National Audit Office gives damning assessment of energy policy over last decade

Electricity (illustrative).
Electricity (illustrative). Source: Siim Lõvi /ERR

According to a report by the National Audit Office of Estonia, in four years' time there could be a problem with the security of Estonia's electricity supply. The report states that there has been a lack of both managed generation capacity and external interconnections, while Estonia has also not sufficiently exploited its renewable electricity potential.

According to the National Audit Office's report, a number of fundamental decisions needed for the planning of the development of the energy sector have not been taken for a long time. In particular, these relate to managing generation capacity and speeding up the construction of wind farms as well as the development of electricity grids and external interconnections.

Auditor General Janar Holm admitted that in a situation where there are lots of variables, making decisions is often difficult and it is almost impossible to predict whether the choices made will turn out to be the best ones in the future.

"Whether, at some point in the future, in hindsight, one decision or another might look one way or another, should not, however, be the type of constraint on today's decision-makers that means they would rather not take the necessary decisions for fear of being wrong. The worst decision would be to make no decision."

Holm told ERR that the National Audit Office's assessment is unlikely to come as a surprise to decision makers. "What I would identify as the main problem, is that the question of how to ensure both domestic and business consumers in Estonia have the necessary amount of electricity at an acceptable price at all times, continues to await a concrete and realistic answer."

According to the National Audit Office, the measures proposed in the next energy sector development plan are too general and do not specify who exactly will implement them nor what funds will be used.

The Estonian state has set itself the target of being able to produce the same amount of renewable electricity as the country consumes annually, by 2030. However, there is no action plan in place to achieve that target, and the Ministry of Climate does not intend to create one, the National Audit Office said. In addition to that, Estonia's potential for renewable electricity production is still not being fully realized, with no major wind farms added to the grid in the last 10 years.

No new capacity being added to the market

"If the amount of renewable energy is added after 2030 as planned, Estonia will have sufficient electricity generation capacity, though it may lack the dispatchable generation capacity needed, among other things, to maintain grid frequency," the National Audit Office said in its report.

The report also noted that there is no prospect of additional dispatchable generation capacity coming onto the Estonian market in the next 14 years, and that its potential deployment is hampered by uncertainty among market players.

"Experts interviewed by the National Audit Office considered it unlikely that private investors would want to set up managed generation capacity in Estonia without state support. This is due to the lack of return on investments, as managed generation capacity enters the market mainly when the wind is not blowing, the sun is not shining or when renewable electricity production is low," the report said.

Companies are interested in developing electricity storage facilities. However, doing so will require a decision by the state on whether to promote the market for storage capacity and how, as well as for what purposes the storage capacity ought to be used.

There is also a lack of potential solutions in Estonia to manage electricity consumption efficiently. The National Audit Office believes that a market model should be implemented, which would enable consumers to benefit from not consuming electricity at times of high demand.

Security of supply could be a problem in 2027

The report draws attention to analyses from last year, which pointed out that Estonia may face a problem with the security of its electricity supply in 2027. There may be a shortage of market-based generation capacity as well as managed generation capacity, which is necessary to, among other things, ensure grid frequency.

This risk scenario is based on a possible situation whereby, from 2027, old oil shale-fueled generation capacity in Estonia will no longer be economically sustainable and so the owner may opt to shut it down.

"It is not yet known how this situation will be resolved in 2027," Auditor General Janar Holm said. "The issue is not that we will have a permanent power shortage in 2027, but how peak demand will be covered. To do this, there has to be reserve capacity to help cover peak demand. At the moment we don't know what the solution is. The government and the climate ministry are working to find a solution, but there are four years to go."

National transmission system operator Elering carries out annual analyses of the security of the country's electricity supply. However, prior to last year, it did not take into account the economic sustainability of power generation plants. The potential security of supply problem has only now been addressed, at a time when possible options are more limited due to time constraints.

The National Audit Office added, that if the analysis shows a shortfall in capacity, the Estonian state could apply to the European Commission for a state aid authorization in order to create a strategic reserve of electricity generating capacity. This would give Elering the right to organize a restricted tender and compensate the winner of that tender for the costs of keeping the necessary capacity in a state of readiness.

If the problems related to capacity and external connectivity are not solved, there is a risk that electricity prices will rise to levels, that are unacceptable to Estonian society, the National Audit Office warned. This will require urgent decisions to be made in 2027, and after 2030 especially.

According to the National Audit Office, in preparation for exceptionally high electricity prices, the Ministry of Climate must develop potential support schemes, based on consumer needs, which could be implemented quickly if required.


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Editor: Michael Cole

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