Record high electricity consumption in February keeps exchange prices high

Last February was marked by historically high consumption for this month in the Latvian electricity market, according to information compiled by the energy company Enefit. Due to cold weather conditions, electricity demand reached 690 GWh, which is 14% higher than the average February figure for the last ten years. The high demand was also reflected in the price of electricity on the exchange – in February, the average price in Latvia reached 15.5 cents per kilowatt-hour, making it the most expensive February in the history of the exchange.

Cold weather and production structure kept prices high

In February, electricity consumption in households and businesses increased significantly due to cold weather conditions. This increase occurred at a time when the Baltic region still lacks cheaper energy production capacity, so Latvia, together with its neighboring countries, had to rely more heavily on fossil fuel power plants.

As a result, almost 72% of the electricity consumed in Latvia was covered by local fossil fuel production, while hydroelectric power plants provided only about 18%. By comparison, in February last year, hydroelectric power covered almost 50% of demand, which significantly reduced prices across the Baltics.

High CO₂ emission allowance prices also had an additional impact. Since fossil fuel production is directly linked to carbon costs, the exchange price can be as much as 50-70% higher during hours when fossil fuel power plants dominate the market.

"February clearly showed how closely the electricity exchange price is linked to weather conditions and the regional production structure. When demand reaches record levels but there is insufficient cheaper renewable energy capacity, the price is determined by more expensive fossil fuel production. Normally, when Finland and Sweden have strong wind and hydro power production, as well as stable nuclear power generation, cheaper electricity flows to the Baltics through interconnections.

This time, electricity imports from the Nordic countries did not help to reduce the high prices, as there were no such favorable conditions in February," explains Romāns Tjurins, Head of Market Research and Analytics at Enefit.

Spring could reduce price levels in March

As spring approaches, seasonal changes could gradually appear in the electricity market. With the number of daylight hours increasing, more solar electricity is expected in March, which could help reduce exchange prices during the day. Similarly, as air temperatures rise, demand for electricity and heating will decrease, reducing the load on fossil fuel power plants.

However, price dynamics will continue to be determined by regional factors – wind volumes in the Baltics and Nordic countries, the availability of interconnections, and the situation on gas markets. If geopolitical tensions increase, this could also affect electricity prices in Europe.