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Veskimägi questions need for many offshore wind farms in Estonia

Taavi Veskimägi.
Taavi Veskimägi. Source: Siim Lõvi /ERR

Taavi Veskimägi, CEO of Elering, the transmission system operator for electricity and natural gas, said that there will be an energy surplus in the future, not a deficit, and society needs to think what will happen to offshore wind generating units, as not all of the energy they produce will fit into the Estonian system.

Veskimägi said on ERR's "Otse uudistemajast" webcast on Wednesday that based on the number of wind and solar power plants being built in Estonia and around the region, there would be an energy surplus in the future, not a shortage; and if there is an excess of supply over demand, electricity rates should be cheap.

"Even more so, given that solar and wind power plants have variable costs, meaning that they can be sold for zero on the market, which of course means that the investment costs of these solar and wind power plants must also be recouped at some point. This could be a big problem, as these plants are 'cannibalistic' and when both wind and light are present, their profitability declines," he said.

Veskimägi said that he, too, contemplated investing in a small solar power plant, but finally opted against it because he did not believe it would be able to compete in the future with large wind and solar power plants.

"The effect of a large power plant is always higher and the cost per kilowatt-hour is always cheaper. Certainly, this is a point of consideration for smaller producers," he said.

Determining the fate of offshore wind farms is the greatest challenge for society and the future coalition, the CEO of Elering said. We only need one to two gigawatts for supply security in Estonia, while there is space for offshore wind farms with tens of gigawatts of power in our maritime territories.

"Then the energy produced is not going to fit into the Estonian grid, where will it go and why are we producing it? What do we as a society get back in terms of public goods?" he asked.

Veskimägi said we need to think how the risks and rewards of offshore wind farms will be shared between society and private developers. While similar discussions have already taken place during the Paldiski LNG saga, a similar debate will soon erupt in the case of offshore wind farms, albeit on a much larger scale.

He said that society may not have fully grasped that none of this is actually needed for Estonia's supply security.

Preparations under way for the gas plant

Veskimägi said that ensuring security of supply in Estonia only on a national basis would be the most expensive and uncertain for consumers.

"The market for quick reserves is Estonia, Latvia and Lithuania as one block. These are the frequency conservation and restoration reserves with the quickest response time to changes in the electricity system's consumption and generation," he said.

Veskimägi said that gas power plants, for instance, are of this type. The company is currently working with the Ministry of Economic Affairs to ensure that if, under European regulations, quick reserves can be purchased a day in advance, a framework is established to allow a low bid to be made at least five to seven years in advance, providing the producer with certainty about future cash flow and allowing for additional investment in Estonia to construct new power plants.

This is important when there is no wind or sun and it is less expensive to build a gas power plant.

Despite the high variable cost of such a facility, Veskimagi believes it will be able to compete in the market because prices are always high when supply and demand are out of balance.

Elering has no immediate plans to sell the Kiisa emergency power plant, but a sale may be considered in the future. The company intends to withdraw the product from the market for manually operated reserves by 2028.

"In that case, we will not sell it but rather hold it in reserve, so that if all other market-based solutions run out, we will not be necessitated to cut power to consumers, as we still have our own power plant in Kiisa," Veskimagi explained.

He said that the cost of electricity during the upcoming winter will be primarily determined by gas prices and if gas prices remain stable, there is no reason to believe that electricity rates will be as high as they were at the end of last summer and in the fall.

"Today's gas price trajectory is such that gas-fired power plants charging peak pricing would be able to sell electricity to the market at significantly lower costs," Veskimägi added.

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Editor: Karin Koppel, Kristina Kersa

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