Heating prices are expected to decrease this season, yet how can long-term sustainable biomass and heating prices be ensured?
According to data from the Baltpool Energy Exchange, this summer the exchange participants concluded 50% more long-term transactions compared to the same period last year. The price of biomass, which accounts for 70% of the heating price in Lithuania, dropped below the 2017 price level (155.37 EUR/TOE). Statistical data from the National Energy Regulatory Council also shows that this heating season is likely to be the cheapest since 2012.
“Last season, the media published numerous articles in which heat providers were promising a drastic increase in heat prices following growth of biomass prices. This actually did not happen due to many cheaper biomass offers on the exchange from Latvia. The situation this year is opposite – the country’s market is dominated by low biomass prices,” said Andrius Smaliukas, CEO of Baltpool.
According to data from Baltpool, district heat supply companies have already saved 20% to 40% compared to the previous heating season by concluding long-term contracts of purchase of biomass. For instance, AB Šiaulių Energija this year purchased biomass 40.3% cheaper (156.27 EUR/TOE) that in the same period last year (261.89 EUR/TOE) and is now attempting to diversify its biomass purchase portfolio and therefore purchased 91% rather than 100% of the biomass required for the heating season under long-term transactions.
“Compared to the previous heating season, the price of heat will drop on average by 10–15% due to low biomass prices, but the final results in individual cities may differ due to changes in the other constituents of the price of heat. This will depend on the decisions regarding recalculation of prices and setting of new base prices passed by the National Energy Regulatory Council (VERT),” said Valdas Lukoševičius, President of the Lithuanian District Heating Association.
In October this year, heating prices in Lithuanian cities were considerably lower compared to the same period last year. For instance, the heating price in Vilnius decreased by 21%, i.e. from 4.96 ct/kWh to 3.92 ct/kWh compared to the same period last year. On the other hand, the heating price in Riga in October 2019 was 15% higher (4.439 ct/kWh) than in October 2018 (5.19 ct/kWh).
According to Mr. Smaliukas, on the one hand, the situation in the market is favourable. The prices of both biomass and natural gas are low and heating expenses for the population are becoming increasingly affordable.
According to the head of Baltpool, it is not surprising that the Lithuanian biomass market is viewed by most European countries as a very mature market: in Lithuania, the heat produced using biomass in the district supply accounts for as much as 70%, i.e. the same figure as in Scandinavia, while thanks to the orientation of district heating to renewable sources our country has easily fulfilled the EU 2020 requirements for 23% of renewable sources in the energy balance. Nevertheless, there is the question of whether these market conditions are sustainable or not. Will the last year’s scenario when the cheap biomass trading season was followed by an expensive one be repeated?
“Biomass producers and suppliers that are active on foreign markets (Ukraine, Serbia, Croatia) notice that a lack of biomass producing companies is the main obstacle to the development of the biomass sector. If the price of biomass continues to decrease, it will be detrimental to the Lithuanian biomass producer and supplier sector: most of the companies operating in Lithuania will have to discontinue operations, and as a result we will have several monopolist biomass suppliers and a drastic price increase. We should look for ways to prevent such extremes,” said Vilma Gaubytė, Director of LITBIOMA.
According to her, over the past five years the Lithuanian biomass energy sector has reached a very high level – an effective, flexible and open sector has been created. The turnover of the sector amounts to approximately EUR 400 million and the number of people employed in the sector is approximately 7,500 (mostly in rural areas). Biomass technologies worth EUR 100 million are exported to other countries every year.