The currently difficult situation of the Estonian economy is the result of many factors, while the high price of electricity and shaky supply security make for one. Government plans are hardly cause for confidence that the situation will improve.

Estonia had and formally retains an energy development plan. It is the Energy Economy Development Plan 2030 (ENMAK 2030 and the 2030+ outlook), compiled using the best know-how and based on dozens of studies.

And yet, the analysis-based plan was delivered a setback when the political decisions was made to cover Estonia's total energy need using renewable energy. We are now trying to hit that extremely ambitious target using an expensive solution that creates more favorable market conditions for one type of energy generation.

On the one hand, we might ask why was taxpayer money spent on putting together a thorough development plan in the first place? But those are details in hindsight. It is more important to notice the risks of introducing an imbalance between electricity generation and consumption and preferential treatment of a single mode of generation.

An expensive and inefficient solution

It is usually impossible to have a solution that's high-quality, fast and cheap, and energy is no exception here. Politicians have decided to boost the share of renewable energy from 10 percent to 100 percent. Meeting that goal will prove consistently expensive for consumers.

In 2023, renewables made up 32 percent of consumption. A considerable part (46 percent) of renewable energy was produced from biomass, biogas and waste. Wind power has so far covered around 10 percent of annual power needs. Now, wind farm developments are set to hike that tenfold.

There are between one and three developers capable of constructing offshore wind farms quickly and on a large scale in Estonia. This thin margin of competition works to drive up bids and create the need for hefty subsidies.

The Ministry of Climate estimates that the price will likely come to €110 per megawatt-hour (MWh) in the tendering process. This means that during times the market price of electricity is below €110/MWh, producers will be compensated for the price difference. During periods the price is higher than €110/MWh, producers will have to cover the price difference by paying into a special fund.

This guarantees a fixed-price market for the producers. Such a solution would hamper the electricity exchange, place disproportionate burdens of risk management on the taxpayer and put other sources of electricity at a disadvantage.

Should the price be set at €110/MWh at the reverse auction and the government commit to buying four terawatt-hours of offshore wind power annually, and if the Climate Ministry's market price forecast for 2030 of €66/MWh is accurate, annual subsidies would come to €176 million for a total of €3.52 billion during the entire 20-year subsidy period.

This sum would grow further were the price to be lower in the future. The need for subsidies would come to just €3.2 million annually and €38.4 million over 12 years based on the onshore wind reverse auction result.

Renewable energy support for offshore wind alone would come to €1.68 cents per kilowatt-hour (kWh), instead of the current €1.28 cents/kWh, were total consumption to hit 10.5 TWh in 2030.

But the price is just one of the risks. Electricity produced by wind turbines needs to reach the consumer and be constantly available. The current production capacity of the Estonian electricity system is 3,000 megawatts (MW), of which wind and solar account for 1,000 MW. By 2030, we need to strengthen the grid and increase the capacity to 5,500 MW, with wind and solar contributing 4,500 MW.

For over 60 years, the Estonian transmission system was developed to move power east [where it was generated] to west. Concentrated production capacity in the Gulf of Riga and the west coast of Hiiumaa and Saaremaa requires corresponding transmission grid investments.

Additionally, adding production capacity that relies on the weather requires paying more attention and committing more resources to system balance and security of supply. This means ensuring and paying for dispatchable generation (both baseline and rapid peak power), storage capacity (hourly based on battery packs, daily or weekly based on pumped storage as well as hydrogen for seasonal capacity), a consumption management mechanism (incentives for reducing peak demand).

We must also not overlook aspects of strategic reserve, rapid frequency reserves, frequency inertia and cross-border energy links.

We need to analyze and calculate whether we can really afford all of the aforementioned elements, what the end price of electricity will be for consumers as well as the environmental impact, as every development affects the environment.

What could be the solution?

Trying to find an energy portfolio even remotely in accordance with consumer price tolerance, we should look to onshore wind. Estonia has over 400 MW of onshore wind today, estimated to hit 700 MW by year's end.

The capacity of wind farms currently under development will be gradually added to this until 2029. Successful completion of all projects would give Estonia 3,000 MW of onshore wind by 2029, with an estimated production capacity of eight TWh a year. This will be on top of 1.33 TWh of generation from the 2019-2023 tenders and the previous subsidy scheme, putting the total production of onshore wind farms at 9.3 TWh.

Existing and planned developments already cover the eight TWh of production sought.

The offshore wind price estimate of €110/MWh requires expert and effects analysis primarily from the point of view of private and corporate consumers' purchasing power.

Let us hope that the promise in the coalition agreement to "make analysis-based decisions for choices in energy for the coming decades in 2023" will be kept and optimal solutions for both consumers and producers chosen.

Comparison of onshore and offshore wind

• Estimated cost €110/MWh for offshore and €20-40/MWh for onshore for a difference of 2.75-5.5 times in favor of onshore wind.
• Investment cost of €1.8 million per MWh for offshore and €1.2 million for onshore. Difference of 1.5 times in favor of onshore power.
• Capacity factor 0.435 for offshore and 0.328 for onshore. Difference of 1.3 times in favor of offshore wind.

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