Estonia is actively pursuing renewable energy and climate goals through several key initiatives. Here is the Energy sector news for Q4 of 2024.
GRID: Introducing Fixed Connection Fee
Currently, in Estonia connection costs vary for each individual producer. The costs depend on the scope of work required for different connections, necessary construction procurements, and are only determined after specific calculations. Moreover, the integration of large renewable projects requires upgrades to grid infrastructure, which could lead to delays or additional costs.
In 2023, a security deposit of 70% of the connection fee or €38,000 per MVA was introduced to tackle the so-called phantom connections. This means that transmission network operators have the right to claim €38,000 per MVA each year for unused reserved electricity grid capacity. In addition, the government aims to introduce in 2025 fixed fees for MW of grid connections which will provide more certainty for developers. In addition, new applicants with production ambitions must also pay a deposit of €38,000 per MW per year when signing a grid connection agreement. If the production starts within the required time (one or two years depending on the form of electricity), the producers will get the deposit back.
However, there is still a lot of uncertainty in the market, which makes it challenging for the producers to develop business plans and estimate costs, complicating investment decisions regarding infrastructure development. To address this, Estonia plans to introduce a fixed connection fee and price list. If a producer wishes to enter the market with new production capacity in the existing transmission network or increase the current capacity, a fixed connection fee will apply, along with an additional price list-based fee. However, if a producer wishes to connect to the existing transmission network in a location where it does not currently exist, then in addition to fixed fee and price list, the transmission network operator has the right to impose a cost-based fee as well. The fixed connection fee is €44,000 per MVA. In addition, the price list includes a base connection fee of €3,210,000 for building a new 110 kV substation on an existing 110 kV overhead line within a distance of 200 meters. For a 50 MW connection, the total cost would be €5,410,000 (€3,210,000 + €2,200,000).
GAS EMISSIONS: Debate on the Climate Law in the Parliament
The debate on the Climate Law began in 2021 when Estonia's largest shale oil producer highlighted the need for such legislation. The Climate Law aims to establish a regulatory framework for achieving climate goals while ensuring legal clarity. The central part of the draft law contains targets (rate in percentages) for reducing greenhouse gas emissions for different sectors in 3 phases (2030, 2035, 2040). An exception is made for industrial sector (including the oil shale industry), where an increase in emissions is allowed.
According to the explanatory memorandum, the total investment cost of the planned measures for Estonia is nearly 3.3 billion euros from the state, 0.1 billion euros from local governments and nearly 11.4 billion euros from the private sector.
The drafting process has been long and complex. The public consultation and coordination with other ministries resulted in more than 900 proposed amendments. The initial draft was heavily criticised – by the environmental protection and industrial representatives –, as many believed that it set significantly low targets in terms of environmental protection. Moreover, the Climate Law has faced additional criticism due to setting unclear responsibilities for achieving targets, undefined consequences for non-compliance and the potential for increased bureaucracy.
The public debate on the Climate Act continues and the timeline for its entry into force is unknown.
WIND: Offshore Wind Farms vs. Ministry of Defence
Today, Estonia has a total area of 2,439 km² suitable for offshore wind farm development, where it is possible to establish offshore wind farms with a capacity of 15–17 GW. Estonia plans to further offshore wind farms as part of its commitment to increasing renewable energy production and reducing carbon emissions by launching a 20-year support scheme for offshore wind energy.
The geopolitical situation also presents challenges for offshore wind development. Following Sweden's decision to stop issuing licences for offshore wind farms around its coast in November 2024, citing security concerns, a public discussion has begun in Estonia regarding the impact of offshore wind on defence radars. The consensus seems to be that Estonia's radar operations will not pose an obstacle to offshore wind development. However, the government will likely need to design compensation measures for defence infrastructure, and developers may have to bear some of the associated costs. A complete halt to offshore wind farm development would likely be unacceptable from a legal and investment security perspective. Offshore wind farms have been developed for nearly 10 years, and developers have incurred significant costs, primarily for environmental studies.
WIND: Onshore and Offshore Wind Farm Auctions
State aid for offshore wind farms
Estonia plans to launch a 20-year support scheme for offshore wind energy, with a reverse auction for CfDs in 2025 and a target of up to 4 TWh of annual production. The initial proposed plan consisted of separate reverse auctions for onshore and offshore wind farms, both starting with an initial volume of 4 TWh, with the option to increase the volume by an additional 2 TWh (i.e., 4+4+2 = 10 TWh in total). However, in August 2024, it was decided to cut the reverse auction plan for offshore wind to 2 TWh.
Just recently, the European Commission approved Estonia's state aid plan, under which Estonia will support offshore windfarm development in the sum of €2,6 billion. The aid scheme is specifically designed to support domestic electricity consumption, meaning that electricity sold outside Estonia will not be eligible for the aid. Under the proposed scheme, to qualify for the aid, offshore wind farm projects must start producing power for the grid by 31 December 2033.
Auctions are expected to take place in 2025. These initiatives are expected to reduce electricity prices by 2.4 cents per kWh by 2030, saving consumers up to €5 billion over 20 years. The estimated cost of subsidies for electricity consumers is €130 million per year, i.e., €2.6 billion over 20 years.
It is expected that the submissions for the auction for offshore wind farms will be at the level of about €110/MWh. The state expressed concern that if the reverse auctions for onshore and offshore wind farms were announced simultaneously, onshore wind developers would adjust their bids to a level similar to offshore wind in order to avoid paying the bid cap (previous reverse auctions for renewable energy have resulted in bids of €20-40/MWh).
State-owned land auctions for onshore wind farms
Estonia has launched an auction for state-owned lands with the potential for developing onshore wind farms. The development of onshore wind farms could add up to 1,100 MW of wind power capacity, significantly contributing to Estonia's goal of producing enough renewable electricity to match national consumption by 2030. These auctions also open the possibility of utilising state-owned land for wind parks, which had previously been focused on private land. The auctions will conclude in early 2025 with the goal to enter right of superficies in the first quarter of 2025. However, companies will need to complete additional planning and authorisation processes, before they can start building the wind farms.
Originally Published 19 December 2024
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