In November, the price of electricity in Latvia was a quarter higher than a year ago

In November, the price of electricity in Latvia rose by 5.5% compared to October and was almost a quarter higher than a year ago, reaching an average of 11.1 cents per kWh, according to information compiled by the energy company Enefit. The price increase was driven by colder weather, lower wind generation, and limited electricity imports from Finland to Latvia due to repairs on the interconnection.

In November, Latvia entered its usual winter rhythm: colder weather, higher demand for heating, and a more tense electricity supply situation. The average air temperature continued to drop, resulting in shorter days and longer nights, which increased electricity and heating consumption. The main factors determining electricity prices were regional wind generation, Latvian fossil fuel and hydroelectric power production, as well as imports of Estonian oil shale and Nordic electricity flowing through Estonia and Lithuania.

Another factor that kept prices higher in Latvia was repair work on the Latvian-Estonian interconnection: more than half of the transmission capacity is limited, so only part of the cheaper Finnish electricity can reach Latvia via Estonia. As a result of these factors, the average price of electricity in Latvia reached 11.1 cents per kWh – approximately 5.5% more than in October and almost 25% more than in November last year, while in Estonia it was lower – 9.59 cents per kWh.

The relatively high price of electricity in Latvia was again mainly determined by regional production. Wind energy generation in the Baltics, which is usually one of the main factors influencing prices, decreased by approximately 12.5% compared to the previous month and was about a quarter lower than a year ago. As the wind was weaker, the increasing demand was compensated for by fossil fuel power plants in the region, in particular the oil shale units in Estonia and the Latvian-Lithuanian gas-fired power plants with higher production costs.

This contributed to price increases: on 25% of days in November, the price of electricity was around 15 cents per kWh or more. In summer, lower wind generation is often offset by strong solar energy production, which allows fossil fuel power plants to stay out of the market. However, in November, the solar energy season is effectively over: while in June solar energy covered up to 25% of Baltic demand, in November its share had fallen to around 2.2%, so it could no longer act as a price-reducing factor.

The situation for everyday consumers in Latvia was further exacerbated by the continued operation of the Latvian-Estonian transmission network, which meant that a significant amount of cheap Finnish electricity was effectively "stuck" in Estonia and was not available to Latvia during hours of high demand. This led to higher prices than would have been the case without this restriction and clearly demonstrated the importance of strong interconnections between countries in the Baltic region for maintaining prices.

One of the factors that helped to reduce prices was the sudden increase in hydroelectric power generation in Latvia. In November, hydropower covered slightly more than a third of Latvia's total electricity demand and generated almost 213 GWh of electricity – more than twice as much as in the previous month.

Looking ahead, prices in December will mainly be determined by weather conditions – air temperature, hydrology and wind. On cold days, when electricity demand is high and wind production is low, prices are likely to remain in the range of 10-15 cents per kWh and may often exceed 20 cents per kWh. If winds typical of winter blow, cheaper wind energy from Lithuania, Estonia, and the Nordic countries will reduce the need for expensive fossil fuel power plants and lower wholesale prices. In addition, if Latvia's hydro energy production continues to grow, this will have a reinforcing effect.

"Repair work on the interconnection between Latvia and Estonia is continuing, so a significant amount of Finnish imports will not be able to be transported from Estonia to Latvia, a price difference will arise, and this winter, electricity prices in Latvia will be higher than in Estonia," predicts Romāns Tjurins, Head of Market Research and Analysis at Enefit.

The expert also explains that another important factor during the remaining winter months will be gas prices: if the price of gas rises sharply, this will quickly be reflected in electricity prices and, ultimately, in consumer bills. Currently, gas prices remain very low, in the range of EUR 30/MWh, which helps to keep the costs of gas-fired power plants in the Baltics low. However, this positive effect is partly offset by the fact that European Union CO₂ emission allowance prices continue to rise, increasing the costs of carbon-intensive generation.