According to Climate Minister Yoko Alender (Reform), the Climate Resilient Economy Act will create the conditions for affordable electricity and the emergence of a sustainable and resource-efficient economy. It's a nice idea, but will it become reality? Have consumers been consulted and the necessary prerequisites established?

It is also important to raise the question of how much of the entire energy market should be subjected to the will of politicians versus market rules. And most importantly, who will bear the costs of the restructuring in the energy sector, and will we remain competitive? What will the total electricity price for the end consumer look like in the coming years? Currently, we hear about every new change and price increase in bits and pieces, like a serialized novel.

The final price for the consumer paramount

The government is actively working on developing subsidies for "renewable electricity" to meet its goal set for 2030. While no analyses have been conducted to justify the renewable energy target, the promise of affordable electricity is a driving force. Electricity generated in wind and solar farms is indeed cheap at the production site, but integrating it into the grid and achieving the necessary quality for consumption is significantly more expensive. This is because the production and consumption profiles do not match, and our electricity grid is designed for production in Eastern Estonia.

The state organizes auctions for electricity produced in onshore and offshore wind farms, guaranteeing the market and price for 12 and 20 years, respectively. It's true that no investments would be made without a support scheme, but does the entire business risk need to be borne by the Estonian consumer?

It is also unclear how such state intervention will impact the entire electricity market, why we need to subsidize electricity produced across Estonia for local consumption, and how previous wind farm investors will be involved. Are we really developing all the functions of the electricity system and understanding the market to avoid a situation like the one recently seen in the Netherlands, where the system operator limited production during favorable wind and solar conditions, and we end up paying for electricity that wasn't even produced?

The addition of weather-dependent electricity production to the power system requires a corresponding increase in dispatchable generation, storage, and consumption management mechanisms. Subsidies for wind farms, surcharges and rising grid service costs significantly burden the total electricity price for the end consumer, pushing it well beyond what is affordable.

The shift in production location from Eastern Estonia to the Western Estonian coastal sea area requires a reconfiguration of the electricity grid: increasing grid capacity to accommodate the 4,500 MW of renewable electricity and connecting these production sources to the grid. To reduce wind farm connection fees, it is proposed that half of the connection costs be covered by the consumers connected to the grid in a spirit of solidarity. In addition to the solidarity requirement, consumers are already burdened by increased connection fees and higher grid service prices.

We hear about these additional services and their costs in installments, like a serialized story. Each part is said to be insignificant, causing only a 1-2 percent price increase. However, consumers need to know the total cost of electricity, instead of being lulled into a false sense of security. There's also talk of a significant increase in electricity consumption, which is supposed to reduce the unit price of grid services. What this optimism about cheap electricity inputs for businesses, and thus competitive advantages for the economy, is based on is something only politicians seem to know.

Desynchronizing from the Russian grid to hike the price further

Next year, Estonia's integration into the Continental European synchronous area will also bring additional costs. While no one doubts the necessity of ending synchronous operation with the Russian and Belarusian electricity systems, the added price pressure on consumers should be made clear in advance.

This cost should not be higher for Estonian individuals and businesses than for those in neighboring countries, Scandinavia and the Baltics. We must be able to plan for the cost of a more independent electricity system. The nature and cost requirements of balancing electricity production and consumption were explained in Maaleht by Tallinn University of Technology emeritus professor Väino Rajangu.

In the new situation, the functioning of the electricity system and frequency control becomes the responsibility of each country's system operator. In the Baltics, synchronous compensators installed to slow the potential rapid drop in frequency, which allows automatic frequency control to disconnect consumers, will provide inertia through their rotating mass. However, we also need quick-response reserves for frequency regulation, which can be activated automatically and manually.

Therefore, Elering's tender to purchase up to 500 MW of frequency reserves, which can be activated within 12.5 minutes, is understandable, even though the market for this does not yet exist. The direct transfer of the calculated price – €60 million – to the producer and buyer should have involved longer-term preparation, consultations with consumers and transparency regarding the overall formation of electricity prices. Another additional fee for producers and consumers, €5.31 per MWh (plus VAT), will inevitably be passed on in full to the end consumer.

We need a cost-effective and flexible frequency reserve

Currently, Estonia's frequency reserves are provided by Eesti Energia's oil shale power plants, with a corresponding tariff of just €0.04 per MWh. Given the new situation that will arise in the power system starting February next year, it is even more crucial to involve all stakeholders in the electricity market in the preparation for these changes, particularly taking into account consumer expectations and the need to ensure the sustainability of the economy.

Considering the corresponding tariffs in Finland (€1.33 per MWh) and Sweden (€1.6 per MWh), we should implement temporary relief measures, such as partially compensating for the expected high tariff using the congestion fees collected by Elering. Additionally, the current situation also requires the balance manager to pay the system operator a so-called imbalance fee of €0.81 per MWh, which results from the difference between the forecasted and actual balance.

It is clear that even 500 MW of frequency reserve is insufficient, and Elering forecasts a need for 1,200 MW by 2035. Balancing the electricity system can be achieved through a unified system that includes dispatchable capacity, storage and consumption management. The proportions between these elements are determined by economic considerations. Frequency reserves are currently being purchased from gas power plants operating on imported gas, but domestic production and, more concerningly, storage solutions are excluded from the tender.

In summary, we need to collectively establish a clear goal. If we aim to have affordable electricity as an input for industry and for the functioning of society as a whole, we should approach the electricity system comprehensively, based on a socioeconomic analysis. This involves developing electricity production that operates on as diverse energy sources as possible and investing in storage to increase the usage and volume of renewable electricity.

When planning the measures to achieve this goal, the consumer, rather than the producer and intermediary, should play a central role. Ultimately, the grid service and the produced electricity must be acceptable to the consumer in terms of price, quality and environmental impact.

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