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Currently, the greatest part of electricity price is composed of the production price, i.e. 15.5 cents per kilowatt-hour, 7.69 cents of which go to the State as a VAT share, 7.36 cents go to low-power distribution networks, 3.41 cents are paid by consumers for the transfer, 5.31 cents go to suppliers. It seems that the pie of the price is already over too large, but this does not appear to be the end. Other 4.73 cents, included in this price, is a part of the so-called Public Interest Services. Officials state that this is the “tariff of public interest services”.

 

Thus, the price of electricity is composed of a certain constituent, a part of which goes to the State, which in turn the funds collected uses for buying in electricity at a much higher than the market price. Is it necessary to pay additionally so much to ensure electricity reserve? Free electricity market, which has started up this year, has demonstrated that the most favourable price is obtained not by supporting inefficient generation sources but under competitive conditions.

Electricity price in Lithuania may be lower to consumers unless the logically inexplicable taxes are renounced, which are included into the final electricity price. If not for public interest services, electricity price would be at a much lower level. Over this current year just because of public interest services 430 million litas will be collected from consumers, whereas last year this amount made up 600 million litas.

 

Producers of electricity in Lithuania are sure that this tax is not only painful to consumers, but also distorts competition. For example, 370.4 million litas of this amount will go to the Lithuanian power plant in Elektrėnai, which produces the most expensive electricity. Large-scale investment is planned to be injected into the construction works of a combined cycle gas turbine.

For the money, collected for public interest services, electricity is planned to be bought, which will be resold by suppliers to large consumers (business enterprises) through the operating electricity exchange.

Similarly to the free electricity market in Lithuania, electricity exchange started its work on 1 January 2010. Pursuant to the new regulations on electricity trade, approved by the Minister of Energy Arvydas Sekmokas, at the beginning about 35 % of electric energy should be purchased at the exchange. The trade in the exchange should be carried out by producers, suppliers, importers and exporters.

 

Following the decision of the National Control Commission for Prices and Energy, the funds, collected from public interest services, will be divided among Lietuvos elektrinė, Vilniaus energija, Kauno energija, Klaipėdos energija. A question arises: why is the exchange necessary if the power plant is in any way supported from the funds collected from consumers.

 

Free electricity market leaves some more questions open, which are not of great priority to the Government. One of such issues relates to the establishment of favourable conditions for local electricity producers.

Importers of the Russian electric power boast of controlling at least a third of the total import. Businessmen, who have access to Russian electricity, may offer long-term contracts for a competitive price. Supporters of the free market would say that this is the essence and aim of the free electricity market that Lithuania must strive for. Do our neighbours from Latvia, Estonia and Poland strive for the same aim, though?

 

Latvians, Estonians, just like the Lithuanians, take part in the common electricity market. This establishes equal conditions both to the importers and local electricity producers. However, this at the same time stimulates local electricity producers in various ways. Latvians, who have developed the network of hydroelectric power plants, are constructing another electricity generation block, which will completely resolve the problem of electricity deficit. Estonians are taking similar actions and obtain energy by burning local shale.

No proposals may be heard from the Lithuanian Government as regards the construction of blocks at the national power plants, which would be subsidised by the State or the EU. Electricity importers are free to catch the fish, whereas local businessmen are deprived even of fishing rods. This is not a security of energy independence only, but also working places, taxes that flow to the Lithuanian budget, as well as some sort of protection from unexpected actions of importers.

What is more, due to unclear reasons the State is concerned with the wellbeing of the foreign electricity suppliers. Highly favourable conditions in Lithuania are established to Estonians, namely they are given the state guarantees in reserving the capacity of networks. It is possible that Estonians will take an advantage of these exceptions by taking electricity from our national electricity market operator “Baltpool” and reselling it to “Nord Pool”, whereas local producers will be left duped as regards the uncompetitive prices.

 

 

Electricity supply business demonstrates great perspectives. This is understood also by the officials, who are willing to take part in this business themselves, and do not leave it to businessmen. That is the only way that can explain the actions of Lietuvos energija.

Lietuvos energijais the owner of the electricity transfer network, thus, it is entitled to establish conditions for the market players. It is the operator of electricity transfer system that supervises the entire market and stores information. When electricity market became free, everyone had expectations that Lietuvos energija would have remained as the operator of market supervision and nothing more. This did not happen, though. Energijos tiekimas, a secondary establishment of Lietuvos energija was established, which was also issued a licence to take part in electricity business. Taking part in the electricity market public institution distorts competition.

Every day Litgrid, a secondary establishment of Lietuvos energija, which is an operator of electricity transfer system, receives offers from electricity suppliers. Electricity exchange “Baltpool” operates in the following manner: in the morning offers are received, in the afternoon trading results are already announced. Exchange processes all the data within around three hours.

 

Representatives of electricity business raise a question altogether, namely how the gatekeeper of the market may be the player in the market. Company Elektros tiekimas finds no problems in finding out how much, for what price and who is offering electricity. With reference to available information, the secondary establishment of a public institution may formulate the most competitive offer and no one would learn that it was done in violation of essential laws of competition.

 

Participants of the electricity business are observing the price curves in the electricity exchange. There are no doubts that the prices are slightly lower than it was expected at the end of the last year. However, at the moment only canvassing is taking place and the first steps are made in the free market. The first half of the year is the period of transition. Up to July players of the market will be still searching for their place in the sun. Lithuania may prepare to hear some more news during the second half of the year.

Electricity producers have no doubts that the price of electricity is likely to rise during the second half of the year because at the present moment it is being kept artificially. Balance of electricity provision is not functioning. Elektrėnai Power Plant is likely to use the quotas quicker than expected and the promise of Estonians to supply 10 % of the total Lithuania’s demand of electricity seems to have remained a mere promise. The State has no plan on how the problem should be dealt with the next year. Electricity market has no strategy for 2011, as a result of which large consumers are likely to enter into short-term contracts with the suppliers.

It is necessary that the regulations of the Government would establish accurate regulation of what liability of each player of the market is, what costs it will suffer and how the entire system will be working. Promulgated regulations by the Ministry of Energy include a number of uncertainties, which leads to chances of abuse.

The State should clearly declare what priorities it has: imported Russian electricity, local producers or poorly running electricity exchange. Remains vague what direction electricity producers should be heading to because no support is foreseen for the construction of new blocks, however, every single day politicians are declaring that Lithuania should become independent from energy sources, controlled by the neighbours in the East.

As such objectives are set, maybe some support would be needed to local producers. For example, it would be necessary to open a quota, on the basis of which at least a half of the overall electricity demand in Lithuania would be supplied to the market by local producers. After all heat and power plants in the entire Lithuania have huge capacities for electricity generation, which remain unused, whereas the money of consumers go to importers, usually to Russia.

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