According to Andres Vainola, head of Eesti Energia's subsidiary Enefit Power, which produces electricity from shale oil, the price set by the Competition Authority (Konkurentsiamet) for electricity as a universal service is too low and does not fully cover Enefit's production costs.
The Competition authority announced on Friday, that the provisional price of electricity under universal service, will be €154.08 per Megawatt-hour, or 15.4 cents per KWh. However, Vainola highlighted, that this price provisional and that Enefit will continue to push for its preferred price of 18.18 cents per kWh.
Külli Haab, head of the Competition Authority's regulatory division, said that there were differences of opinion with Enefit Power, with the former not considering the profit margins expected by the latter to be justified.
"The Competition Authority brought in a financial expert, to determine what would be a reasonable profit margin," said Haab. "According to our estimations, sales profits should be 25 percent lower than Enefit Power expects," she added.
Vainola said, that as the law leaves space for the price to continue to be evaluated, this is what will now happen, with the Elering head expecting a new solution to be reached by November.
Regardless of what happens next, any new price will still need to be approved by the Competition Authority. "We will continue to charge 18 cents (per KWh). This is the producer's price, which covers (our) costs," Vainola said.
The price of the universal service includes operating costs and investments, as well as CO2. It also incorporates a reasonable level of commercial profit for electricity providers.
The biggest proportion of the overall price, around 55 percent, goes on CO2.
Haab noted that, while the price of CO2 has recently fallen from €90 to €60, it remains volatile, and if it were to change again, this would also impact the production price of the universal service.
According to Vainola, the price of CO2, as well as environmental charges, are the main factors driving up Enefit's production costs.
In the first eight months of 2022, Enefit Power paid almost €440 million in state taxes, including a €350 million CO2 levy.
"Variable costs account for 75 percent of a producer's cost price, of which CO2 makes up the largest share. Our operating costs come to just over five percent of the cost price," Vainola said.
The high share of CO2 costs in the electricity price was also highlighted by Minister of Enterprise and Information Technology Kristjan Järvan (Isamaa), who said Estonia had not found enough allies to change the system in a way that cuts the price of CO2 in Europe.
For this heating season, the government also foresees the need to apply energy support measures that will add a further five cents per KWh to the price of electricity. In practice, that means this winter, the universal service price for consumers is expected to be between 13 and 14 cents per kWh.
Service will be provided by 13 electricity distributors
Household consumers are not required to take much action in order to connect to the universal service. While offers from electricity providers are likely to start appearing on November 7 and 8, according Rein Vaks, head of energy markets at the Ministry of Economic Affairs and Communications, electricity providers have promised to calculate consumers' bills retrospectively to reflect the connection as beginning from October 1.
Providers of electricity as a universal service are obliged to offer the service to household consumers in cases when their existing electricity package is more expensive than the universal service price.
To date, the following electricity providers have notified the ministry of their desire to provide electricity as a universal service : Eesti Energia AS, AS Eesti Gaas, AS Alexela, Elektrum Eesti OÜ, TS Energia OÜ, Saku Maja OÜ, AS Elveso, Ramsi Turvas AS, Electric Terminal OÜ, Sagro Elekter OÜ, Alexela Energia Teenused AS, 220 Energia OÜ, Scener OÜ and Veerenni Jaotusvõrk OÜ.
Consumers who opt to join the universal service before September 30, 2023, will not face financial penalties from the providers for cancelling existing electricity packages.
The universal service will be valid for four years, however, consumers are able to opt out at an earlier date if they wish.
Universal service is available on a voluntary basis to all private consumers and housing associations.
Minister of Enterprise and Information Technology Kristjan Järvan said, that efforts are being made to ensure both micro and small businesses can also join the universal service from November.
More details about the universal service can be found (in Estonian) here.
Editor: Michael Cole