Estonia has abandoned its statutory target of generating as much renewable electricity as the country consumes. Although the official 2030 target remains unchanged, in reality it will not be met either by the set deadline or in the foreseeable future.
Almost three years ago, at the end of August 2022, the government led by Kaja Kallas approved a legislative amendment raising Estonia's 2030 renewable electricity generation target from 40% to 100% of the electricity consumed in the country.
The bill was passed by the Estonian parliament (the Riigikogu) without delay, and by October the changes had been written into law. Estonia had set itself an ambitious goal – to generate, in a little over seven years, as much renewable electricity as it consumes. That does not mean all the electricity consumed has to be renewable or generated in Estonia – only the statistical balance matters.
The bill matched a clause in the previously signed coalition agreement, which contained precisely this commitment. The explanatory memorandum contained no substantive impact assessment, and no consideration was given to whether such a target was realistically achievable in Estonia at all.
The memorandum added an unanalysed political decision: “The amendments will have a positive impact on the working-age population and, in terms of social impact, mainly on those living in areas where renewable energy generation facilities are planned, both onshore and offshore.”
The current situation
Last year Estonia consumed 8.1 terawatt hours of electricity. Domestic generation amounted to 5.4 terawatt hours, or 65.8% of consumption. Of that, 3.4 terawatt hours – 41.7% of consumption – came from renewable sources. Overall, renewable generation breaks down as follows: a third from biomass and waste incineration, a third from wind and a third from solar.
Renewable generation is growing steadily. The “Enefit Green” wind and solar park was recently opened and will generate 770 gigawatt hours, or 0.77 terawatt hours, a year. It already began supplying electricity to the grid last year. Meanwhile, “Sunly” is building a solar park expected to generate around 250 gigawatt hours, or 0.25 terawatt hours, of electricity a year.
Generation is not growing fast enough, however, to meet the renewable electricity target set for 2030. This is no surprise. The National Audit Office raised these very concerns as early as the start of last year. Kristen Michal, climate minister in Kaja Kallas's government, responded to the audit by expressing confidence in the target: “Today the forecasts of various energy and environmental analysts show that we are on the right track to reach the target,” he said at the end of January last year.
K. Michal is now prime minister and leader of the Reform Party. On Wednesday, on the ETV programme “Esimene stuudio”, he said that the target of generating all the electricity used in the country from renewable sources is no longer achievable: “It was already clear six months ago that the target of meeting 100% of electricity consumption with renewable energy by 2030 is not realistically achievable,” Michal said, adding that the target could be reached by 2033 or 2035.
Why is the target impossible to reach?
What has changed in the meantime? First, this spring the government decided not to proceed with the offshore wind farm auction, whose costs would have been an order of magnitude higher than those of onshore wind farms, with the potential subsidy requirement reaching 2.6 billion euros. Initially this step was taken by postponing the decision.
Officially the plan has not been cancelled, but under the coalition agreement between the Reform Party and Eesti 200, the development of offshore wind farms depends on the creation of new financial instruments under the European Green Deal for industry.
The approach to onshore wind is more concrete. The Estonian government is currently considering a bill that would allow the national transmission system operator “Elering” to hold auctions to bring onshore wind-generated electricity to market. The plan is to purchase up to two terawatt hours of renewable electricity a year, with subsidies capped at 20 million euros a year – up to 200 million euros over 10 years.
The Ministry of Climate, which drafted the bill, notes in the explanatory memorandum that the renewable energy units currently under development are not sufficient to reach the renewable energy target. The ministry estimates that the projects resulting from earlier auctions will together generate 1.32 terawatt hours of renewable electricity a year in 2026 and 2027. Adding the planned two terawatt hours from the forthcoming auction, which is due to be announced early next year, total additional generation could reach a maximum of 3.32 terawatt hours a year.
Adding that to last year's 3.4 terawatt hours, under ideal conditions total renewable electricity generation would reach 6.72 terawatt hours a year by 2030.
Of that, variable sources – wind and solar – would account for around 4.5 terawatt hours, or roughly 67% of annual consumption.
This assumes that all projects currently under development will be completed and that there will be no delays in concluding the auction. Even the bill's authors admit that the latter assumption is uncertain. Given the ambitious timetable, there is a real possibility that the process could be delayed by several years.
If Estonia's electricity consumption in 2030 remains at its current level of eight terawatt hours, the country will fall 17.5%, or 1.4 terawatt hours, short of its target. If consumption increases, the gap will be wider still.
How sensible would it be to use renewable energy alone?
When Kristen Michal ended the coalition with the Social Democrats and continued in partnership with Eesti 200, the then climate minister Yoko Alender (Reform Party) returned to the Riigikogu and Andres Sutt was appointed the new energy and environment minister. For the first time, the coalition agreement included a commitment to ensure competitive electricity prices.
