At the beginning of October, Lithuania experienced one of the biggest electricity price surges of the year. On Tuesday, prices on the Nord Pool exchange spiked to €1 per kWh (€1000 per MWh) during the morning and evening hours. Such fluctuations are not random – they signal that the energy system is changing, and cases of imbalance will only become more frequent.
At the same time, we’ll see more periods when electricity prices soar to record highs. These spikes are driven by ongoing changes in the electricity market, as renewable energy sources play an increasingly important role.
Why Prices Are Jumping
When electricity consumption exceeds production, reserve capacities are activated – for example, the Kruonis pumped storage plant. However, such plants are inert: starting them up takes time and costs money, so prices on the exchange immediately surge.
Similar situations occur when one of the larger solar or wind power plants is temporarily shut down for maintenance or technical work. Other power plants then need to increase production beyond their usual capacity, raising costs and driving up prices.
How Electricity Prices Are Set on the Exchange
Electricity prices on the Nord Pool exchange are set a day in advance. Each producer and supplier submits their forecasts: producers indicate how much electricity they will generate and at what price, while suppliers estimate how much their customers will consume. These data are combined in a single system where supply meets demand. When the two sides balance out, the price for each hour of the following day is established.
If actual production or consumption deviates from what was planned, an imbalance occurs – triggering the balancing market. In such cases, the grid operator must quickly compensate for the shortfall using more expensive capacity, which leads to sudden price spikes.
Price Spikes Will Become More Frequent
Such price surges will only become more common. It’s inevitable, as both electricity production and consumption are becoming increasingly unpredictable.
In the past, there were just a few large producers – Elektrėnai, Kaunas, or Vilnius energy plants – that coordinated production and maintenance among themselves. Everything was planned and stable. Now, the situation has changed: we have many independent electricity producers – solar and wind farms – operating autonomously. For example, one may stop for maintenance while another produces less due to weather conditions, forcing the system to rely on other, often more expensive, sources.
Consumption has also become less predictable. The growing use of heat pumps, ventilation systems, and electric vehicle charging stations all contribute to changing consumption dynamics.
When production and consumption become harder to predict, mismatches between how much electricity is generated and how much is used occur more frequently – leading to more periods of high prices.
What Could Help Stabilize Prices
The only way to reduce the risk of electricity price surges is through grid balancing and energy storage systems. These systems can store excess energy when production exceeds demand and feed it back into the grid when supply drops.
Energy storage systems are being deployed in Lithuania, but progress is slow. The main barriers are a lack of state financial support, unclear regulation, and the absence of a transparent revenue model – which makes banks reluctant to finance such projects. Most risky projects are currently covered by EU and state support programs, but these are clearly insufficient. This is best illustrated by the Environmental Project Management Agency (APVA) program for storage systems – the funding is typically exhausted within just a few days of opening.
For example, even those who provide grid balancing services are still required to pay transmission fees, despite the fact that their operations reduce grid load and contribute to stability. This is illogical.
If this fee were removed, investments in energy storage would become far more attractive, and the number of such projects in Lithuania would increase significantly. The faster balancing capacity expands, the more stable electricity prices will become.
The transformation of the electricity market is inevitable. The question is no longer if we will adapt, but how fast. The sooner Lithuania develops an efficient balancing infrastructure, the more stable electricity prices will be – and the fewer surprises both businesses and households will face.
Robertas Janickas, Chief Technology Officer at Inion Software