The producer price index decreased in September

According to Statistics Estonia, in September 2015, the producer price index of industrial output changed by -0.2% compared to August 2015 and by -2.8% compared to September 2014.

In September, compared to the previous month, the producer price index was more than average influenced by a decrease in prices in electricity, gas, steam and air conditioning supply, in the manufacture of chemicals and chemical products and in the manufacture of wood, but also by an increase in prices in the manufacture of electronic products and beverages.

Compared to September 2014, the producer price index was more than average influenced by a decrease in prices in electricity, gas, steam and air conditioning supply and in the manufacture of fuel oils, food products and electronic products, but also by an increase in prices in mining and quarrying.

Read more from Statistics Estonia

Falling energy prices keep consumer prices moving downwards

Data from Statistics Estonia show that consumer prices continued to fall in August, declining by 0.3%, as they had in the previous month. The consumer price index stood 0.3% lower in August than in July. Inflation in the euro area has been stable at 0.2% for the past three months despite significant volatility in the prices of fuels.

Prices of the main sources of energy continued to fall in August as motor fuels were down 14% on the year, natural gas was down 19%, and heat energy was down 5%. Prices of imported energy are still some 30% higher than they were during the crisis in 2009, partly because the euro has been weak against the dollar. Cheaper energy benefits the Estonian economy as it allows consumption to increase, boosting GDP growth. The fall in energy prices in the past year has raised real household incomes by 1.3%. The low price of oil on global markets is likely to prove temporary however, and long-term consumption and investment decisions should not be based on that price.

The remainder of the consumer basket without energy increased in price by 1.1% in August. The share in the consumer basket of goods and services for which prices are falling has shrunk consistently over recent months, and whereas prices were falling for half of all goods and services at the start of the year, in August they were falling for only 43% of them. Having fallen for a long time, the import prices of manufactured goods started to rise from the second quarter. This was probably due to the weaker exchange rate for the euro. The rise in import prices has been more clearly transmitted into retail prices in the euro area but the effect in Estonia has been minor so far. Service price rises accelerated to 2.2% in August, mainly because prices for leisure services and rents rose.

Source: Bank of Estonia

Author: Rasmus Kattai, Economist at Eesti Pank

Cheaper energy behind deflation

• Consumer prices dropped further in August
• Cheaper energy behind the decline in prices
• Inflation expected at -0.2% in 2015 and +1.9% in 2016

August deflation numbers were in line with our expectations. In August 2015, consumer price index fell by 0.3%, month on month and also year on year. Compared to August 2014, goods were 0.7% cheaper and services 0.4% more expensive.

Consumer prices have decreased for more than a year. Consumers, however, do not realise that. According to a survey by the Estonian Institute of Economic Research, only 6% of consumers feel that consumer prices have decreased during the past 12 months and only 2% expect prices to fall during the next 12 months.

Consumer prices declined due to lower energy prices. Motor fuels were 14%, heat energy 5%, and electricity 4%, cheaper than one year ago. On global markets, crude oil prices were around 40% lower than one year ago in EUR (around 50% cheaper in USD, yoy).

Due to cheaper energy, deflation is expected to continue in the coming months. According to our estimates, CPI is expected to decline by 0.2% in 2015, after a marginal drop of 0.1% in 2014. In 2016, consumer prices are expected to grow by 1.9%, of which 0.6 percentage point is a direct impact from higher excise taxes on alcohol, tobacco and motor fuels.

Source: Swedbank

Record amount of wind energy produced in first half year

Extraordinary stability of windy weather in the first half of this year enabled the state-owned energy company Eesti Energia to produce a record amount of 124,466 megawatt-hours of wind energy during the six months, which is enough to meet the yearly consumption needs of more than 40,000 households of average size.

“We are pleased to be able to say that Estonia has reached a stage where it is able to effectively use the wind resource and produce electric energy from it in different places all over the country in an environment friendly manner,” Innar Kaasik, manager for renewable energy and small-scale CHP production at Eesti Energia, said.

Kaasik said the stability of winds this year has allowed to take the maximum out of wind power.

“Had winds taken the shape of storms, Eesti Energia would not have been able to ensure so big an output at its wind farms. It is under these kind of conditions of stable winds that we can fine-tune our equipment to yield the maximum,” Kaasik said.

Kaasik also said good wind conditions and the country’s long coastline alone would not be enough to ensure solid output if the owners of wind farms in Estonia weren’t giving proper service to their equipment.

“Where 2014 was a year poorer in wind than years here on the average, 2015 has made up for it in all respects,” he said. “Wind farms of Eesti Energia produced 124,466 megavatt-hours of electric energy during the first six months, which is more by a quarter than in the first half of 2014. By way of example, an amount of electric energy like this is consumed by 41,488 households of average consumption in a year.”

