Head of TSO: Electricity price gap with the Nordics not solvable in the next 10-15
The high electricity price in Estonia, which hampers exports and competitiveness compared to Finland and Sweden, is an issue unlikely to be resolved in the next 10 to 15 years, Elering CEO Kalle Kilk said on ERR's "Otse uudistemajast" webcast. According to Kilk, even then, the price gap is more likely to narrow due to rising electricity prices in the Nordic countries.
The price of electricity in Estonia has been two to three times higher than in Finland and Sweden this year. This higher electricity cost means increased production expenses for Estonian manufacturers, negatively affecting their competitiveness. According to transmission system operator Elering CEO Kalle Kilk, this is a problem that will not be resolved in the near future, as Estonia lacks the capacity to produce large-scale, low-cost hydropower.
"I believe this is an entirely unsolvable issue over a 10 to 15-year horizon. We need to look at why prices are lower in Finland and Sweden. Their prices are lower because they have high mountains and plenty of water. Two-thirds of their electricity essentially comes for free. Whatever measures Estonian energy policy designers take, they are unlikely to build mountains for us. The objective reality is that hydropower plants will continue to operate in the Nordics for a long time, providing electricity at zero cost," Kilk stated.
Kilk also emphasized that he does not see any other favorable fuel sources for Estonia aside from wind and solar energy, as oil shale is already considerably more expensive. The price difference with the Nordic countries may gradually decrease, but primarily because they will also need to build additional power generation capacity to meet growing demand, which is more expensive than hydropower.
"When consumption grows in the Nordic countries, they, too, will reach a point where they lack enough cheap electricity to keep the average price as low. This could become a competitive advantage issue not resolved by us, but instead by the Nordics – and in reverse, as their prices will also rise over time," Kilk said.
Estonia plans to build more wind farms, both onshore and offshore. To ensure that the electricity generated by these facilities reaches the grid in the future, Elering will need to develop its grid connections. According to Kilk, achieving Estonia's national energy targets by 2030 will require investments of €300 to €400 million by Elering.
"The impact on the (grid) tariff is somewhere around 10-15 percent of the current level. If Elering's portion of the tariff today is 1.2 cents, it would increase to 1.3 cents, which in the grand scheme of things does not change much. /.../ Currently, we can accommodate about 3,500 to 4,000 megawatts of power plants, and with the new system, we would need to raise that to 5,500 to 6,000 megawatts," Kilk added.
State to pay for maintaining dispatchable capacity
Regardless of how many intermittent production capacities, such as solar and wind parks, are planned for Estonia, there must also be a certain volume of dispatchable generation capacities to ensure electricity supply and system management at all times. Currently, Eesti Energia is obligated by the state to maintain at least 1,000 megawatts of production capacity, though the state does not provide financial support for this, even though it costs Eesti Energia approximately €40 million annually. The government now plans to start compensating electricity producers for maintaining necessary dispatchable capacities.
"Elering will fund this with money collected from consumers. We will provide support to power plants that ensure the availability of a sufficient amount of dispatchable generation," Kilk explained.
According to Kilk, this measure could also help address the issue that the current market-based electricity sales system does not provide sufficient certainty to potential investors interested in building new power plants, ensuring profitability once they become operational.
Kilk stated that gas power plants are currently the most economically viable option among dispatchable power stations. "Yes, absolutely. /.../ Building an oil shale power plant is approximately four to five times more expensive than building a gas power plant," he said.
He also noted that building a nuclear power plant would be a very costly endeavor.
"Constructing Estonia's first nuclear power plant would be even more expensive than building the first oil shale power plant with new technology because Estonia lacks the experience. We would need to build an entire state apparatus, nuclear committees and so on. Let's just say I won't believe it's possible until I see it with my own eyes," Kilk remarked.
Covering peak demand at all times requires investing hundreds of millions
According to forecasts from the Ministry of Climate, Estonia is projected to have 1,250 megawatts of dispatchable capacity by 2035. However, this would fall short of covering Estonia's peak consumption, which can reach up to 1,600 megawatts during cold winter weather. Moreover, the ministry itself is predicting significant growth in electricity demand.
Kalle Kilk noted that society must decide whether it is wealthy enough to build all the necessary generation capacities domestically to cover Estonia's electricity demand or whether to rely on interconnections with other countries to import electricity when needed.
"The question is whether we are rich enough to guarantee coverage of peak consumption at all times, considering that Estonia has external connections that exceed our own peak demand. The issue is whether we foresee a situation where there might be no electricity available from either us or our neighbors –
effectively zero import capacity. The probability of such a worst-case scenario is extremely low," Kilk stated.
In Europe, there is a general understanding that if such worst-case scenarios only occur for a few hours a year, it is more cost-effective for society to limit electricity consumption during those hours rather than build a new power plant, Kilk explained.
If Estonia were to decide that an additional 400 megawatts of generation capacity is needed to reach a total production of 1,600 megawatts, it would cost approximately €300 to €400 million, Kilk added.
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Editor: Marko Tooming, Marcus Turovski