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No government agreement on construction of new gas plant

Electricity lines.
Electricity lines. Source: Ken Mürk/ERR

Eesti Energia will not receive €114 million for gas plant construction this year due to SDE opposing it. Jevgeni Ossinovski (SDE) argues that the state-owned company's business strategy is unrealistic.

Finance Minister Mart Võrklaev (Reform) suggested a €114 share capital increase for Eesti Energia to the government. The state-owned corporation plans to develop a gas and hydrogen-fired thermal power plant, battery-based electricity storage, and heat pump with this money. The power facility could generate 100 megawatts, with batteries adding 25 megawatts if needed.

The power plant's 50 MW heat output capacity and the Baltic power plant's cooling water canal heat pump would heat Narva. According to Võrklaev, a finance decision is needed before the end of the year.

"If we don't make this decision today, we will have to do it in a year or two, and all of this will be postponed," Võrklaev said last Thursday after the government reviewed the idea.

In other words, the €114 million increase of the share capital of Eesti Energia was already included in the 2022 budget. Budget explanatory memorandum stated that the money could be used for Ida-Viru County infrastructure development, including distribution and communications network improvements and industrial site renovation. Due to unused monies in 2022, the budget for 2023 was increased with the same amount.

Nevertheless, the Social Democrats pulled the plug on Võrklaev's plans.

Ossinovski: Giving money would be illegal

Jevgeni Ossinovski, leader of the Social Democratic Party parliamentary group, said that each of the three potential initiatives should be evaluated separately. SDE would build storage facilities, but as for the heat pump, he said that the plan needed to be improved, while the gas plant project was too rudimentary and should be scrapped.

He pointed out that, according to the business plan, the new plant should reach the market at least half-hourly, but this assumes that the price of electricity goes above €155 per megawatt hour.

"This contradicts both the government's own plans in the context of the development of renewable energy and most forecasters' estimates of what the price of electricity will be," Ossinovski said.

It is not an economically meaningful business plan, so it cannot be funded and it would be illegal for the state to do so. 

Võrklaev said that the project would be profitable. Lauri Karp, head of strategy at Eesti Energia, also approved of this. "If we look at the 2023 figures, there are quite some hours when the electricity price peaked over €140," Karp said.

This year, the monthly average price of electricity was highest in September, when it reached €114. "The risk scenario, which I think is the standard case, is that this plant would be idle or shut down most of the time, which means that this particular investment will be unprofitable," Ossinovski said, reminding that the government is also working to lower the price of electricity with renewable energy.

However, in countries with more renewable energy, Karp said, one sees a mix of very low and very high electricity pricing per hour, and the new plant would benefit from this. In addition, the plant would provide heat for Narva at a price independent of the market.

Võrklaev: The new plant would ensure security of supply

Võrklaev said that Estonia needs new controllable capacity. "In recent months, the National Audit Office has criticized our supply chain security and Elering wants us to expand controlled capacity as well. Our supply would be better secured with a new power plant," the minister said.

"As a general rule, a controllable power plant, especially one that can employ clean and future-proof fuels, is very welcome and beneficial to the Estonian electricity system," Timo Tatar, undersecretary for energy at the Ministry of Climate, said.

Elering has two plans for managed capacity. First, Eesti Energia should get money to keep older oil shale-fired units in reserve in case of a major energy shortage in Estonia. Second, Elering wants to build an additional stability reserve with another investment. This is necessary to be able to quickly adjust capacity when needed after the planned desynchronization of the power grid.

Although Karp also said that it would be possible to start up the new plant quickly, Eesti Energia's business plan does not yet take into account the planned future procurement of system services. Moreover, the tender is open to all bidders.

The head of Utilitas, Priit Koit, told Vikerraadio's "Uudis+" program that they would be interested in participating in such a competition as well.

Biogas, LNG, hydrogen or a little bit of everything?

Besides the fact that SDE does not believe that the new power plant will pay for itself, they are also concerned about the type of fuel it will burn.

"Of course, if we can use biomethane when it is available at a reasonable price, i.e., if it is cheaper in terms of CO2 and it makes sense to use it," Võrklaev said.

Karp said that Eesti Energia's primary focus is on biogas. "We are convinced that the supply of biomethane in Estonia will increase over time, and so will the unit price of CO2," Karp said.

"The combination of the two will allow us to buy local Estonian biomethane and avoid importing natural gas as long as possible."

Both Karp and Võrklaev said that the construction of a new gas plant would provide investment security for our biogas producers. However, Ossinovsky said that it would provide security only if Eesti Energia were to sign long-term contracts with the producers.

"It is not quite the case that we build a plant and the biogas comes from somewhere. It will take quite a significant and longer-term investment to make biogas available in time [to build the necessary infrastructure]," he said.

Karp said that in addition to biogas, Eesti Energia is also considering hydrogen, which is becoming cheaper. "Finland is certainly one of the countries that will soon start exporting cheap hydrogen," Karp said, pointing to a possible hydrogen pipeline between Estonia and Finland.

"Before we start exporting this hydrogen to Central Europe, we should think whether it would make more sense to refine it in Estonia," Karp added.

Võrklaev is not eager to make a supplementary budget

Võrklaev said that they are considering whether the use of more environmentally friendly fuels is in line with the expectations of Eesti Energia's owner. All this could be discussed in the new year, he said, but he stressed that a financing decision should be made this year.

SDE, on the other hand, disagrees: the only thing that Eesti Energia could really start building next year would be a battery storage system and if more money is needed, it could come from a supplementary budget.


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Editor: Barbara Oja, Kristina Kersa

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