At a recent climate change conference, an agreement was reached to provide $300 billion annually to support developing countries in mitigating the impacts of climate change caused by developed nations in building the global economy.

In Estonia, however, we have yet to reach a clear understanding of how to achieve the energy targets set for 2030 and 2050. Without a doubt, the key lies in inclusive collaboration – engaging consumers, market participants, local governments, various ministries and conducting thorough analyses – because the decisions made today will affect our economy not just in the coming years but over the next decades.

Aggregate effect of planned changes missing

From this perspective, when analyzing the sector-specific legislative amendments currently under review, it is crucial to first take a sober look at the underlying data.

The government is currently attempting to accelerate the implementation of support measures for offshore wind farm production, planned for a 20-year period. This would mean a guarantee mechanism for offshore wind farms of €65 per megawatt-hour (MWh) and, for onshore wind farms, a 12-year guarantee mechanism of €20/MWh. These steps will have a significant impact on consumers' wallets.

We must consider that, according to the scenario outlined in the draft legislation on electricity market reform, electricity prices in 2030 would average €179/MWh due to subsidies, excluding value-added tax (VAT) for households. Additionally, there is no clear forecast yet for network charges or renewable energy fees, which are influenced by subsidies paid to wind energy projects. All of these factors must be brought together into a comprehensive picture.

Basic data needs to be realistic

There is also no doubt that the forecast favoring costly support for offshore wind energy needs to be reassessed. The national energy development plan currently assumes that Estonia's energy consumption will double over the next ten years. Naturally, we would like to see Estonia's economy thrive, with the addition of large-scale consumers driving a sharp increase in energy demand.

However, the fact remains that Estonia's electricity consumption has not increased since 2010, making it unlikely to double in the next decade. This is especially true given the already high input costs, which make Estonia less attractive to potential industrial consumers.

Therefore, the forecasts should be revisited in collaboration with employers, producers, the Estonian Business and Innovation Agency (EIS) and market participants. Only after this reassessment can decisions be made about which developments are reasonable and the order in which they should be pursued.

Energy security increasingly important

The geopolitical situation is another aspect to consider when trying to attract large-scale consumers to Estonia. For instance, Sweden previously planned around 14 offshore wind projects, but 13 of them were put on hold due to concerns about interference with radar systems and underwater sensors, which could impact security given the proximity to our eastern neighbor.

Estonian Defense Forces (EDF) Commander Maj. Gen. Andrus Merilo has also stated that Sweden's decision to halt the development of offshore wind farms in the Baltic Sea for security reasons was the right one. Similarly, Finland has restricted development zones south of the Åland Islands. These restricted areas overlap with Estonia's planned offshore wind development zones in the Gulf of Riga and off the coast of Saaremaa.

One example is the offshore wind farm planned west of Saaremaa, which is enormous in scale – stretching 50 kilometers from north to south and 20-50 kilometers from east to west. Similarly, large-scale projects are planned for the Gulf of Riga.

Navy Chief Cdre. Ivo Värk noted in an interview with ERR that this vast area would lack sufficient visibility, which would prevent anti-ship missiles from operating effectively if needed. The expert emphasized that such a situation would pose a clear security risk. Therefore, in addition to the previously mentioned factors, the steps outlined in the energy development plan should be evaluated considering all socioeconomic aspects, including security.

There is no doubt that Estonia has been an active developer and producer of renewable energy. Renewable energy production has grown significantly in recent years, and the full potential of onshore renewable energy has yet to be realized. With the planned solar, onshore wind and storage capacities, Estonia's entire annual electricity consumption could be covered by renewable energy within five years.

Let us motivate consumers to prefer renewables

A hybrid solution would ensure Estonia's energy security in the event of widespread power outages. It would allow operations to continue without an external grid connection, as demonstrated by Ruhnu Island, which has operated a hybrid park combining solar, wind and storage solutions without external grid connections since 2018. Such solutions could also benefit local governments and communities.

Renewable energy projects currently under development require price stability for electricity for more than ten years to achieve investment security. Price stability is particularly crucial for large-scale consumers, as it is difficult to secure the investment confidence needed for expansion and increased consumption without it.

Both developers and consumers need an agreement on electricity prices. However, there is currently a lack of willingness to enter into long-term agreements because there is no clear understanding of what electricity prices will be in five or ten years.

In reality, the state's incentive and support system needs a fundamental rethinking. The state should shift its support from developers to consumers, allowing them to choose which domestic producers they want to make price agreements with. Instead of paying massive subsidies to producers, reducing network charges, excise taxes and other levies could send a clear signal and provide motivation for consumers to use green energy.

If the planned 12-year support mechanism for wind energy (CfD up to €20/MWh) were redirected from renewable energy producers to consumers, it would create the necessary price stability. This would enable consumers to negotiate electricity prices directly with producers.

All parties would benefit from this proposed solution. The state would accelerate progress toward renewable energy targets, energy producers would gain investment security and large-scale consumers would achieve price stability, enhancing their competitiveness in export markets and enabling expansion and increased consumption.

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