Energy Sector in Estonia

An Expert's View about Energy in Estonia

Posted on: 27 Sep 2010

The Estonian electricity system forms part of the North-Western common power system of the former Soviet Union. Estonia is at the crossroads of rapid energy market development

Energy ? Estonia Sector Report Energy Estonia Produced by: Laura Arengu, Trade Adviser, BE Tallinn Last revised: September 2009 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation and Skills and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published July 2009 by UK Trade & Investment. Crown Copyright © Energy ? Estonia Table of Contents OVERVIEW OF THE ESTONIAN POWER SECTOR 3 OPPORTUNITIES 7 KEY METHODS OF DOING BUSINESS 8 MORE DETAILED SECTOR REPORTS EVENTS 8 CONTACT LISTS 9 Page 2 of 10 Energy ? Estonia OVERVIEW OF THE ESTONIAN POWER SECTOR The Estonian power sector is characterised by substantial concentration in power and gas, and is in the state of substantial development. Estonian power generation currently relies on oil shale, a domestic energy resource making Estonia self-sufficient in electricity production. The downsides of relying on oil shale are lack of diversification in sources of energy used (94% of power generated from oil shale in 2007) and its low energy/high CO intensity. The share of natural gas in the primary energy balance is 2 13%, with an under 3% share in power generation, but the share of gas in heat supply is 46%. Power generation and gas wholesale are concentrated to the incumbents AS Eesti Energia (Estonian Energy Ltd, using the brand name Enefit in international markets) and AS Eesti Gaas (Estonian Gas Ltd). Electricity The Estonian electricity system forms part of the North-Western common power system of the former Soviet Union. Estonia is part of the common synchronised system together with Russia, Latvia, Lithuania and Belarus. However, in the recent years the Baltic governments have taken a clear direction towards integrating their energy markets with those elsewhere in the European Union. The major first step will be creating a common Baltic energy market, which the prime ministers of the region have agreed in 2009. The first interconnector from the Baltics to the Nordics has already been constructed and the EU?s Baltic Sea strategy formulated in 2009 sets out more cooperative planning for the wider region?s energy markets and financial support for their integration. Since 1999 a steady annual growth in electricity consumption has taken place in Estonia, with an annual average of about 3.5%, corresponding to the widespread statistical assumption that the rise in electricity consumption constitutes at least half of the rise in GDP. According to the statistics of 2007, the load peaked at 1,537 MW with an annual production of 10.9 TWh. Out of this 7.2 TWh was domestic consumption, while export totalled 2.42 TWh. Main figures for Estonian electrical power, 2000-2007 (in GWh) 2000 2001 2002 2003 2004 2005 2006 2007 Production 7,591 7,59 7,634 9,101 9,232 9,114 8,728 10,954 End- 5,422 5,607 5,686 6,103 6,326 6,403 6,901 7,180 consumption Network 1,24 1,361 1,258 1,192 1,112 1,103 1,077 1,354 losses Net export 929 622 690 1,896 1,794 1,608 750 2,420 Oil shale is deemed to be an inefficient and polluting fuel. 1 ton of Estonian oil shale can be used to produce either 850 kWh of electric energy (by-products include 430 kg ash and 870 kg 3 CO ) or 125 kg of shale oil (with by-products of 430 kg ash, 180 kg CO and 35Nm retort gas). 2 2 Hence, power generation from oil shale is very CO -intensive and has remained cheap due to 2 the fuel being domestically mined and the EU allocating free CO quota to supply the domestic 2 Page 3 of 10 Energy ? Estonia market. Clearly, oil shale is not the fuel of the future and Estonia will soon face a steep increase in the price of power. Sizable investments are needed into Estonia?s power generation facilities, but various causes for uncertainty have stalled decision-making. Power Production The Estonian power market is very concentrated both in terms of producers and distributors as well as the sources of energy used. Electricity production is in essence controlled by the state- owned Estonian Energy Ltd, who owns about 96% of installed production capacity, and who also owns 85% of the distribution network and the transmission grid (the transmission grid will be moved under direct state ownership in 2010). There are however a number of other power companies already active in