Electricity prices fell by half in March - the role of solar and hydroelectric power is growing

Last March, electricity prices in Latvia fell significantly, with the average exchange price reaching 7.5 cents per kilowatt-hour—roughly half the level seen in January and February, according to data compiled by the energy company Enefit. The price drop was mainly driven by warmer weather, lower electricity consumption, and a sharp increase in renewable energy production.

Warmer weather and lower consumption

Following the cold winter months, electricity demand in Latvia fell to 625 GWh in March, which is approximately 10% less than in January and February, when consumption reached 690–752 GWh. Across the Baltics, demand also fell by nearly a fifth.

“In the electricity market, fluctuations in consumption significantly affect prices. In winter, when demand is very high and there is insufficient cheap local production, prices rise. Conversely, as consumption decreases and renewable energy volumes increase, prices fall,” explains Romāns Tjurins, Head of the Market Research and Analytics Department at Enefit.

Solar and hydroelectric power significantly increase supply

Solar electricity production grew particularly rapidly in March, reaching 108 GWh—more than seven times the February figure. This contributed to low prices during daytime hours, sometimes even below 1–2 cents per kilowatt-hour.

At the same time, hydropower generation in Latvia also increased significantly, reaching 487 GWh and accounting for nearly 78% of the country’s total electricity consumption. Hydropower generated in Latvia also significantly influences prices throughout the Baltics, as the region functions as a single electricity market.

Interconnections and imports continue to influence price levels

Electricity imports from the Nordic countries also continue to play an important role in price formation—electricity supplies from Finland via Estonia can significantly reduce prices in the Baltics, however, interconnection constraints meant that cheaper electricity did not always reach Latvia and Lithuania in full. “Interconnection constraints directly influenced price differences in the Baltics—the price of electricity in Latvia was higher than in Estonia, but slightly lower than in Lithuania,” notes Romāns Tjurins, Head of the Market Research and Analytics Department at Enefit.

The growth of renewable resources reduces the importance of fossil fuel generation

As the share of solar and hydroelectric power increased, the use of fossil fuels in electricity generation in Latvia fell by more than 85% in March. This had a significant impact on price levels, as renewable resources are considerably cheaper than fossil fuel production.

Lower prices will continue

As summer approaches, electricity prices are expected to remain relatively low, especially during the day when solar generation is at its peak. However, price fluctuations will still be determined by weather conditions, the availability of hydropower, wind volumes, and electricity imports from the Nordic countries.