Increased production of wind energy makes it possible to save Estonian oil shale for high value-added activities, such as production of shale oil. The amount of wind energy generated during the first six months of the year is equal to the amount that can be produced by burning 146,430 tons of oil shale and releasing 117,144 tons of carbon dioxide into the air. More than 100,000 barrels of shale oil can be produced from 146,430 tons of oil shale.

Eesti Energia is the second largest wind energy producer in Estonia. The state-owned company has four wind farms, located respectively in Narva, Aulepa, Virtsu and Paldiski.

Source: BNS via Estonian Review

Electricity production decreased last year

According to Statistics Estonia, in 2014, the production of electricity totalled 12.4 terawatt-hours, which is over 6% less than in the previous year. Electricity production  from renewable sources increased nearly 13% compared to 2013.

The main reason for decreased production was the possibility to import cheaper electricity from the Nordic countries. Import from Finland grew 1.5 times in 2014 compared to the year before and represented more than 97% of total energy imports. At the same time, due to slightly colder weather conditions, the inland consumption of electricity increased more than 1% year over year.

The introduction of renewable sources has reduced the importance of oil shale in electricity production. In 2014 compared to 2013, the consumption of oil shale in power plants decreased nearly 5%. In 2010 over 85% of electricity was generated from oil shale, whereas in 2014 this share was 82%. As a result of increased consumption of wood in combined heat and power plants, about a half of renewable electricity was produced from biomass. The implementation of environmental projects has boosted waste treatment and has greatly increased the consumption of waste fuel and biogas for electricity generation.

With the development of new wind farms, the production of wind energy has also increased. In 2014 compared to 2013, the production of wind energy increased 14%. At the same time, there was no change in the production of hydroenergy. In six years, the share of electricity generated from renewable sources in total electricity consumption has increased more than twice, from 6.2% in 2009 to 15.3% in 2014.

In the last five years, the volume of oil shale production has increased every year, reaching 21 million tonnes in 2014, which is over 2% more compared to 2013. The majority of oil shale is consumed in power plants, but the growth in shale oil production has increased the consumption of oil shale as raw material for shale oil. In 2014 compared to 2013, the production of shale oil increased nearly 12%, whereas most of the production was exported. Nearly a third (33%) of this amount was exported to Belgium, followed by the Netherlands (20%) and Sweden (8%).

Over the last five years, the production of wood pellets has increased more than two times. Compared to 2013, the production of pellets grew nearly 25% in 2014. Over 90% of the wood pellets produced were exported – more than a half (54%) to Denmark, followed by Italy, Sweden and the United Kingdom each with about 8% of exports.

The production of peat fuels has shown a downward trend in the last five years. In 2014 compared to 2013, the volume of production did not change much.Diagram: Electricity production from renewable sources, 2003–2014

Source: Statistics Estonia

Household electricity prices in the EU rose by 2.9 pct in 2014

In the European Union (EU), household electricity prices rose by 2.9% on average between the second half of 2013 and the second half of 2014 to reach €20.8 per 100 kWh. Since 2008, electricity prices in the EU have increased by more than 30%. Across the EU Member States, household electricity prices in the second half of 2014 ranged from €9 per 100 kWh in Bulgaria to more than €30 per 100 kWh in Denmark. It cost €13.3 per 100 kWh in Estonia.

Household gas prices2 increased by 2.0% on average in the EU between the second halves of 2013 and 2014 to hit €7.2 per 100 kWh. Since 2008, gas prices in the EU have risen by 35%. Among Member States, household gas prices in the second half of 2014 ranged from just over €3 per 100 kWh in Romania to above €11 per 100 kWh in Sweden. It cost €4,9 per 100 kWh in Estonia.

Taxes and levies made up on average in the EU 32% of the electricity price charged to households in the second half of 2014, and 23% of the gas price.

When expressed in purchasing power standards (PPS), an artificial common reference currency that eliminates general price level differences between countries, it can be seen that, relative to the cost of other goods and services, the lowest household electricity prices were found in Finland (12.4 PPS per 100 kWh) and Latvia (13.7).

Read more from Eurostat, the statistical office of the European Union

Eesti Energia starts synchronization of Auvere power plant

Construction of a new 300 megawatt power plant at Auvere has reached the point where the plant will be synchronized with the Estonian power grid and the first amount of electric energy provided to the grid, Eesti Energia, the state-owned power group that owns the plant, said.

“If everything goes as planned, electricity produced at the Auvere power plant will reach the grid for the first time in spring this year. Right now the plant’s principal equipment is being fine-tuned and various systems of the generating unit tested,” Eesti Energia spokesperson Eliis Vennik said, adding that given the time consuming nature of the things to be done work to launch the plant is estimated to continue until the end of the year.

The 300 megawatt power plant will run on oil shale, which can be substituted with biofuel up to a ratio of half and half. The testing period, during which output capacity will remain in the range of 0 to 270 megawatts, will last until Nov. 5.

The plant is being built by Alstom and the total cost of the project is 640 million euros.

Source: BNS via Estonian Review


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