Estonia, investing in renewables and energy from waste. Installed electricity production capacities in Estonia in 2007 Capacity MW Fuel Owner Narva Elektrijaamad 2,140 Oil shale Estonian Energy (Narva Power Plants) Iru Elektrijaam 171 Natural gas Estonian Energy (Iru Power Plant) Ahtme combined production plant 27 Oil shale Estonian Energy Total of renewable sources of 59 Wind, water, Private capital energy biogas Combined production others 84 Oil shale, peat, Private capital natural gas Grand total 2,481 Of fuels, oil shale accounts for nearly 94% in the Estonian electricity production, natural gas for 2.6% and renewable sources for only 0.4% (others 3.2%). Estonian Energy also owns the largest oil shale producer AS Eesti Põlevkivi. Within less than ten years? time, the majority of the electricity production facilities in Estonia will become non-compliant with EU regulations on environmental requirements to manufacturers. Therefore, the state-owned Estonian Energy faces the need for substantial investments in power production facilities before 2016 to avoid lack of electricity in the country. The Government of Estonia would like to see that Estonia remains self-supplying in electricity production with sufficient power generation facilities to satisfy domestic demand. The future sources of electricity for Estonia are continuously under discussion among policymakers as well as the society. Estonian Energy Ltd has in the past years been actively looking into new power generation possibilities in the country and in the wider Baltic Sea region. In line with the foreign expansion strategy, the company has also been working towards getting a stake in the construction of the new nuclear power plants and reactors in Visaginas, Lithuania and Olkiluoto, Finland. These two NPPs could also supply the Estonian market in the future, but in addition, Estonian Energy has started looking at options of constructing an NPP in Estonia in the next 15 years. This would be a major step for a country with almost no previous experience with nuclear power, but due to no emissions this source of electricity is beginning to be seen as essential for the future. Current estimations predict that 400-800 MW would be the suitable size for the possible Estonian NPP. Page 4 of 10 Energy ? Estonia Cross-Border Connections Estonia currently has interconnections with Finland, Latvia and Russia. With Finland the connection goes through the Estlink cable (350 MW) that was inaugurated in December 2006 as the first linkage between the Baltic and Nordic power markets. The technical capacities of Estonian cross-border connections to Latvia and Russia have so far exceeded needs, but as the power generation situation changes in the Baltic region, new and stronger connections are likely to be deemed necessary, especially to EU countries. The owner of the Estlink cable is AS Nordic Energy Link, co-owned by the Estonian Eesti Energia (40%), the Latvian Latvenergo (25%), the Lithuanian Lietuvos Energija (25%) and the Finnish Finestlink (10%). The Estlink cable has been granted exceptional legislative status of a ?commercial project? until 2013, whereby free access to it is not granted to third parties unless its full capacity is unexploited by the owners. It has been under discussion between the owners of the cable whether to terminate this prerogative earlier as part of a package of measures enabling the creation of a regional energy market. The European Commission has recognised the problem of isolation of the Baltic region energy grids from the rest of EU. The Commission has put together a Baltic Interconnector Plan, which includes another interconnector between Estonia and Finland, Estlink 2, as well as power connections between Poland-Lithuania and Sweden-Lithuania. Estlink 2 (635 MW) has received EUR 100 million support from the European Union Economic Recovery Package and is likely to be completed around 2014. Opening of the Market Due to the concentration of power generation in Estonia, its electricity market is divided into an open and a closed market. Upon accession into the EU in 2004, Estonia was granted derogation with regards to opening its electricity market to ensure the continuation of electricity production from oil shale in order to decrease dependence on imported fuels and to avoid related social problems. st Since January 1 2009 35% of the power market has been opened and the rest of the market will be opened by 2013. Until 2009, the market was