Each year, Estonia's state-owned electricity system operator Elering collects more than €100 million in congestion fees from electricity flows between Finland and Estonia. Commonly referred to as a "bottleneck fee," this revenue is being set aside to fund the future construction of a third EstLink cable between Estonia and Finland, as well as a fourth Estonia — Latvia connection — a subsea cable running from Saaremaa to Latvia.

A public debate has emerged over whether these new connections are actually necessary and whether, following Finland's example, the congestion fee revenue could or should be used elsewhere — such as to reduce network fees.

Elering CEO Kalle Kilk told ERR that the energy system functions as a whole and, like a stool, it stands solidly only when all its legs are in place.

"In our view, the energy system works best when, first, we have sufficient low-cost electricity generation within Estonia — like renewable energy plants. Second, we need a reliable fleet of dispatchable power plants that can be started at the push of a button. And third, for those moments when neighboring countries have cheaper electricity available, we need adequate cross-border connections," Kilk said.

According to him, these system components support one another and together ensure the best outcome for the end price.

It has been claimed that building a 700-megawatt third EstLink cable — from Inkoo in Finland to Aulepa in Estonia — would increase Estonia's transmission capacity with Finland to 1,700 megawatts and bring Estonian and Finnish electricity prices into alignment by 2035. Kilk remains doubtful.

"You can't just look at one specific location like Estonia in isolation — energy systems are actually very well interconnected. A cable between Estonia and Finland would significantly impact not only price levels throughout the Baltics but also, further downstream, in Poland and southern Sweden," he said.

The more renewables, the more connections needed

Kilk noted that for much of the time, electricity prices across the Baltics are fairly similar. As soon as EstLink 2 went offline, it was clear that there was a pricing impact — rates rose not just in Estonia, but across the entire Baltic region.

"A broader region is affected, and a broader region also benefits. That's exactly how cross-border connections are planned across Europe — they're not designed with just two countries at either end of a cable in mind, but with the whole of Europe in view," he explained. "A cable between Estonia and Finland benefits Latvians and Lithuanians just as we've benefited from the cable between Lithuania and Sweden."

When asked whether a fourth or even fifth cable would be needed to align Estonian and Finnish electricity prices for 99 percent of the time, Kilk replied, "We'll see."

He pointed out that Europe's Ten-Year Network Development Plan (TYNDP) includes studies to assess the need for new transmission capacity, using scenario modeling for 2030 and 2040.

According to those models, Europe will see a rise in variable electricity production — particularly from wind power. But wind conditions vary; northern Finland might be windy while Lithuania is calm and vice versa. As renewable energy grows, so too does the need for strong interconnections between systems.

"These links provide major benefits. It's been calculated that every euro invested in transmission capacity results in a two-euro drop in end-user prices," Kilk said.

In his view, supporting new renewable power plants and building a robust cross-border grid are like the legs of a single stool. The more external connections there are, the less time each individual country must rely on subsidies for domestic power plants.

"This is precisely why, if we look at Estonia in isolation, then during hours when we have a bit more wind, without foreign connections, prices would actually fall to zero. But there would [also] be many hours when we'd be forced to rely on expensive energy sources. But if we view the whole of Europe as one well-connected system, then wind farms in Estonia, Lithuania and Finland can all run far more hours," Kilk explained.

According to the Elering CEO, of course it wouldn't make sense to go overboard and build more wind farms than the region needs. That's why it's critical that the ministry consider not just Estonia's plans, but also those of neighboring countries.

Over €600 in congestion fees collected

Martti Hääl, CEO of Alexela, recently wrote that Estonian electricity consumers have paid an estimated €800 million in congestion fees to Elering and that the exact figure should be made public.

According to Kilk, there seems to be a common misconception that Elering simply collects the money and lets it sit idle. That is not the case, he said. Over the ten years the congestion fee system has been in place, a little over €600 million has been collected and about half of that has already been used.

"In recent years, the pace of spending has increased. In fact, we're now using the funds faster than we're collecting them. For the past few years, the balance has remained roughly around €300 million," Kilk confirmed.

He added that congestion fees have primarily been used to fund new cross-border infrastructure projects: the third Estonia-Latvia transmission line and synchronization investments were both financed with these funds. During the energy crisis, Elering also managed to avoid raising network charges, thanks to a temporary measure from the European Union that allowed congestion fee revenue to be used to offset crisis-related costs.

"If I recall correctly, we used nearly €80 million to compensate for rising transmission losses. As a result, Elering has actually been able to keep network charges lower than they were in 2013. Our goal is to manage these funds in a way that keeps network charges as favorable as possible for consumers over the long term," Kilk said.

Elering already has plans for how to use the remaining €300 million in congestion fee revenue. These include building the fourth Estonia-Latvia connection, the EstLink 3 project and partially funding measures to enhance the security of the existing grid. Kilk emphasized that without using the congestion fees for these initiatives, the cost would ultimately fall on consumers.

Kilk said that the €300 million does not simply sit in Elering's bank account — the actual cash on hand is much lower.

"That's one additional aspect many people don't understand: because we can use that money for managing our day-to-day cash flow, we save electricity consumers around €5 to €10 million a year. That's how much less we need to borrow from the bank to run our daily operations," Kilk explained.

Regarding the idea that Estonia should use the congestion fee revenue to lower network charges, the Elering CEO said it might sound like a good plan, but compared it to "peeing your pants to stay warm in the cold" — it provides short-term relief, but only makes things worse afterward.

If the €300 million were used up right away, network charges could be kept low — or even near zero — for a while. But according to Kilk, this would require raising network fees in just three years to cover the more than €600 million worth of planned investments. That increase would be substantial — by 30 or even 60 percent.

"Our plan is a long-term plan. We don't want to focus on just one year; we're thinking in decades. And over the long run, going with that proposal would actually cost consumers more," Kilk emphasized.

Undersea cables to be made more ship-proof

According to Elering CEO Kalle Kilk, repairs to the EstLink 2 cable between Estonia and Finland are expected to be completed by summer, no later than August 1.

Asked whether the planned EstLink 3 cable would be designed to better withstand anchor damage — considering recent incidents involving Chinese vessels damaging subsea cables — Kilk responded that the current cables are already buried and there have been multiple known cases where anchors have dragged over them without causing damage.

"EstLink 2 lies several meters deep in the seabed. In this case, the anchor happened to reach it and caused damage. But of course, all future cables, including EstLink 1 and EstLink 2, are planned to be buried slightly deeper or protected with some form of shielding," Kilk confirmed.

He noted that construction of new connections toward either Latvia or Finland has not yet been decided. Before any investment decisions can be made, spatial planning and seabed studies must be carried out to determine whether — and how — the projects could be technically feasible. The cost will depend heavily on those findings.

"Only then can we assess whether the projected benefits at that point in time outweigh the expected costs," he said. "We're looking at making investment decisions for both the Finland and Latvia lines around 2027-2028."

--

Follow ERR News on Facebook and Twitter and never miss an update!