Only new renewable capacities able to lower electricity prices

Eesti Energia power plant chimneys.
Eesti Energia power plant chimneys. Source: Sergei Stepanov/ERR

The record-breaking electricity price this week has consumers worried. While energy companies and politicians are trying to mitigate the blow, the only thing that can keep the price down in the long run is having enough environmentally friendly production capacity.

The world's largest oil shale heat and power plant, first launched half a century ago, has once again become the flagship of national energy company Eesti Energia. Because the company's newest Auvere power plant is undergoing maintenance, the Estonia Power Plant is currently generating more than half of power used in Estonia.

Four blocks of the power plant are in use, including three older ones that sport a bigger carbon footprint and where power generation is, therefore, more expensive. But the market price of electricity is currently so high that even power generated by older blocks comes off cheap.

Another factor in the Estonia Power Plant's success is use of renewable energy sources. The Narva power plants are largely hybrid solutions, using wood and coke gas to generate twice as much renewable energy than all Estonian wind farms combined. All without renewable energy support.

"Waste wood and coke gas make up roughly 35 percent of the fuel we use. The most important aspect of this is lowering the cost price of production. We are in a much better competitive position than gas plants in Latvia or Lithuania or coal plants in Finland and Poland because they are not using renewable fuel sources. That is our edge. Therefore, were we not on the market with our blocks, the missing power would very likely be imported from Latvia, Lithuania and other neighboring countries at an even higher price," said Andres Vainola, CEO of [Eesti Energia subsidiary] Enefit Power.

Vainola said that Estonia's own power plant is currently keeping the price lower for the consumer by a few dozen euros.

"To bring down the cost price further, we are aiming to further boost the relative importance of wood chips and coke gas. It has to be said, however, that despite the fact several of our blocks are in use, 75 percent of factor costs is down to the CO2 quota price. Perhaps it holds a hint to politicians or someone. We are doing what we can," Vainola said.

He said that while the switch to renewable energy sources is inevitable, the question is the pace of changes. Many countries have shut down more old production capacity than has been replaced by newer alternatives. Development of major wind farms has also become stuck in Estonia.

Prices to rise for the average consumer

The price of electricity is not forecast to fall in the coming months, with consumers likely looking at a considerably higher bill for September.

"Looking at the average consumer, their annual power consumption comes to roughly 2.5 megawatt-hours. Broadly speaking, it could translate into a hike of between €12-15 a month. If we look at a larger private residence, the power bill could be hiked by €40-60 considering recent price forecasts. And, finally, for people who use electricity for heating, consuming 15 megawatt-hours, their bill could climb by €100-140," said Marko Allikson, member of the board of Baltic Energy Partners.

The price of electricity has grown all over Europe for a number of factors. Poor summer for renewables, rising consumption but also source price hikes.

The price of coal has tripled, the price of natural gas grown two and a half times and the price of CO2 quota almost doubled over the past year. The price of electricity develops on the market and takes after the price level of the recently opened gas plan. Politicians have no simple levers with which to affect prices.

"It is clear the price of electricity has a different impact on people. Some families, some households will feel it more acutely than others, which is why less fortunate people can apply for local government support to cope," Prime Minister Kaja Kallas (Reform) said.

"This is the longer term plan. We simply need to render all forms of consumption more sustainable. Consume less while still doing everything we're used to doing," said European Commissioner for Energy Kadri Simson (Center).

Politicians proposing excise duty cuts and compensation

Looming [local] elections have seen politicians propose solutions, mainly as concerns lowering excise duties and compensation.

Minister of Economic Affairs and Infrastructure Taavi Aas (Center) said there aren't many mechanisms at play. "People have asked me in recent days what can the state do. The only short-term solutions are excise duties, compensation and, somewhat less urgently, reviewing the quota trading system. Those are the things that depend on the state. It can do nothing to regulate the market price of electricity," Aas said.

Member of the Riigikogu Environment Committee Jevgeni Ossinovski (SDE) finds that the planned spring excise duty hike should be canceled.

"Doing something in the renewable energy fee context would be far more effective as it comes to around €100 million a year. My proposal is for the state to use additional quota revenue, as the higher quota price also boosts state budget revenue, to cover next year's renewable energy fee, exempting power consumers from it," the politician said.

The final cost of household power consumption is on average €216 per megawatt-hour of which €60 is power generated, for example, from oil shale, €60 is the price of CO2 quota, a little under €50 is the transmission fee, a little over €11 the renewable energy fee and €1 excise duty. VAT adds €36.

Abolishing the excise duty and covering the renewable energy fee using state budget resources would translate to a saving of €15 per megawatt-hour or around 7 percent.

The PM said she hopes the price will stabilize at a lower level in a few months' time. "However, we have no certainty in terms of whether this will happen," she added.

"The price of futures remains high and forecasts suggest electricity prices will stay high for some time," Marko Allikson said.

The only thing that can keep the price down in the long run is having enough environmentally friendly production capacity.


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Editor: Marcus Turovski

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