open to major customers whose electrical consumption exceeded 40GWh annually, and in 2009 the market has become open to customers whose consumption exceeds 2 GWh per year, which includes a few hundred consumers. Small customers without bargaining power are argued to be better off in the closed market, as their prices are regulated and effectively kept lower. In order to speed up the creation of the Baltic energy market, Estonia has decided to amend its current legislation so that consumers in the closed market will no longer be able to purchase power at the regulated price, effective in the first half of 2010. Transmission and Distribution Network According to the Electricity Market Act, transmission and distribution are subject to the principle of concession, granting the sole right of transmission to the main grid and assigning exclusive right of operation within certain area to distribution networks. The sole provider of the transmission grid OÜ Elering (formerly known as OÜ Põhivõrk) is owned by Estonian Energy, but will be moved under direct state ownership by 2010. Distribution networks, although numbering 40, are nevertheless concentrated with 87% of market share held by OÜ Jaotusvõrk, owned by Estonian Energy. Page 5 of 10 Energy ? Estonia As the Estonian power sector is very concentrated, it is highly regulated. All power transmission and distribution companies are subject to price regulation and the Competition Authority must also reconcile the price of oil shale used for power production, generation price of Narva Power Plants and the price of power sold to consumers in the closed market. The Estonian Energy group of companies is under constant surveillance to ensure equal treatment of all affected parties in the energy sector. Natural Gas Similarly to the electrical power system in Estonia, the gas supply network was also designed as part of the former Soviet Union?s gas supply system. The only cross-border connections are with Russia and Latvia, whereas Russia is the only origin of source of supply. There have been discussions about building a gas connection between Estonia and Finland and relevant studies have been initiated, but the investment decision has not yet been made. Investors have also looked into opportunities for the construction of an LNG terminal to Estonia. The share of natural gas in Estonia?s total fuel balance is only 13%, but of fuels used for the production of heating its share is much more sizable at 46%. A significant limitation to gas consumption in Estonia is the absence of gas supply in many regions, such as the central and western parts of the country, including the islands. The causes for this lie partially in low population density. However, in the recent years the gas network has been extended and there are plans for further construction. The transmission grid for gas in Estonia has sufficient capacity for meeting current needs. 3 In 2007 natural gas consumption totalled 1,003 million m , remaining on the same level as the year before. 3 Natural gas consumption, million m 2000 2001 2002 2003 2004 2005 2006 2007 826 887 743 847 966 997 1,009 1,003 Contrary to many other countries, in Estonia only a small proportion of natural gas consumption is made up by power generating consumers and a relatively large proportion by consumers using gas for heating purposes and industrial consumers. Gas consumption by households made up just around 10% of all gas consumption in Estonia in 2007. Almost 20% of Estonia?s natural gas consumption is made up by a single consumer AS Nitrofert, manufacturer of fertilisers. The gas market dominant Eesti Gaas AS (Estonian Gas Ltd) and the Competition Authority both predict Estonia?s natural gas consumption to remain on a similar level in the upcoming years. Page 6 of 10 Energy ? Estonia Gas consumption by different consumer groups in 2007 Heating by Heat businesses production in and homes power plants 20% and boilers 36% Electricity Industrial production consumers % 6% 38 The Gas Market The largest gas company in Estonia is Estonian Gas, co-owned by several international gas companies. Estonian Gas owns EG Võrguteenus AS (EG Network Service Ltd), the owner of the gas transmission grid and the largest distribution network in Estonia. Similarly to the electrical power market, the number of gas distributors totals a high 27, but the distribution market is actually very concentrated as EG Network Service holds a 92% market share. The gas market was opened