National Audit Office in annual report: Estonia needs clear decisions as soon as possible to develop the electricity system, so that in the future enough affordable electricity is available at all times

11/6/2023 | 11:30 AM

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TALLINN, 7 November 2023 – Yesterday, Auditor General Janar Holm presented the speaker of the parliament, Lauri Hussar, with the annual report of the National Audit Office which this time focuses on trends in the Estonian electricity system. The National Audit Office emphasises in its overview that the question of how household and business consumers in Estonia are ensured access to the necessary quantity of electricity at all times and at an acceptable price is still waiting for a clear and realistic answer. Making the necessary decisions to mitigate the risk of both a possible electricity shortage and sudden price increases cannot be postponed because energy-related developments are time-consuming and require large investments.

The long-term planning of Estonia’s energy policy has been toilsome over the years, and many important fundamental decisions are still waiting to be made. A long-term agreement is needed foremost with regard to dispatchable production capacities, speeding up the construction of wind farms as well as the development of domestic electricity networks and external connections.

“It’s not easy to make decisions because there are many variables, there are different options, and each of them has its pros and cons. It’s nearly impossible to predict whether the choices made now and based on today’s knowledge would be considered the best possible sometime in the future,” admitted Auditor General Janar Holm. “However, today’s decision-makers should not be hobbled by uncertainty as to how this or that decision could be viewed in retrospect in the future to such an extent that, for fear of making a mistake, the necessary decisions are rather not made. The worst decision would be not to decide.”

Although the energy economy development plan 2035+ (ENMAK 2035+) is being prepared, the current working materials already suggest that the planned measures are too general. “Estonia does not need just another development plan among many development plans; instead, Estonia needs the plan to set out who does what and when, and where the money comes from,” said Auditor General Janar Holm. “Unfortunately, this information is currently missing in the working materials.”

In terms of renewable energy, the Estonian State has set a goal that by 2030, at least as much renewable energy is produced in Estonia as the total electricity consumed in the State in a year, but there is no specific action plan to achieve this goal and the Ministry of Climate is not planning to prepare one either. The potential of renewable electricity has so far been underutilised. Although electricity production from solar energy has made a big leap in Estonia in recent years – from 0.03% of total electricity production in 2016 to 7.4% in 2022 – production of wind energy is stagnating. No major wind farms have been added in ten years.

In the event that after 2030, renewable energy is produced in the planned amount, Estonia has enough electricity production capacities, but there may be a lack of dispatchable production capacities, which are needed, among other things, to ensure the frequency of the electricity network. The choices and decisions needed to ensure dispatchable capacity must be made as quickly as possible. We must avoid a situation where late action limits options and does not contribute to the market entry of new and better capacities.

In order to achieve the goal of renewable electricity, the electricity network must also be strengthened as available connection capacities have been exhausted. The islands and most of the mainland do not have available connection capacity for new producers. The number of requests, tenders and contracts to connect to the network currently significantly exceeds the amount of available network capacity – there are approximately twice as many as the network can currently accommodate.

Until now, the development of networks has taken place in locations selected by renewable energy developers based on the capacities of Elering AS, Elektrilevi OÜ and other network operators. The Ministry of Climate should consider how funding for the construction and renovation of networks should continue and decide from which sources funding should be provided, if network investments necessary from the State’s point of view should be made much faster than before.

In the planning of new external connections, neither the profitability of the possible projects nor the financing options have yet been determined. The Ministry of Climate has considered the construction of the fourth Estonian-Latvian connection, the third Estonian-Finnish connection as well as a submarine cable between Estonia and Germany, but no decision has been made regarding any of the connections because the profitability of the projects has not been analysed and financing options for the construction of the connections are not known.

According to Elering AS, no new dispatchable production capacities will be added to the Estonian market until at least 2037. The addition of dispatchable production capacities is hindered by the uncertainty of market participants. The experts interviewed by the National Audit Office considered it unlikely that private investors would want to establish dispatchable production capacity in Estonia without State support. The reason for this is the non-profitability of the investment as dispatchable production capacity could enter the market primarily when there is no wind, the sun does not shine or when the production of other renewable electricity is low.

Entrepreneurs are interested in developing electricity storage options, but the State must decide whether and how to promote the entry of storage capacity into the market. One of the obstacles to the development of the storage market is the incomplete vision of the development of the electricity system, i.e. it is not clear how much storage capacity the State wants to use and for what – for example, for frequency control or balancing renewable electricity.

In Estonia, there are no solutions for the effective implementation of options for managing electricity demand response. The prerequisite for improving the capacity for demand response – the ability of consumers to sell their willingness to not consume electricity in a situation where demand is high – is the amendment of laws. It would be necessary to implement a market model that would allow consumers to be involved in such a way that they would also benefit from lowering electricity consumption when demand is high.

