In July, Elering announced a tender to find new long-term frequency reserve providers. They estimate that additional electrical capacity is necessary to independently manage the system's frequency. Estonia will exit the Russian electricity system and join the continental European grid at the beginning of next year, while new wind farms continue to be built.

Elering is seeking up to 500 megawatts of additional capacity, primarily focusing on a new gas plant. This plant, according to the grid operator's vision, would initially run on fossil natural gas, but in the long term could transition to carbon-neutral hydrogen. However, this is not feasible with current technologies.

"According to European Union regulations, we have the opportunity to offer companies a guaranteed reserve price for eight years from the moment of synchronization. Through this tender, we hope that somewhere between 200 and 500 megawatts of these new power plants could be built. We hope, because the time frame is quite ambitious and for these plants to operate within the guaranteed price range by 2033, they could be completed by 2028-2029," Elering CEO Kalle Kilk told ERR.

The tender was announced in July, and bids are expected within nine months.

"There is some uncertainty about whether we will succeed in building 500 megawatts through this tender. The time period is simply so challenging. If we do not succeed, we will have to consider additional options, which will be clarified in the first half of next year," said Kilk.

Kilk noted that building a power plant in Estonia is not overly simple, thus favoring those who already have suitable infrastructure.

"Specifically, interest has been shown by three or four major energy companies. They need to have done some preliminary work, such as having the necessary sites with potential electrical and gas connections nearby, or having an old power plant that can be quickly replaced without extensive environmental permit renewals," Kilk explained.

The state-owned Eesti Energia has publicly expressed interest in building a gas plant. In December, ERR reported how a decision to grant Eesti Energia €114 million for building a gas plant was not made last year due to opposition from the Social Democratic Party.

Eesti Energia subsidiary Enefit Power project manager Mart Tasa stated that the plan to build a gas plant is moving forward, but whether they will participate in Elering's tender or seek funding in other ways is still being analyzed.

Tasa noted that businesses have so far been unwilling to build new dispatchable power plants under market conditions, thus additional support mechanisms are certainly needed.

"For new plants to emerge, the support measure should be such that it mitigates investor risks over a longer period. This would provide investment security and, through this, competitively priced electricity production," Tasa remarked.

Tasa also mentioned that the Narva oil shale blocks, which currently largely ensure Estonia's energy security, are at the end of their life span and definitely need to be replaced with other dispatchable capacities. According to him, this could be a new modern gas plant with hydrogen capability.

"In our view, the most promising location is still the Baltic Power Plant in Narva. There is a very strong electrical grid and a natural gas connection. Enefit Power is also analyzing having another power plant in Auvere," Tasa said.

Million euros buys a single megawatt of gas power

Around ten years ago, Elering built natural gas power plants in Kiisa with a combined capacity of 250 megawatts. According to Kilk, these cost €130 million, or approximately half a million euros per megawatt.

Tasa stated that the current optimistic cost for a gas plant is about one million euros per megawatt. This means that a 500-megawatt gas plant would cost around €500 million.

Kilk explained that the plan is to finance the gas plant using the same mechanism that will be used to purchase frequency reserves from the market daily. He noted that no additional funds from the state budget would be required.

"This is the balancing fee that will be introduced from the new year, which will be equally funded by electricity producers and consumers for the purchase of frequency reserves. From the same pool, payments will also be made to these long-term reserve-providing power plants," Kilk said.

ERR has reported that the purchase of frequency reserves may ultimately cost consumers half a cent per kilowatt-hour, or €5 per megawatt-hour.

According to Margus Kaasik, chairman of the board of Eesti Gaas, the company is aware of Elering's tender and is exploring the possibilities of establishing a gas power plant. However, as part of the public company Infortar, Eesti Gaas cannot disclose detailed plans.

Marti Hääl, chairman of the board of Alexela, stated in a written comment that the company has been working for years on several development projects for dispatchable production capacities, which could also provide the mentioned system services.

"Participation in Elering's frequency reserve tender depends primarily on the predictability of Estonia's energy policy and the improvement of investment security, which unfortunately the conditions of Elering's tender alone cannot guarantee," Hääl remarked.

Up to the state in the long run how to finance dispatchable capacity

Elering CEO Kalle Kilk stated that if the tender successfully secures 500 megawatts of gas plants, the necessary dispatchable capacity of 1,200 megawatts will be in place until 2035.

In addition to the capacities created through the tender, Elering already has two natural gas power plants in Kiisa with a combined capacity of 260 megawatts. The Auvere power plant adds another 270 megawatts, and various smaller district heating plants across Estonia contribute nearly 200 megawatts.

"Beyond 2035, as consumption increases and more renewable electricity production comes online, 1,200 megawatts will eventually be insufficient. For this, we must start thinking ahead about whether we need some kind of national mechanism to ensure these capacities are available, or whether we will see a sufficiently favorable business environment for some power plant investor to take on this investment directly against the market," Kilk noted.

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