Coalition reaches deal on wind energy reverse auctions, energy storage support

The leaders of Estonia's three coalition parties have agreed to organize reverse auctions for 2 terawatt-hours (TWh) of production each for offshore and onshore wind farms. The government is also planning a support measure for an energy storage facility in Paldiski.
Last spring, Kristen Michal (Reform), then minister of climate, proposed a plan for the state to organize auctions for a total of 8 TWh of wind energy. This would have supported the annual production of 4 TWh of electricity from offshore wind farms and another 4 TWh from onshore wind farms.
That same fall, the Ministry of Climate had scaled back its ambitions, instead suggesting support for 2 TWh of offshore and 4 TWh of onshore wind energy.
This Monday, Prime Minister Kristen Michal announced on social media that a deal had been reached for the organization of 2 TWh worth of auctions each of both offshore and onshore wind energy.
Eesti 200 chair Kristina Kallas explained that onshore wind farms are simply unlikely to materialize at anticipated volumes.
"We're currently seeing how large-scale projects are being stalled in several local governments," Kallas said. "This worries us, because based on current trends, onshore wind may not reach its target by 2030. Given [forcecast] consumption of 11 TWh, we'll also need additional offshore wind."
Alender: Additional onshore wind reverse auctions may follow
Social Democratic Party (SDE) chair Lauri Läänemets noted that wind farms are being strongly lobbied against in several local governments, which he says has started posing a threat to energy security.
"A forecast of 2 TWh is likely the most realistic for what we may see by [2030]," Läänemets said. "And a lot of effort will be needed just to get these plans completed. The worst-case scenario is that we may not even reach that level."
According to Kallas, both reverse auctions are expected to be announced this April. Minister of Climate Yoko Alender noted that additional onshore wind reverse auctions may follow in the future.
"Onshore wind farms will undoubtedly be developed in the future to meet market demand," Alender said. "But it all depends on how the [development] planning goes and how quickly capacities can reach the market."
Kallas emphasized that the downward revision of offshore wind farm potential is why the government is moving forward with offshore wind reverse auctions.
Although no coalition party has openly opposed supporting offshore wind farms, the issue had been the topic of intense debate for months.
Members of Eesti 200 have previously suggested delaying offshore wind reverse auctions.
Consumption forecast lowered
Also key is the 11 TWh consumption Kallas has mentioned. Previously, discussions had been based on a joint forecast issued by the Ministry of Climate and the Estonian Business and Innovation Agency (EISA), predicting that Estonia's electricity consumption would grow from the current 8 TWh to 15 TWh by 2035.

Calculations by Estonian transmission system operator (TSO) Elering, however, indicated that consumption would likely be capped at 11 TWh.
The government's latest decisions are based on Elering's forecast.
"We are not currently seeing foreign investments at the scale previously projected by the Ministry of Economic Affairs," Läänemets pointed out.
"All of this will be clarified at Thursday's cabinet meeting," Kallas said, stressing that the most critical factor is the cost of electricity.
"We need to focus on lowering energy prices compared to current levels," she explained. "According to the latest calculations, electricity prices could drop to around 6.5 cents per kilowatt-hour (KWh)."
The Eesti 200 chief was not yet able to specify what the end price of electricity, including various additional fees, may end up looking like, including various additional fees. Nonetheless, she is confident even the end price will come down compared to current prices.
Kiisa Power Plant market entry essentially decided
Kristina Kallas stated that the government will proceed with procurements previously organized by Elering to build dispatchable capacities. This includes continuing to accept bids for gas-fired power plants as well as supporting the maintenance of oil shale-fired power plants.
Estonia's coalition leaders also agreed to bring the 100-megawatt (MW) backup Kiisa Power Plant onto the market.
According to Alender, the timeline for this will be determined following the desynchronization of Estonia's power grid from the Soviet-era BRELL system with Russia, scheduled to take place next month.
"Part of Kiisa's production could participate in the market, while another art could serve as a frequency reserve if needed," the climate minister noted.
On the other hand, some companies have indicated that bringing Kiisa Power Plant onto the market could curb their interest in frequency reserve procurements, as it would introduce a major competitor. This, in turn, may undermine expectations to attract 500 MW of new dispatchable capacity, such as gas-fired power plants, to Estonia.
"These same companies could also operate the Kiisa plant," Alender responded.
Support measure planned for Energiasalv OÜ
In a new development, the Reform Party, Eesti 200 and SDE agreed that either the state or Elering will also support the development of energy storage capacities. Previously, the Ministry of Climate had maintained that storage devices would be built to meet market demand.
"If we are purchasing offshore wind capacity at this scale and building up these capacities, we likewise have to ensure that we also have large-scale storage capacities," Kallas said. "Building offshore wind without storage poses a significant risk of exporting it [all]."
The climate minister said that short-term battery storage will be built to meet market demand.
"But for long-term, large-scale storage, under development is the Energiasalv project in Paldiski, which could ensure significantly higher capacity and duration for renewable energy storage," she continued.
Alender was referring to a project by Energiasalv OÜ for the development of a 500 MW underground pumped hydroelectricity storage (PHS) plant in Paldiski. According to her, the company has recently completed a fresh cost-benefit analysis.
"In all of these projects, it's important to consider what societal benefits their implementation will bring," the minister acknowledged. "And that the support rate is a controlled amount, ensuring that the societal benefits would outweigh what would need to be paid out in support."
How much funding Energiasalv OÜ expects from the state and how exactly it will be possible to support the project should be clear in April, she added.

Last November, Energiasalv CEO Peep Siitan told ERR that the company is seeking a minimum revenue guarantee from the state. This would mean that if electricity prices should fall too low in the future, the state would compensate up to €35 million annually in lost revenue for a period of 15 years.
According to Alender, the Climate Ministry's analysis should evaluate the project's impact on the electricity market as well as what materials are excavated during the building process.
"The Energiasalv project would yield a significant amount of construction material that could be used for various infrastructure projects," she explained. "And the resulting benefits could likewise be significant to society."
Asked by ERR whether designing a support measure for a single company might be inappropriate, the minister replied, "That's why we need a thorough analysis of the costs and benefits, and to see whether and how this can be done."
She acknowledged that any potential state aid issues would likewise need to be resolved. "This is why part of the agreement includes us presenting a plan in April," she added.
Special plan likely for nuclear power plant
Yoko Alender and Kristina Kallas noted that the coalition also made a principled decision to initiate a special plan for identifying a potential location for a future nuclear power plant, and added that work on nuclear legislation will continue as well.
According to Kallas, the Riigikogu will likely vote on the nuclear legislation in 2027.
To date, the Social Democrats have been the most skeptical about building a nuclear power plant in Estonia. According to SDE chair Lauri Läänemets, the party still questions whether the market can accommodate a nuclear power plant alongside all the other planned projects.
"If a nuclear plant is completed 20 years after wind farms, who will its electricity be sold to?" he asked.
"There's also the question of, if nuclear plant developers are currently asking for a very high renewable energy fee, should we pay it?" he added.
Kallas and Alender said that state support for nuclear energy can't be decided until later, once the process has moved forward.
Läänemets also highlighted that building a nuclear power plant doesn't align with the concept of decentralized energy production.
"But the Riigikogu has decided that nuclear legislation must be drawn up, and we cannot challenge the Riigikogu's decision," the SDE chief acknowledged, explaining why the party agreed to the deal within the government.
He also emphasized that the plant's location could not be chosen until nuclear legislation has been adopted.
"This much I can say — that the Social Democrats still need to discuss the planning proposal matter internally," Läänemets added.
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Editor: Mirjam Mäekivi, Aili Vahtla