to all non-domestic customers with the Energy Act of 1998. As from July 2007 the entire gas market has been opened, affecting the 5% of the market made up of domestic customers. The gas supply network is not subject to the principle of concession and construction of parallel networks is allowed, although not practiced so far. Distributors are obliged to develop their network so as to provide gas supply to all existing and new customers. Estonian Gas is the sole importer of wholesale gas. According to Natural Gas Act of 2003, companies need an operating license to import gas from outside EU, however, the application process is not difficult. OPPORTUNITIES There will be many major business opportunities in the Estonian power sector in the next years. As shortly explained above, Estonia is at the crossroads of rapid energy market development. High reliance on the domestic fuel oil shale is being replaced by a diversified mix of sources of energy, most notable additions are likely to be wind, biomass and nuclear. Whereas renewables development has picked up speed, nuclear power is in very early stages. Also, additional oil shale power generation capacities are likely to be developed, as well as existing ones upgraded. Page 7 of 10 Energy ? Estonia UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. KEY METHODS OF DOING BUSINESS Background information on doing business in Estonia can be found on UKTI?s website. Simply go to the Estonia country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up ? Visiting and social hints and tips MORE DETAILED SECTOR REPORTS Research is critical when considering new markets. UKTI provides market research services which can help UK companies doing business overseas including: ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, contacts and support during your visits overseas. ? Export Marketing Research Scheme. Advice on market research and help to contact subsidised market research administered by the British Chambers of Commerce on behalf of UKTI. Contact your local International Trade Advisor if you are interested in accessing these services, or for general advice in developing your export strategy. When considering doing business in Estonia, it is essential to obtain legal, financial and taxation advice. For further details, please contact: Laura Arengu UK Trade Adviser/ Political Officer (Economics) British Embassy Tallinn, Wismari 6, 10136 Tallinn, Estonia. Telephone: (+372) 6674720 EVENTS UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria Page 8 of 10 Energy ? Estonia ? UKTI staff overseas will be available to assist delegates Find out if you are eligible to apply to attend this event, and more about the support UKTI can offer, on the UKTI Market Entry web page. Details of TAP events can be found in the Events portlet on the Estonia page. Other Market Visit Support may be available via your local International Trade Advisor. CONTACT LISTS UK Trade & Investment in Estonia UK Trade Adviser for energy (UKTI Tallinn section): Mrs Laura Arengu Telephone: (+372) 6674720 E-mail: British Embassy Tallinn website: UK Trade and Investment website: British-Estonian Chamber of Commerce Address: Ahtri 6A, 10151 Tallinn, Estonia Manager: Ms Agnes Aaslaid Telephone: (+372) 56 622623 E-mail: Useful Contacts for the Power Sector Ministry of Economic Affairs and Communications of the Republic of Estonia Address: Harju 11, 15072 Tallinn, Estonia Switchboard: (+372) 625 6342 E-mail: Ministry of the Environment of the Republic of Estonia Address: Narva mnt 7a, 15172 Tallinn, Estonia Switchboard: (+372) 626 2802 E-mail: The Estonian Competition Authority Address: Auna 6, 10317 Tallinn, Estonia Switchboard: (+372) 667 2400 E-mail: Page 9 of 10 Energy ? Estonia Estonian Tax and Customs Board Address: Narva mnt 9j, 15176 Tallinn, Estonia Telephone: (+372) 1811 Statistics Estonia (National Statistics Office) Address: Endla 15, 15174 Tallinn, Estonia Telephone: (+372) 6259100 E-mail: Eesti Energia AS (Estonian Energy Ltd; Enefit) Address: Laki 24, 12915 Tallinn, Estonia Switchboard: (+372) 715 2222 E-mail: Elering OÜ (Transmission Network Operator) Address: Kadaka tee 42, 12915 Tallinn, Estonia Switchboard: (+372) 715 1222 E-mail: Eesti Gaas AS (Estonian Gas Ltd) Address: Liivalaia 9, 10118 Tallinn, Estonia Telephone: (+372) 630 3003 E-mail: UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. Page 10 of 10
Posted: 27 September 2010

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