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Finnish Power Price Surge Fails to Boost Russian Exports

A fivefold surge in Finnish power prices has failed to trigger a boost in power exports from Russia to Finland, evidencing structural market differences, analysts SKM Market Predictor AS said.

Today’s temperatures in Finland, as low as minus 13 degrees Celsius according to CustomWeather Inc. data on Bloomberg, saw power prices surge as high as 148.68 euros ($194) a megawatt-hour for delivery between 5 p.m. and 6 p.m. Helsinki time, and to 198 euros yesterday afternoon. This pushed average prices for around-the-clock baseload delivery yesterday and today to more than 60 euros, the highest in nearly 10 months, compared with 35.89 euros year to date, according to data from the Nord Pool Spot AS exchange in Oslo.

“In spite of the high prices, Russia has failed to boost power exports, which illustrates a structural inertia that results from differences in the two countries’ markets, and causes price signals to be ignored,” Jussi Maekelae, senior analyst at SKM Market Predictor, said today by phone from Helsinki.

Power imports from Russia, which met more than 10 percent of Finnish demand in the past, dropped 64 percent in the first 10 months from a year earlier, Fingrid data show. Finland’s eastern neighbor introduced a capacity tariff that meant it hasn’t been viable to export electricity for most of the time since August 2011.

“The structure of the tariff is such that Finnish prices must surge for months, not merely days or weeks, to trigger higher imports from Russia, which means that Finland can’t rely on power from its eastern neighbor, and will face a squeezed supply-demand balance during winter” when the 650-megawatt Estlink-2 power cable to Estonia comes into operation early in 2014, Maekelae said.

Import dependence

Finland depends on electricity imports, which can cause power prices to soar in case of demand surges or malfunctions in plants or cross-border cables. Hourly power prices surged to 1,400 euros a megawatt-hour at the turn of 2009 and 2010, according to data from the Nord Pool Spot exchange.

Russia’s OAO Inter RAO UES, the state-owned electricity exporter, may suffer losses if it chooses to boost exports to Finland on a daily or weekly basis in reaction to high prices, since export volumes must be set before the Finnish power price is published, Maekelae said.

The Russian company controls the commercially available 1,300-megawatt capacity on the link to Finland via its Finnish subsidiary Rao Nordic Oy,

“Something needs to be done to improve communication between the two power markets, and help price signals determine flows in a more timely fashion,” he said.

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