Last Thursday, Estonian Minister of Climate Yoko Alender (Reform) announced that the tendering process for offshore wind farms would not be launched until early 2026, with reference made to the EU's Clean Industrial Deal.

"We have had lengthy negotiations with the [European] Commission and we have also obtained access to certain materials regarding the content of the Clean Industrial Deal," Alender said at a government press conference. "There are various initiatives in there that specifically concern the introduction to the market of clean energy capacities."

The document Alender was referring to is about is the European Commission's response to the Mario Draghi report, which was published last year. While the former Italian Prime Minister outlined reasons why the European economy is not progressing, the Commission believes the Clean Industrial Deal will provide the required solutions.

Although the document will be officially published on Wednesday, February 26, Euractiv posted a draft version online last Tuesday, a few days before the Estonian government's press conference. On the same day, the content of the documents was also reported by Politico.

Commission wants lower taxes and faster authorization procedure

The strategy proposes, among other things, a rule whereby EU Member States have to buy a certain amount of goods from EU producers. At the same time, the obligations for sustainability reports are significantly reduced. The various proposals stretch to several dozen pages.

Energy prices, which have risen by up to a hundred percent in just a few years, receive special attention in the strategy. To reduce them, the Commission has produced a separate document entitled "The Affordable Energy Action Plan."

In the short term, the Commission believes that reductions in network charges, electricity excise duties and electricity VAT could have a positive effect. This is, of course, a decision for each Member State to make themselves. In the longer term, the Commission would put significantly more money into the construction of electricity cables in both the North Sea and the Baltic Sea. The fate of this idea will depend on the European Union's budget negotiations, which start in the summer. The Commission sees the Connecting Europe Facility – the same pot of money that is expected to deliver the Tallinn-Warsaw high-speed rail link in 2030 – as a possible source of funding.

The Commission also believes the time needed to prepare new projects should be significantly reduced. For example, onshore wind farms could be authorized within 6 to 12 months. For offshore wind farms, the permit process should not take more than three years, even in the most complex cases.

Impact of state aid rules on reverse auctions still needs to be analyzed

But what is it about the materials mentioned by the climate minister that has tempted her to put the tender on hold for a year?

Kristi Klaas, deputy undersecretary at the Ministry of Climate, told ERR that the Commission is also proposing new rules on state aid. Klaas pointed out that the state aid authorization, which would have allowed the launch of the tender procedure in April at the latest, was granted to Estonia in 2023.

"If we compare the conditions that existed in 2023 with those that exist today, time has moved on quite significantly," Klaas said.

Klaas noted for example that companies have asked for the possibility to link reverse auctions to an index. In simple terms, this would mean the amount of money a consumer has to pay through the renewable energy fee changing in line with inflation.

"It is too early to say at this stage whether it will be at all possible to include this in the state aid permit, whether that is reasonable," Klaas said. "For that, we would like to look at the other conditions that ought to come along with these new state aid rules."

Euractiv also published a draft European Commission document dedicated to the very issue of state aid rules. The document stresses the need to give companies more investment security. While inflation and indexation are not explicitly mentioned, Klaas highlighted that it is only a draft.

But if such indexation were possible, would the undersupply give consumers a lower final price? Klaas said this would need to be analyzed.

"There are more elements to negotiate, more solutions to look for, than just indexation," Klaas said. "In fact, it is worth focusing on the fact that we are looking for the most advantageous solution for the consumer. This indexation is also part of it, and the analysis will show that."

Commission: Reverse auctions and long-term purchasing contracts could be linked in single scheme

Last Thursday, in justifying the postponement of the tendering procedure, Estonian politicians also mentioned the state aid scheme among other issues.

Minister of Climate Yoko Alender said that the "Clean Industrial Deal" provides other possibilities for better tendering competitions. Alender's party colleague, Prime Minister Kristen Michal said the EU document changes Estonia's entire outlook.

"There will also be such guarantee mechanisms, which Estonia cannot offer to industries, to enter into such PPAs, or long-term power purchase agreements," Michal said at the press conference. "This is the kind of thing that industries with higher energy consumption ought to do for themselves, if it is an important input for them."

Under the draft "Affordable Energy Action Plan,"  the European Commission promises start negotiations with the European Investment Bank as early as this spring to launch a pilot program, guaranteeing long-term power purchase agreements.

The idea that a wind farm developer should be protected from customer payments by a public guarantee has been discussed for several years. A separate issue is how this kind of proposal from the Commission influenced Estonia's plan to launch a restricted tender.

Kristi Klaas said the most important thing was to get the best possible final price, and that the impact of all the options proposed by the Commission still has to be analyzed.

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