At the end of 2022, both pan-European and regional security of supply analyses revealed for the first time that Estonia may have a problem with security of electricity supply in 2027. There may be a shortage of both market-based production capacities as well as dispatchable electricity production capacities, which are needed, among other things, to ensure the frequency of the electricity network. The basis of the risk scenario is a situation where, from 2027, the old production capacities using oil shale are no longer economically sustainable in Estonia, and the owner may decide to close them. Sufficient production capacity is expected to be available in 2030 as renewable electricity production capacities will enter the market. But then there may not be enough dispatchable production capacity, which could be powered up or down as needed.

Every year, Elering AS has analysed the security of electricity supply with a view of approximately ten years, but until 2022, neither pan-European nor regional security of supply analyses used a methodology that would have taken into account the economic sustainability of electricity production capacities. Therefore, finding a solution to the possible problem of security of supply has only commenced now when options for this are fewer due to the limited time.

In a situation where the security of supply analysis shows a capacity deficit, the State can request a permission to grant state aid from the European Commission to establish a strategic reserve of electricity production capacity, which gives Elering AS the right to organise a reverse auction and compensate the winner of the reverse auction for the costs related to keeping the necessary capacities ready for start-up.

The late identification of the problem with security of supply has created a situation in which there is unlikely to be meaningful competition in a reverse auction should the permission to grant state aid be obtained. In all likelihood, there is not enough time to plan or build new electricity production capacities, and the old pulverised oil shale combustion capacities owned by Eesti Energia AS will most likely become a strategic reserve.

If the permission to grant state aid for the establishment of a strategic reserve is not obtained, the resolution of the situation will depend on whether and how much renewable electricity, storage capacities and demand response will enter the market in the coming years. If these possibilities are not enough, the Ministry of Finance can, in principle, obligate Eesti Energia AS to maintain sufficient dispatchable production capacity at its own expense after 2026 to ensure the security of supply.

The question then is whether and to what extent Eesti Energia AS is able to bear the loss resulting from this obligation. Among other things, it must be taken into account that keeping the production capacities in working order requires constant maintenance of the production units and keeping the necessary people employed, but the units would probably only be able to enter the market for a few hours a year. However, such operation could damage the entire Eesti Energia Group, including its renewable electricity projects.

If the problems with the adequacy of production capacities and external connections are not resolved, there is a risk that the price of electricity will rise to a level that is unacceptable to Estonian society. If decisions regarding how to ensure resource sufficiency in 2027 and especially after 2030 are not made as a matter of urgency, there is a risk that the price of electricity will rise to a level that will affect the well-being of consumers and become an obstacle to economic development. According to the rules of the European Union, the Member States must ensure, in particular, adequate protection of the so-called persons suffering from energy poverty. In Estonia, these people are compensated through the  subsistence benefit.

In Estonia, there is an unjustified regional inequality in the support of persons suffering from energy poverty – although the price of electricity does not differ from region to region, the difference between the largest and the smallest reimbursable electricity consumption limit is 16 times in local governments. This means that when compensating for the high electricity price, recipients of subsistence benefit are not treated equally in different parts of Estonia.

There is a need to prepare for exceptionally high electricity prices, and the Ministry of Climate should develop possible support schemes that would be based on the support needs of consumers and that could be implemented quickly if necessary. The high price of electricity in 2021/2022 showed that in certain situations even those consumers who are not classified as suffering from energy poverty are sensitive to the price of electricity.

Background information

In the overview “Alternatives for electricity production” (2012), which was completed 11 years ago, the National Audit Office emphasised that the national energy economy should be planned long in advance and pointed out that a decision should be made as to where and how Estonia would get its electricity in 15 or even 30 years. Unfortunately, in the autumn of 2023, the National Audit Office has to admit that the Estonian State does not currently know exactly how to ensure security of supply in 2027, exactly 15 years since the publication of the aforementioned audit, and how to substitute for lost production capacities or external connections if necessary.

This year, the National Audit Office will also publish a report on the topic of electricity titled “Security of electricity supply in Estonia”, the focus of which is on the adequacy of electricity capacities in the next decade, the synchronisation of the Estonian electricity system with the continental European frequency band, the ability of the State and vital service providers (Elering AS, Enefit Energia AS and Elektrilevi OÜ) to work on resolving an emergency caused by the interruption of electricity supply. This will be followed by the report “State’s activities in the promotion of wind energy”, which focuses on the most important obstacles to the development of wind energy and how to deal with them, the establishment of an electricity network necessary for the production of renewable electricity, and the activities to promote the establishment of wind farms.

Priit Simson

Head of Communications of the National Audit Office of Estonia

+372 5615 0280

+372 640 0102

[email protected]

[email protected]


  • Posted: 11/6/2023 11:30 AM
  • Last Update: 11/17/2023 10:08 AM
  • Last Review: 11/17/2023 10:08 AM

The production of wind energy is stagnating. No major wind farms have been added in ten years.

Mihkel Maripuu / Postimees / Scanpix

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