Graanul Invest, the largest pellet producer in the Baltic region, produces about a million metric tons of wood pellets per year at its Estonian plants. Most of this is sold to the UK, Denmark, the Netherlands and Italy.

The new power coalition believes that the burning of Estonian-grown wood in western European furnaces has to stop. However, no outright ban is planned. "It is not possible to impose export restrictions in the European Union on the timber assortments of any kind," said Jevgeni Ossinovski, a member of the Social Democratic Party's board.

Ossinovski said that the renewable energy Directive delays the new government's attempts to reduce demand: "It actually allows electricity produced from wood to be considered zero-emission electricity or renewable electricity," he explained.

Estonia has agreed with other forest-rich countries that wood is the source of renewable energy. "In these coalition talks we agreed to review the position of the government on this issue, and in the future we will join the club of countries that actually want to save forests," Ossinovski said. This means that the pressure group, which usually includes Estonia, Finland, Sweden, Latvia, Lithuani, and several central European countries, will be reduced by one.

"In one way or another, this issue is always on the table in EU politics," Ossinovski said, citing discussions around the Directive, the emissions trading system, land use and forestry debates. "If Estonia changes its fundamental stance on this issue, it will be an important move forward."

No subsidy for burning wood

The coalition agreement stipulates the elimination of wood-burning in industrial electricity production: "The first agreement is in place. We will not be paying subsidies for burning wood at the Narva power plant," Ossinovski said.

It does not require any change of legislation. While electricity prices remained low and CO2 prices climbed, the Baltic power plant's cost of producing heat also increased. Eesti Energia additionally paid up to €2 million per year to cover the costs. Narva was threatened with a substantial rise in heating costs and last fall, after lengthy negotiations, the government approved a potential solution.

The government was prepared to organized a tender, with Eesti Energia as the only participant, to subsidize the combustion of biomass in Block 11 of the Baltic power plant. However, electricity prices had already started to rise and no tender has taken place.

"But now that electricity prices have started to cool down, the government will simply not extend this additional top-up," he said. "It will expire on its own."

Wood chips must be abandoned in Auvera

Eesti Energia burns wood without subsidies. This is the case at both the new Auvere power facility and Block 11, which is responsible for generating heat for Narva.

"The general consensus could be that we oppose burning wood solely for electricity generation, i.e. at the Auvere plant," Ossinovski said, adding that burning wood directly from the forest should be prohibited and that the current administration has no problem with burning construction debris.

Andres Vainola, the chair of Enefit Power's board of directors, said that in the first quarter of 2023, 27 percent of all electricity produced in Estonia came from the Auvere power plant. "We replaced over 40 percent of the facility's primary energy with waste gas and specifically wood chips, especially trimmings and twig chips," Vainola explained.

"We plan to increase the current waste gas combustion capacity at Auvere from 35 percent to 50 percent within a year," Vainola said, adding that the company is open to change. If we were required to purchase CO2 quotas, production costs would increase, but I believe we are up to the challenge, said the CEO of the state-owned company.

Ossinovski said that there is no agreement at the moment on how to regulate wood burning.

There will be a heat tender

A separate issue is Block 11 of the Baltic Power Plant, which generates both heat and electricity for Narva. The new government has no objections to cogeneration facilities that utilize wood; however, in Narva, shale is combined with wood.

There is a plan in place for the state to use the Just Transition Fund to support the construction of a modern facility in Narva, according to Ossinovski, but this initiative was created when electricity prices were low and carbon prices were high.

The mayor of Narva, Katri Raik, and the CEO of Eesti Energia, Hando Sutter, protested to the government in the spring of 2021 that the state-owned company was incurring increasing losses in its heat production. The appeal said that preparations for a long-term and sustainable measure to decouple Narva's heat economy from fossil fuel oil shale should begin immediately.

The Estonian Competition Authority (ECA) instructed the stock company to prepare a tender for the procurement of heat after receiving the joint request, for which €20 million had already been set aside.

According to the agency, the matter was urgent because construction of the new facility could take up to five years. "A sufficiently long preparation period will ensure that as many bidders as possible are invited to tender, which is in line with the principles of both competition and district heating law," the agency said.

After that, the situation began to linger on. Although the Ministry of Economic Affairs and Communications repeatedly reminded the public of the need for a heat competition, the Eesti Energia-affiliated network company made no progress toward the competition. After the beginning of the war, the state-owned company changed course.

The company announced that it wants to modernize Block 11 of the Baltic power plant to burn at least 70 percent biofuels by 2024. By 2032 at the latest, the plan was to move the cogeneration of heat and electricity fully to renewables. The petition noted that this would make it possible to provide Narva's residents with the cheapest possible raw heat.

Following the adoption of the company's new strategy it will be beneficial for Narva's heat consumers if Enefit Power continues to supply heat to the city of Narva. Consequently, there is no need for a heat purchase tender, the company said.

While the ministry indicated that the heat tender could still go ahead, the ECA took a step back and exempted Narva Soojusvõrk from the tender obligation.

Enefit explores geothermal energy

Ossinovski said that the tender should be organized in such a way as to maximize competition. "Of course, Eesti Energia has an interest in just getting the just transition money to modernize the existing boiler plant, but I believe it could be a technology-neutral open competition, where all possible heat producers could offer their solutions," Ossinovski said.

Vainola pointed out that it is up to politicians to organize the tender. "We are ready one way or the other," he said, but urged that the so-called daily room heating during the winter peak should come from a single plant. "We have seen from experience that otherwise it becomes more expensive for the end user," he said.

He did not predict how a possible heat race would end. "If the heat competition had been last year, when we produced most of the year's heat in cogeneration with electricity, I would have seen no other alternative, but today the situation is slightly different," Vainola said.

"In case the state decides that Block 11 does not meet all the requirements, we are also ready for other solutions," Vainola added. "We are working on the introduction of geothermal energy. We still have a number of initiatives on how to produce heat for Narva at the most affordable price so that fossil fuels are not used there at all."

A state-owned company went to court to raise the price of raw heat

Vainola said that the state-owned company will be able to provide cheap heat even after the upcoming changes, but today the price is so low that the company will be paying on top for years.

"In December 2021, we submitted an application to the Competition Authority to raise the marginal price of heat," Vainola said.

"Our production price is somewhere around €33 per megawatt-hour, and our last application was somewhere around €64 per megawatt-hour," Vainola said. This would still be one of the cheapest heating prices in Estonia, he added.

"We have a fixed price per ton of CO2, which we can charge the end user around €27, but we buy from the market ourselves at €95," he said. Vainola explained that in addition to changing the CO2 component, they would also like to alter the gas component. The competition authority has rejected both proposals.

"We feel that our rights have been violated here," said Vainola, who said the company had gone to court earlier this week. "As we saw that this process had been dragging on for so long, we felt it was right to take this route."

Raik: Heat prices must stay low

The mayor of Narva, Katri Raik, pointed out that much of the border town's housing has not been renovated and that a lot of heating is needed. "We want to get the best possible price and in the most environmentally friendly way possible," said Raik, adding that the room heating could be greener than the one currently coming from the power plant's Block 11.

She pointed out that the construction of the new cogeneration plant will cost five times more than the €20 million set aside in the Fair Transition Fund scheme.

Raik also hopes that the geothermal energy studies of Eesti Energia will help. "A two-kilometer-deep test hole will be drilled into the ground to see how much heat can be generated. And then there are plans to drill an eight-kilometer-deep hole," she said.

"And we hope that also with the new solutions, where the CHP plant and geothermal energy are combined, we will be able to keep the price somewhere around €60–70, which is still lower than in the rest of Estonia.

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