The electricity markets in Estonia, Latvia and Lithuania have been either fully or partially open for competition for several years now. In addition, major power bridges have been built to connect the Baltic markets with Scandinavian and other European electricity markets, including the latest links between Lithuania and Sweden (NordBalt) and between Lithuania and Poland (LitPol Link). This has created new business and trading opportunities for European electricity traders and suppliers. For those who might be interested in entering the Baltic electricity market we have described the main legal requirements that must be met to start electricity sales in the Baltics.
The Estonian electricity market has been fully open for competition since 1 January 2013. Both business and household customers are free to choose and switch between electricity suppliers. Electricity prices are not regulated by the State and suppliers have full discretion over their pricing.
2) Main requirements
1. Activity licence
Electricity suppliers must have an activity licence (“licence”). The main requirements for issuing a licence are the following:
- The undertaking is a public limited company or a private limited company which is registered with the Estonian Commercial Register or which is in the process of being incorporated.
In the future this requirement might be eased and would also enable branches of companies registered in other EU or EFTA countries to obtain a licence. A relevant draft law has been prepared but is still in the early stages.
- The share capital of the undertaking is at least EUR 31,950.
- A state fee of EUR 640 must be paid when first applying for a licence. From then on, the state fee must be paid for each year that the licence is valid.
Licences are issued without a term. The Estonian Competition Authority (“ECA”) is responsible for issuing licences.
NB! A licence is not required if an undertaking already has a similar licence (electricity supply) issued in another EEA country. In that case the undertaking must apply for exemption from the requirement to obtain a licence in Estonia. Exemption will be granted by the ECA if the foreign licence predominantly corresponds to the Estonian licence by its subject of review and its validity is not confined to a territory or place of business situated outside Estonia.
2. Open supply agreement
An electricity supplier must enter into an open supply agreement with a balance provider before starting to supply electricity. Balance providers are electricity suppliers that have entered into a balance agreement with the Estonian transmission system operator (“TSO”) Elering, and are therefore responsible to the TSO for maintaining balance within their balance area. Currently, eight balance providers are operating in the Estonian electricity market.
An electricity supplier can also become a balance provider by itself. In that case, they do not have to enter into a separate open supply agreement with another balance provider. The standard terms and conditions of the balance agreement are publicly disclosed and are the same for all balance providers.
3. Other requirements
An electricity seller that wants to start trading on the Nord Pool (“NP”) power exchange must enter into an agreement with NP.
The electricity market in Latvia has been fully open for competition since 1 January 2015. Not only commercial users but also households are free to select between electricity traders and may choose one of the offers provided by those traders. Each trader has their own offers, whether for a fixed or floating price dependent on the NP. However, legal regulation envisages extra support for a defined group of socially unprotected end-users: the State ensures partial support of electricity payments for those users.
2) Main requirements
1. Registration as a trader
A legal entity that sells more than 4000 MWh of electricity per year to any purchaser must register as a trader with the Regulator – the Public Utilities Commission. This requires filling out a special form, and the decision of the Regulator is passed within 30 days.
The only exception (ie, when a person that exceeds the sales limit of 4000MWh does not have to register as a trader) is when they are already registered as a producer and wish to sell electricity that they themselves have produced.
2. Agreement with TSO
All traders must conclude a standardized agreement with the Latvian TSO – AS Augstsprieguma tīkls. Information Exchange and Balancing services for energy traders are services where the TSO provides the balance of each energy trader in real time and each energy trader is financially responsible to the TSO for deviations from its balances in each trading interval.
3) Next steps
1. Agreement with DSO
Once access to the electric grid has been granted by the TSO, a trader may conclude an agreement with the preferred distribution system operator (“DSO”) if the electricity is delivered through the DSO’s network.
A trader that wishes to conclude agreements with clients on the supply of electricity must conclude an agreement with a DSO (the largest DSO is currently AS Sadales tīkls).
2. Nord Pool
A seller that wants to start trading on the NP should enter into an agreement. A trader can conclude an agreement with the NP by applying to the NP and ensuring it complies with the criteria for gaining access to the spot market. If an agreement is concluded, a trader can buy or sell electricity on the NP.
4) Other important provisions
Under the Electricity Tax Law the tax rate for electricity is EUR 1.01 per MWh.
Electricity obtained from the following resources is exempt from tax:
1) renewable energy resources;
2) hydroelectric power stations;
3) cogeneration electric stations compliant with the efficiency criteria set by law regarding generation of electricity through cogeneration.
The Lithuanian electricity market has been fully open for competition since 1 January 2013. Both business and household customers are free to select between electricity suppliers. Electricity prices are generally not regulated by the National Commission for Energy Control and Prices (Commission). Nevertheless, there are some exceptions.
2) Main requirements
Since February 2012, when the new edition of the Lithuanian Law on Electricity came into effect, activities of independent suppliers are considered to be regulated by permissions instead of being licensed activity.
A legal person or an individual engaged in commercial activity in Lithuania or any other European Union member state may also engage in independent energy supply activities without previous permission from the Commission.
However, according to the permit issuing rules, a legal person or individual that intends to engage in independent energy supply activities must notify the Commission of their intention in advance.
After notification, the Commission investigates whether the applicant complies with the requirements set for independent electricity suppliers and informs the applicant if the notification is considered appropriate. After receiving approval from the Commission, the applicant acquires the legal rights and obligations of an independent energy supplier and may engage in activities accordingly.
3) Other requirements
Independent electricity suppliers must enter into a balance agreement with a balance provider before they start supplying electricity or, to avoid that, become balance providers themselves. LITGRID AB, the Lithuanian TSO, provides the services listed here.
An independent electricity supplier that wants to start trading on the NP power exchange must enter into an agreement with NP.