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Michal: Price floor and cap for wind farms more favorable than prior scheme

New Minister for Climate Kristan Michal (Reform).
New Minister for Climate Kristan Michal (Reform). Source: Raigo Pajula/Office of the President

In the energy section of the coalition agreement, the new Estonian government promises to establish both a price cap and floor for renewable electricity generation. According incoming climate minister Kristen Michal (Reform), this mechanism will be more favorable than previous support schemes.

To meet its 100 percent renewable electricity target, the Estonian government plans to introduce price cap and floor for tenders, which will, among other things, help speed up the process of constructing offshore wind farms.

Incoming climate minister Kristen Michal told ERR, that the mechanism for procuring renewable energy through small tenders had already been conceived by the Ministry of Economic Affairs and Communications back in 2016, when he himself was economics minister.

"If I remember correctly, the Riigikogu approved this as a principle in 2018. This mechanism is more advantageous than the previous renewable energy support schemes, which are now being phased out. For the larger tenders that have already been conducted, the so-called price floor was between around 1.9 and 3.5 cents per kilowatt-hour," he said.

A price floor means, that if prices fall below a certain level on the market, the amount of renewable electricity generation society requires is maintained at the taxpayer's expense.

However, a potential cap on new procurements is also being considered. Michal said that with a cap, when energy prices exceed a certain level, producers will share their revenues with the taxpayer.

"The addition of a cap, whereby producers' revenues are shared when market prices are high, is a new approach, which is in the coalition agreement," he said.

According to Michal, the government will be able to decide whether to launch additional tenders on the basis of a price floor and cap system in a few months' time.

"The coalition has agreed to assess what kind of tenders and in what volumes, are needed to ensure 100 percent of Estonia's total consumption is covered by  clean energy (production). If (the amount) that comes onto the market is not enough, or if there is a need to accelerate the pace in order to obtain enough affordable and clean energy within the timeframe, then we will launch tenders for offshore wind farms to come on board," Michal said.

The government's decision making will be guided by the market as well as the pace required for it to reach its 100 percent renewable energy target within the planned timeframe, he added.

In 2021, when wind developers wanted to introduce a price floor system, deputy secretary general of the Ministry of Economic Affairs and Communication Timo Tatar said, that Estonia ought to reach the point where offshore wind farms are established without subsidies within 10-15 years, as this would be the most cost-effective and affordable approach for society.

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Editor: Michael Cole

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