Free Electrical Energy Market – New Opportunities for Users

The Ministry of Energy submitted a draft amendment of the Law on Energy to the Government in 2019, whereby it endeavoured at changes in the currently regulated market of electrical energy. These proposals would improve flexibility of the electrical system, its management, creation of innovative energy starts-up, and more effective use of electrical energy. New participants of the market – independent suppliers of electrical energy are awaited.

Although changes in Lithuania are planned only now, they were implemented in Latvia and Estonia in 2013-2015 already. Almost all domestic users in Lithuania are buying electricity from public supplier (mainly “Ignitis”), and the price of electrical energy is set not more frequently than every half year by the decision of the National Energy Regulatory Council (NERC). If the changes are implemented, the conditions will be created in the market for active operation of more suppliers of electrical energy, and the users will have real opportunities to choose from several alternative offers. Yet only the business clients have been able to choose freely the supplier of electrical energy since 2007 in Lithuania.

Now the main supplier of electrical energy for household in the country, UAB “Ignitis” acknowledges that the main challenge is to get ready for appropriate operation in deregulated market of electricity supply opened for competition: “The most important success factor becomes proportion of quality and price of services, as well as solutions adjusted to needs of each user. The independent electricity suppliers are going to experience transformation in the near future that the sector of telecommunications experiences in 2003 in Lithuania, when the market of that sector was demonopolized. Similar situation will be formed in the area of energy supply in the approaching years”, - notes Mr. Darius Montvila, head of public supplier UAB “Ignitis”. He is seconded by Mr. Martynas Giga, head of one of the market’s participants, UAB “Elektrum Lietuva”. According to him, it is “not only a challenge, but also an opportunity for independent suppliers or retail market to provide sustainable solutions and convenience for the users for acceptable price, by getting adjusted to the users expeditiously”.

Although the energy market is experiencing transformation at present, it is still too early to predict the underlying services, the services that will be chosen by the users, what is acceptable and suitable for their homes. However, it is undoubtful that a deregulated market will turn into a push for creation of new services. “We will pass from the monopolized market economy to the one based on the laws of competition not only with intention to offer the products of electrical energy that would fulfil the user’s needs the vest. We will be able to make full use of global transformation of energy industry, and pass to wider spread of electromobiles, smart control of home energy, and wider use of green energy,” – forecasted Mr. Vytenis Koryzna, Managing Director of UAB “Enefit”.

Push to Changes – Smart Meters

With regard to experience of the neighbouring and European countries, it is evident that deregulation of the electrical energy market is also pushed by smart electricity meters. According to Mr. D. Montvila, Managing Director of UAB “Ignitis”, accurate data of consumed electrical energy will allow independent suppliers to assess needs of each user better and then to offer the most suitable services and payment plans for residents. The insights and advice, how to optimize electricity use could be provided. While “fighting” for the client, the offers with the most relevant conditions of services and contracts and beneficial electricity-saving services could be provided. 

The change will enable the user to analyse and make decisions – such is a benefit for the user named by Mr. V. Koryzna, head of UAB “Enefit”: “The smart meters will open possibilities for the users to save by choosing electricity-supply solutions adjusted to their use habits. Meanwhile, the suppliers will be able to provide information to users more precisely and expeditiously, and to prepare individual offers, in consideration to specific use habits of the clients. If sufficient competition becomes predominant in the market, the costs saved by the supplier will turn into direct financial benefit to the users. 

At present, independent suppliers are accumulating experience in Lithuania while working with business clients, whereas they may analyse performance results in Latvia and Estonia in consideration to experience of business and residents, and use of smart meters. “Smart meters are one of the main factors to offer innovative products of electrical energy to the market. If today business may choose Nord Pool Spot, the product of dynamically changing price of electrical energy, every hour, the price formation of such a product to the domestic user would depend on common domestic average use schedule and not on individual use. We attempt to bring more conscious use to the market; however, these changes are impossible without smart meters,” - notes Mr. Martynas Giga, head of UAB “Elektrum Lietuva”. 

According to Mr. D. Montvila, Managing Director of UAB “Ignitis”, more and more personalized offers to the user will be made in the electricity market in the nearest future. These offers will be similar to the ones made by the mobile connection operators: “the supplier will be able to invite the client to enter into a contract in exchange to a tablet, for example, where the client will be able to monitor own electricity usage and receive recommendations, how to optimize expenses of electrical energy. Maybe the supplier will offer a discount card for charging an electromobile, etc.” – considers Mr. D. Montvila, head of the public supplier.

The electricity suppliers believe that some 4-5 active market participants may exist in Lithuania and at least the same number of suppliers, who will be ready to compete for new clients, but who will not carry out an active campaign of client attraction.

 Purchase of Smart Meters: the First Important Stage was completed

While getting ready for implantation of smart accounting in Lithuania, ESO finished the qualification selection of suppliers of purchase of infrastructure for smart meters. It is one of the important stages in the purchase process. 

6 suppliers, who met the qualification requirements the best, were selected. In the opinion of ESO, they have the best experience in the already implemented projects of implantation of smart meters and systems in other countries. They will be able to continue competing in the announced screening. 15 suppliers participated in the screening according to the pre-announced criteria of qualification selection. 

When further actions in the purchase process are carried out, the participants selected after individual administrative procedures will be familiarized with comprehensive technical specifications and will be able to make primary offers for purchase. The most cost-effective offer ill win. It is planned to sign a contract with the implanter of smart accounting infrastructure in the end of 2020. 

ESO plans to purchase approx. 1,2 million units of smart meters, while the suppliers will have to take care not only about supply of the meters, but also about infrastructure of IT solutions and communication regarding collection and control of the meters’ data.

The installation of smart meters is provided in the national strategy of energy independence. NERC approved analysis of installation costs and benefits of smart meters in September 2019. 

ESO plans to start installing smart meters in Lithuania in 2021. They will enable competition in the market that would stimulate new services. Smart meters will become a tool that would allow the resident to analyse and save, and ESO will be able to detect and eliminate failures quicker. It is planned to finish the installation process of smart meters – starting with the biggest users – until the end of 2023.

About the project of smart meters

The smart accounting planned by ESO will have long-term benefit to the electricity distribution network and the entire Lithuanian economics. It should be noted that while coordinating the project’s investments with NERC, a wide scope of social and economic benefits for users, distribution network, and empowering of the market was discussed and calculated. They may be divided into three main categories:

Long-term benefit for residents. Even 450 thousand of the European users took part in 100 pilot projects in various countries. According to the survey prepared by the European industrial group of smart meters (ESMIG), depending on the involvement of the users into the pilot project pf smart meters, they saved 5-8,7%. The pilot project conducted by ESO in 2017 revealed that the clients used 6% percent less electrical energy on average.

Benefit for the Lithuanian economics. When smart meters are installed and use is recorded at accuracy of 15 minutes, the competition will be enabled, i.e. independent users will be able to compete better for the clients – to compete by services, their quality, prices or other individual solutions. Similar transformation happened in the sector of telecommunications twenty years ago. It is possible to expect that smart meters will allow achieving the market’s competitiveness and dynamics leading to more benefits of selection to each Lithuanian user.

More effective control of distribution network. When smart meters are installed, ESO will be able to detect illegal use and locality of illegal use remotely, to monitor quality of the electricity network, and to undertake measures expeditiously to prevent such activities. Moreover, investments to the network will be more precise. The costs of maintenance of meters and readings will be optimized, as well as other expenditure incurred by ESO at present. Smart meters have been installed and they are operating successfully in almost all the European countries.