At the beginning of the year, the government planned to hold reverse auctions for offshore and onshore wind farms using a two-way contract for difference model, with each project receiving support for up to four terawatt-hours. However, the draft Climate Resilient Economy Act now stipulates that offshore wind farms will receive support for only two terawatt-hours.

Vikerraadio asked Ministry of Climate Secretary General Keit Kasemets why the plans for offshore wind farms have changed multiple times over the past year.

Kasemets explained that the state still expects the same amount of offshore wind capacity.

"Nothing has changed in the Ministry of Climate's plans. We continue to see that our goal is four terawatt-hours of electricity produced by onshore wind farms and four terawatt-hours from offshore wind farms, with the aim of having onshore wind power available on the market by 2030, and offshore wind power by 2033 at the latest," Kasemets said.

Kasemets noted that five serious developers are interested in participating in the reverse auction for offshore wind farms.

"Previously, we stated that our goal is four terawatt-hours of offshore wind electricity. We support this in line with domestic consumption – not that we are specifically supporting consumption, but rather, we are limiting the support scheme to domestic consumption levels. In our calculations, this amounted to about 40 percent of the total offshore wind production capacity," Kasemets explained.

"With this two terawatt-hours, we've simply assigned a specific figure to domestic consumption. We've avoided leaving it as something vague or volatile where, by 2033, we would simply 'see what the domestic consumption is.' This approach allows developers to make financial plans and gives financiers the ability to assess whether a project is viable. It also provides clarity in the context of state aid, rather than offering an open-ended state aid permit without knowing the scope," Kasemets added.

According to the secretary general, the Ministry of Climate's calculations showed that the maximum estimated supportable capacity is two terawatt-hours, which formed the basis for their decision.

"Looking at the practical situation, if we have an offshore wind farm with a capacity of four terawatt-hours, the state will call for bids and support two terawatt-hours – essentially 50 percent of the park's output, which is estimated to be consumed in Estonia, while the rest will be exported. Estonian companies and taxpayers will not cover the costs of that exported electricity," Kasemets said.

Kasemets also clarified that the volume of the support scheme does not mean that a smaller park will be built. "We still expect that the offshore wind farm built under this reverse auction scheme will be larger and will continue to produce four terawatt-hours of electricity."

The host mentioned that representatives of two developers have stated that if the four-terawatt-hour support scheme is replaced with a two-terawatt-hour one, they would not build a 1,000 MW offshore wind park, but rather one half the size.

"Fortunately, we have five potential bidders, and I have personally spoken with several of them, and not all of them share that view," Kasemets said.

The host then asked whether other developers would be willing to build a 1,000 MW offshore wind farm with support for only two terawatt-hours.

"We'll have the full picture once we announce the reverse auction and receive the bids, which should happen by the end of next year. At that point, we'll know what the possible parks will look like and who offers the most favorable solution for the Estonian taxpayer," Kasemets said.

According to the explanatory memorandum for the draft Climate Act, the cost of the support measure for electricity consumers would be €130 million per year over 20 years, totaling €2.6 billion. The exact cost would depend on market prices. In addition, approximately €3 billion in private investment is expected.

Only supporting domestic consumption not in line with EU rules

However, European Commissioner for Energy Kadri Simson told ERR's Uudis+ in August that a state aid support scheme built exclusively for domestic consumption is not in line with European Union regulations.

"Have other countries implemented similar schemes? Yes, they have. Have they sought state aid approval from the European Commission? Yes, they have. Since the start of the war in Ukraine and the complex geopolitical situation, we have expedited state aid approvals. So now, countries no longer have to wait years or engage in lengthy consultations with us; we grant approvals very quickly. But one important condition in Europe is that all member states and consumers benefit when the market is not a national one, but rather, electricity crosses borders within the European Union and is part of the single market," Simson explained.

Simson emphasized that no support scheme can be based solely on domestic consumption.

"I have a good example from Spain. Two years ago, Spain introduced a strong state aid scheme for its electricity producers. Ten percent of their production is also sold to France. All producers were supported, meaning that French consumers also benefited from the Spanish taxpayer-funded support scheme. This did not deter the Spanish government from deciding that electricity production needs support during difficult times," said Simson.

Kasemets, however, stated that Estonia does not plan to support domestic consumption.

"We have never suggested supporting only domestic consumption. Of course, supporting domestic consumption alone is not possible under European Union competition rules. What we have consistently said is that the support scheme will be limited to the volume of domestic consumption, but it does not matter technically whether that energy is consumed at a given moment in Latvia, Lithuania, Finland or Estonia. We were speaking about the volume. No EU rule or state aid regulation stipulates that 100 percent of the cost of establishing production capacity must be covered," Kasemets explained.

An article in Eesti Ekspress had claimed that the change in the support scheme was triggered by a negative response from the European Commission regarding the state aid application.

"The Ministry of Climate applied for state aid approval and received a negative response from Brussels. The European Union is a single market, where the same support rules apply to goods and services across the union. As a result, the auction volume had to be reduced," the paper wrote on Wednesday.

ERR asked the Ministry of Climate whether the ministry had applied for state aid approval from the European Commission and received a negative response, and whether the claim made by Eesti Ekspress that the reduction from four to two terawatt-hours was due to a requirement from the European Commission was true. The ministry gave a brief response to both questions: no.

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