or not," Viljainen said of two-way power trading between Russia and the Nordic market. ($1 = 30.7750 Russian roubles) ($1 = 0.7638 euros) (Additional reporting by Anastasia Lyrchikova in Moscow; Editing by Anthony Barker)
Source: Reuters
By Nerijus Adomaitis and Terhi Kinnunen
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