Minister of Economic Affairs and Infrastructure Taavi Aas (Center) said at the end of last week that he has approved changes to the state's expectations for national energy company Eesti Energia to extend the obligation of maintaining 1,000 MW of power generation capacity. The government has not made the decision yet.

Andres Vainola, head of Enefit Power, told ERR that the company is prepared to extend the reserve obligation, while it should be agreed how to do that, as well as the division of costs and revenue. A decision is needed post haste as the current deadline is the end of 2023.

"It is necessary to plan effects and investments, repairs and service a long time in advance in the energy sector. With the current obligation expiring at the end of 2023, we need to have the decision 18 months in advance. In other words, we need the decision and corresponding mechanisms to be put in place in order to extend the 1,000 MW reserve power obligation successfully," Vainola said.

Eesti Energia has been receiving subsidies for maintaining reserve power for years, as the low price of electricity has kept oil shale energy uncompetitive and the plants idle.

The situation has changed considerably as a result of the last six months' energy price hikes.

Idle plants cost €20 million a year

"Until last fall, energy prices meant that maintaining 1,000 MW was purely an expense – no revenue was generated, the plants stood idle and were there only to ensure supply security. We have seen the market price dynamic change since then, with energy blocs necessary for maintaining the reserve capacity operational and generating revenue in the following weeks or even months," Vainola said.

Despite currently high prices, idle power plants will have to be subsidized to maintain supply security also in the future. Once the decision is made, the state needs to propose to Eesti Energia a way of doing that. Vainola said that Enefit Power has run its calculations and that the final solution will be found in talks.

"It is clear that we need to decide on a potential mechanism in terms of how to include in the owner's expectations how this 1,000 MW of production capacity should behave when there is room for it on the market and how it will function, as well as how costs will be covered where there is not. That is the choice we are offering the owner – whether it will be a fixed sum for maintaining those 1,000 megawatts, of whether potential income generated or not generated during a given period will be subtracted from the expenses base. It will be a symbiosis of those two things," Vainola said.

The expenses were in the vicinity of €20 million in 2019 when Eesti Energia power plants did not make the market once. Vainola could not estimate the cost for 2020.

"It has to do with more than staff expenses. It requires a certain amount of oil shale in warehouses and mining resources on standby," he said.

Oil shale half the price of gas

Vainola said that recent events have demonstrated that the decision to maintain reserve power capacity is entirely rational even considering oil shale's high carbon intensity.

"Looking at recent events, Estonia has been an electricity exporter these days, even if it's just in the volume of 100 MW. Enefit Power is sending 1,100 MW, or way beyond the owner's expectation, to the grid today. We believe it benefits both Estonia and our neighbors, especially Latvia and Lithuania where the price is even higher without production capacity," Vainola said.

The executive also said that today's record price of natural gas means that oil shale electricity is half the price of turning gas to power.

"Despite oil shale's relatively high CO2 intensity, our hybrid power plants that use oil shale for much of their fuel are running twice a cheaply than gas plants in Latvia and Lithuania in the conditions of current market prices."

"The direction of the energy market today is that there is great demand for dispatchable generation, which capacity Estonia has. We can offer it against the market so to speak," Vainola added.

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