The state needs to decide how Estonia will be supplied with electricity in the future

Toomas Mattson | 9/27/2012 | 10:22 AM

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TALLINN, 27 September 2012 - In its recently completed overview the National Audit Office finds that the state needs to decide how supplying Estonia with electricity in the long term of up to 30 years will be planned after the complete opening of the electricity market. The competiveness of Estonia’s electricity production capacities on the free electricity market, the cost of establishing new capacities and maintaining existing one for the consumer and the state, and impact on the environment of Estonia must be considered when decisions are made. The National Audit Office emphasises that the path chosen in supplying Estonia with electricity should not be contravention to the objective of the EU climate and energy policy, which is to reduce the CO2 emissions of energy production by at least 93% by 2050.

The National Audit Office describes the choices the Riigikogu has to make in order to guarantee that the people of Estonia are supplied with electricity in the long term. One option is to guarantee security of supply via electricity connections with other countries in the region and only establish emergency capacities in Estonia. Another option would be to invest in the electricity production capacities of Baltic and Nordic countries. However, the state of Estonia may still decide that we must have some of our own production capacity and start taking steps for its creation. A circumstance that must be kept in mind when decisions are made is that more than a half of local oil shale electricity production must be closed down after 2023 due to its incompliance with environmental requirements as well as wear and tear.

The state has so far developed its energy economy on the principle that the state itself must have the capacity required to produce the electricity consumed in Estonia in order to guarantee energy security and offer a good electricity price to consumers. Investment decisions in the area of energy economy have also been made on the basis of this position.

However, this principle will not be valid on an open electricity market, as there is no way for the state to guarantee that the electricity produced hear only reaches Estonian consumers and is cheaper than the market price. The guarantee to energy security on an open market is security of supply in the entire market region, as electricity is produced and consumer on the common electricity market of the Nordic and Baltic countries. The electricity production capacities located in Estonia and nearby countries as well as the electricity connections between the states are equally important in guaranteeing security of supply. This means that a shortage of electricity can occur in Estonia only if there is a shortage in the entire market region.

Tarmo Olgo, Director of Audit of the Performance Audit Department, said that Estonia is no longer an isolated island and the production capacity of the entire market region is accessible to us if our electricity connection with the other countries in our region is sufficient. Estonia currently has electricity connections with Latvia, Finland and Russia, but this is not enough from the viewpoint of creating a common electricity market and guaranteeing security of supply. The situation will become considerably better at the start of 2014, when the electricity cable Estlink2 will be completed and transmission capacity with Finland will increase to 1000 MW.
“This is why Estonia should create such production capacities in the future, which can be established and maintained in a manner that is economically as profitable as possible, do not place an excessive financial burden on the consumer, do not pollute the environment and also guarantee the ability to compete on the open market,” added Olgo.

In the overview that takes a look on the options of energy production, the National Audit Office points out that the first decision the state needs to make in order to develop its energy economy in the conditions of an open electricity market is how much electricity Estonia will be producing with the support of the state or the consumer in the future. Until now, both the state and the consumer have supported the production of electricity from renewable sources of energy as well as oil shale. The amount paid in support of renewable energy averages 34 million euros per year. The support given to the production of oil shale electricity from 2008-2012 averages 148 million euros per year by granting free CO2 quotas, supporting co-combustion of oil shale and biomass, and making waste less dangerous for the environment. However, the entire cost of production for the environment and health are reflected in the price of oil shale electricity.

The National Audit Office finds that it would be reasonable to determine in further national energy economy development plans whether the support provides by the state and consumers should support the production of electricity from renewable or non-renewable energy sources. Although Estonia has almost achieved the goal set for 2020, which is that renewable energy comprises 25% of all energy consumed, the state has still not decided whether and how to development the production electricity from renewable energy sources in the future. Achieving a significant increase in the production of electricity from renewable sources requires large investments, and proceeds from sales of CO2 quotas could be used for this from 2013.


Background:
Estonia has mainly used oil shale to produce electricity for its own use for more than sixty years. The state’s monopoly of electricity production has made it possible to keep the price of electricity low for consumers. The biggest problem of producing oil shale electricity is its negative impact on the environment. Production of oil shale electricity currently creates ca. 70% of Estonia’s total CO2 emissions, ca. 70% of ordinary and ca. 82% of hazardous waste, and uses approximately 80% of all water used in Estonia.

  • 12,893 GWh of electricity was produced in Estonia in 2011. Electricity produced from renewable sources comprised ca. 9% of this.
  • Electricity consumption amounted to 7155 GWh, which comprises ca. 55% of electricity production.
  • Electricity export amounted to 5252 GWh, which comprises ca. 41% of electricity production.

The overview prepared by the National Audit Office describes the circumstances that influence Estonia’s electricity production on the open market and challenges faced by the country in the short and long term, and draws attention to the most important issues that need to be resolved.

Toomas Mattson
Head of Communication Service, National Audit Office
640 0777
513 4900
toomas.mattson@riigikontroll.ee

  • Posted: 9/27/2012 10:22 AM
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