A. Sutt also brought in an energy adviser: Einari Kisel, professor of energy at Tallinn University of Technology (TalTech), who is involved in updating Estonia's National Energy and Climate Plan (ENMAK), which, according to unconfirmed reports, could soon introduce significant policy changes.
E. Kisel stressed that he was not prepared to discuss the broader energy plans publicly. His colleague at TalTech, economics professor Kadri Männasoo, recently analysed Estonia's energy strategy from an economic perspective, and the results are publicly available online. According to her analysis, if the Baltic states were to meet the targets they have set – generating as much renewable electricity as they consume – it would cost Estonia an additional 100 million euros a year.
K. Männasoo's analysis indicates that Estonia could achieve the lowest total electricity costs if variable renewables – wind and solar – accounted for 60-80% of consumption.
The professor points out that the higher the share of variable renewable energy, the lower the price for consumers. Once the 80% threshold is reached, however, the fixed-cost share becomes large enough that prices no longer fall significantly. She notes that as renewable electricity generation increases, producers' profit margins shrink – at 80%, support subsidies would suddenly have to be increased considerably.
Urmas Varblane, professor of economics at the University of Tartu, agrees with his TalTech colleagues. Having examined their work, he concluded that the 100% target is not sensible. Varblane said a shift in thinking is under way in the energy sector.
“Thinking seems to have changed over the past three to four months. Some mantras have been set aside. There is now an understanding that simply announcing slogans and targets changes nothing,” Varblane said, adding: “People have begun to think more about our actual energy portfolio. It is not just one source – we have several different sources that complement one another and are available at different times of the year, in spring or in autumn.”
Varblane also referred to earlier research by Martti Randveer, head of the monetary policy and economic research department at the Bank of Estonia, which concluded that Estonia would achieve the lowest total electricity costs if renewables accounted for 50-80% of energy consumption in the Baltic states.
The main concern is that variable renewable energy sources reduce one another's profitability. The more favourable the conditions for renewables – sunnier or windier weather – the greater the likelihood that generation will have to be curtailed. That in turn increases the fixed-cost component of electricity prices.
Installing storage systems could help solve this problem, but that too comes at a cost. Moreover, there is currently no storage system capable of carrying “a large volume of summer electricity over to spring”.
The Ministry of Climate is ready
The Ministry of Climate is unwilling to speak openly about possible changes to current plans before political decisions have been taken. Rein Vaks, head of the ministry's Energy Department, stressed repeatedly that their work proceeds in line with the requirement for 100% renewable energy written into law.
“We cannot do our work on the assumption that something might fail. We work under the mandate given to us by the legislator. Current indicators suggest that meeting this obligation is not impossible,” said R. Vaks.
He made these comments to ERR on Wednesday afternoon – before prime minister Michal announced on “Esimene stuudio” that the legal obligation to meet the target would not be fulfilled.
Asked how Estonia might reach the target of generating 100% of its electricity from renewables by 2030, Vaks pointed to unsubsidised private-sector investment: “That is precisely what the developers have to assess. The discussions reflect this clearly. Each of them builds its own model, talks to its financiers and assesses whether the existing conditions are suitable.”
“I agree that there are risks. I cannot promise today that we will definitely reach 100% by 2030, but we are working towards it,” added R. Vaks, suggesting that market participants be consulted for further insight.
“Sunly” takes a positive view
Klaus Erik Pilar, head of renewable energy developer “Sunly” in Estonia, said that reaching the 2030 renewable energy target is entirely possible. He stressed the need to speed up planning procedures as the main problem. When it came to renewable energy in the broader sense, however, his remarks often took the form of slogans and well-prepared talking points, sidestepping questions of substance or falling back on catchy phrases.
K. Pilar acknowledged that a large concentration of new renewable capacity can indeed reduce the profitability of projects, but said the solution lies in active portfolio management, energy storage capacity and participation in frequency markets. In his view, the 100% renewable electricity target is a positive thing, even if reaching it may prove difficult.
“I agree – the last 10% before reaching 100% will certainly be hard. But that does not mean we should abandon the target at the declarative level,” said K. Pilar, suggesting that one possible solution could be to increase electricity consumption in Estonia. “If your claim is true – that electricity prices really are this low, and that trend seems logical – then, following market logic, people who want to take advantage of cheap electricity will increase their consumption,” he said.
Asked how that squares with a target based on 100% of consumption, he replied that there is no need to maintain exactly 100% in 2031, and that Estonia will at least cover demand of eight terawatt hours a year.
Asked whether “Sunly” would still have invested in a solar park if Estonia's renewable generation already exceeded 80% of electricity consumption, Pilar replied that it would only if the electricity could be sold outside the exchange.
“Again, it depends. If you rely solely on market forecasts and can only sell on the day-ahead market, then in the situation you describe, probably not,” said Pilar. “But if you have a buyer for a particular project's output outside the exchange price, then it is [possible].”
https://www.err.ee/1609720722/analuus-eesti-on-vaikselt-loobumas-100-protsenti-taastuvelektri-eesmargist