Estonian success in frequency market widens electricity price gap with Latvia and Lithuania

This week, the average daily electricity price in Estonia has been significantly lower than in Latvia and Lithuania. The price difference is caused by Estonian market participants' strong performance in the frequency regulation market, which has reserved a larger-than-usual share of the Estonia-Latvia interconnection capacity.

Estonia's electricity spot market prices have been notably cheaper than those of its southern neighbours Latvia and Lithuania this week, with the gap emerging due to an unusual but telling dynamic in the regional energy market.

The price divergence stems from the success of Estonian market participants in the frequency regulation market. By offering capacity on the frequency market, a larger share of the Estonia-Latvia electricity interconnection has been reserved for frequency regulation purposes, leaving less cross-border transmission capacity available for regular energy trading.

When interconnection capacity between countries is constrained, electricity markets become effectively separated, allowing prices to diverge significantly between the zones. In this case, Estonia has ended up with lower prices, while Latvia and Lithuania have faced higher costs as they cannot fully benefit from the cheaper electricity available to the north.

The frequency regulation market is a key component of grid stability — operators must constantly balance electricity supply and demand in real time, and capacity committed to this purpose cannot simultaneously be used for commercial power flows between countries.

This week's situation highlights both the opportunities and trade-offs built into the Baltic electricity market structure, where success in ancillary service markets can have ripple effects on cross-border price formation across the region.