A briefing document prepared by the Ministry of Climate indicates that government officials have shared misleading information regarding offshore wind farm investments. They have claimed that the €2.6 billion in support for offshore wind farms would bring enormous economic benefits and significantly lower electricity prices.

On January 26, the leaders of the coalition parties agreed that Estonia would support the construction of onshore wind farms with up to €240 million by 2030 and the development of offshore wind farms with up to €2.6 billion by 2035. This funding would establish an offshore wind farm with a capacity of 500 megawatts, producing two terawatt-hours annually, along with approximately 750 megawatts of onshore wind farms generating an additional two terawatt-hours per year.

Nearly a month later, neither the government nor the Ministry of Climate, which oversees energy matters, has provided much explanation regarding the consequences of this decision or the reasoning behind it. This lack of clarity is particularly concerning given the rapid timeline — the government plans to announce tenders as early as April.

Politicians have only discussed electricity prices, suggesting that by 2035, the average price per kilowatt-hour would drop from last year's 17.4 cents to 14.9 cents.

While the Ministry of Climate has not publicly shared its analysis, ERR has obtained a briefing document dated February 13, which suggests that ministers have misled the public to justify their agreement.

Public statements from politicians have implied that subsidizing wind energy would lead to a significant drop in electricity prices. However, the Ministry of Climate's own calculations indicate that this is not the case.

Although the briefing document presents a projected average electricity price of 14.9 cents per kilowatt-hour by 2035, this reduction is not directly attributable to the government's planned investments. The price decline to 14.9 cents per kilowatt-hour assumes that, in addition to taxpayer-supported renewable energy, Estonia's market would also gain four terawatt-hours of unsubsidized onshore wind energy and two terawatt-hours of unsubsidized offshore wind energy. Furthermore, the estimate accounts for 500 megawatts of energy storage capacity, which, according to the developer of the Paldiski pumped hydro storage plant, would cost around €1 billion. Additionally, it includes the Estonia-Finland cable connection EstLink 3, expected to cost approximately €1 billion, and the fourth Estonia-Latvia electricity connection, which is projected to exceed €1 billion in cost.

In other words, the electricity price promised by coalition politicians would not materialize solely by subsidizing the agreed-upon wind farms. Instead, it would require the addition of a significant number of unsubsidized wind farms, as well as the construction of new and expensive electricity connections.

At the same time, the Ministry of Climate's briefing document includes calculations on how much electricity would cost if only the subsidized wind farms were built. According to the ministry's estimates, under the government's planned support scheme, the electricity price in 2035 would be 17 cents per kilowatt-hour — just 0.4 cents lower than the 2024 average.

In 2035, under the government's agreed-upon scheme, Estonian electricity consumers would pay €180.6 million in subsidies, according to the Ministry of Climate's calculations. This would result in a €46.4 million savings on electricity costs compared to last year's prices — meaning an overall net loss of €134.2 million.

Additionally, it is worth considering the ministry's calculations for a scenario where offshore wind farms are not yet operational by 2030. Even though electricity consumption is projected to be lower in 2030 than in 2035, the Ministry of Climate forecasts that electricity prices in 2030 would be lower than when offshore wind farms are completed.

The Ministry of Climate explains this by noting that with the costly offshore wind farms, the renewable energy fee would need to increase from 0.87 cents to 1.56 cents per kilowatt-hour. This rise would be specifically due to the subsidies for offshore wind farms, assuming that electricity consumption actually grows as projected.

Officials following orders

One of the authors of the briefing document is Nikon Vidjajev, an offshore wind energy advisor at the Ministry of Climate. According to him, many figures in the document remain uncertain, even though the €2.6 billion subsidy and the 14.9 cents per kilowatt-hour electricity price have long been presented by politicians as established facts.

Vidjajev confirmed to ERR that the Ministry of Climate operates under the assumption that, in addition to the subsidized wind farms, businesses will develop additional capacity on their own, including offshore projects. The ministry expects that while the state will subsidize only two terawatt-hours of offshore wind power, the winning bidder in the tender will actually build a four-terawatt-hour wind farm.

According to Vidjajev, developers have also made such promises: "Developers have assured us that even if we subsidize two terawatt-hours, they will build slightly larger projects."

However, when asked whether developers would be contractually obligated to do so, Vidjajev admitted that they would not.

Vidjajev stated that constructing an offshore wind farm costs between €2 million and €4 million per megawatt of capacity. This means that a wind farm receiving up to €2.6 billion in subsidies would cost between €1 billion and €2 billion to build.

When asked why anyone would invest an additional €1 billion to €2 billion in an offshore wind farm without subsidies, Vidjajev responded that the ministry relies on market-based data.

"Through our financial gap analysis, we have demonstrated that this measure provides the necessary incentive for wind farms to be developed. There are also other mechanisms that could become significant in the future, such as long-term electricity purchase agreements, which are already used to build wind farms in Europe," Vidjajev explained.

Indeed, the most recently completed offshore wind farm in the Baltic Sea, the 476-megawatt Baltic Eagle off the coast of Germany, was developed based on long-term power purchase agreements. However, this €1.6 billion project will still receive up to €65 per megawatt-hour in subsidies over the next 20 years.

Vidjajev also pointed to Sweden as an example, where wind energy has been developed without direct state subsidies, though the government has supported grid connections. However, Sweden currently has only around 200 megawatts of installed offshore wind capacity and the country benefits from abundant hydropower, which complements wind energy effectively.

The Ministry of Climate hopes that if Estonia has more cheap electricity, industrial enterprises will be attracted to the country, increasing consumption and creating opportunities to build more wind farms.

Vidjajev also justified the need for offshore wind farms by citing growing opposition to onshore wind developments. However, according to the Environmental Board, a sub-agency of the Ministry of Climate, significantly more onshore wind farms are currently in the planning stage in Estonia than the market can accommodate — even considering that many of these projects may never materialize.

Finally, Vidjajev stated that the decision to pursue offshore wind farms is driven by political will.

"This decision and directive are in place and we all know that the coalition has reached an agreement. The coalition's plan — the government's plan — assumes that we will create the necessary conditions for offshore wind farms," Vidjajev said.

"This plan exists, and as officials, we must follow it, as required by law," he added. According to Vidjajev, the figures have been thoroughly reviewed and analyzed with market partners and research firms and will be finalized once the legislative proposal is ready.

Social benefit

Coalition politicians have repeatedly claimed that subsidizing offshore wind farms with €2.6 billion would generate double the return for society. The Ministry of Climate's briefing document presents various calculations of potential societal benefits.

According to the government's planned package, the ministry estimates that with €2.84 billion in subsidies, the expected societal benefit would be €6.76 billion — based on the assumption that the average electricity price on the exchange (not to be confused with the total price customers have to pay — ed.) falls to 4.9 cents per kilowatt-hour by 2035.

However, as previously mentioned, this calculation holds true only if large infrastructure investments are excluded and if a massive amount of additional wind power is built independently of subsidies. The ministry's calculations do not clarify what the societal benefit would be if electricity prices do not fall to the expected level.

Furthermore, the Ministry of Climate does not provide an explanation of how these conclusions were reached.

The ministry has presented projected electricity exchange prices based on nine different scenarios. Only one of these scenarios shows electricity prices dropping to 14.9 cents per kilowatt-hour — but this is a scenario that is not actually being implemented. Moreover, the scenarios are not directly comparable.

A proper comparison of the models is not possible, as some scenarios include the EstLink 3 electricity connection, while others do not.

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