Domestic electricity production facing paradigm shift

Eesti Energia's Narva power stations.
Eesti Energia's Narva power stations. Source: Mihkel Maripuu/Eesti Meedia/Scanpix

While previously a net electricity exporter for many years, Estonia has recently become an importer. As the power industry's trade union sees it, the domestic energy production sector is at risk, with the end of national electricity markets, Estonia's ratification of the Paris Agreement, and cheaper electricity available abroad conspiring to see the sector at a standstill.

Over the past five years, more than €800 million has been invested in network integration, and since Estonia by now is a small part of a larger regional market, supply and demand now have to be dealt with regionally, rather than nationally. The open markets were supposed to bring competition and with it lower prices as well. Still, with the European Union establishing quotas on carbon dioxide emissions, the price of energy produced in Estonia has been on the rise.

Ultimately, Eesti Energia's electricity production decreased by 20 percent to 2.2 terawatt-hours, and for the first time in decades Estonia has now become a net importer of electricity. CEO of network operator Elering, Taavi Veskimägi, has said that at a price level of €55 per megawatt-hour, the Estonian energy system is turning towards imports rather than domestic production. "That isn't because we don't have enough production capacity, but because in other places electricity can be bought more cheaply. For buyers that is, of course, good news," Veskimägi said.

Cheap Russian electricity, market changes affecting situation in Estonia

What also hampers domestic energy production is the influx of cheap Russian electricity, which does not abide by the established carbon dioxide quotas as traded in the EU. According to Andri Avila, chief financial officer at Eesti Energia, this means a serious blow to electricity production in the EU. "It's difficult to compete in the same market with other electricity producers whose costs are lower due to their not paying some €20 per megawatt-hour for the carbon dioxide quota," Avila told media last week.

The climate change policy of the EU envisages the increasing use of renewable energy, and according to state-owned Eesti Energia, Estonia is going to work towards the same goal. "We in no way object to the goals of the EU. However, we need to get our energy plans in order," management board member Raine Pajo said.

As ERR News reported, Eesti Energia's renewable energy production has multiplied thanks to the acquisition of Nelja Energia, as well as the recently favorable wind conditions. The share of electricity produced from renewable and alternative sources in Eesti Energia's total production rose to an average of 25 percent of quarterly output, bringing the company closer to the strategic goal of 40 percent, to be reached by 2022.

And yet despite these figures, the development of renewable energies in Estonia is still slow, while the production of shale oil continues. In terms of per-capita carbon dioxide emissions, Estonia is currently one of the leaders in Europe. According to the Organisation for Economic Co-operation and Development (OECD), Estonia produces 35 times the EU average, 98 percent of which comes from oil shale burning and refining.

As manager at Baltic Energy Partners, Marko Allikson commented, "It is expected that the carbon dioxide quotas are going to rise. That means that shale energy, the production of one megawatt-hour of which requires a large emission of carbon dioxide, will suffer even more on the international market."

Trade unions worried, warning about social fallout in Ida-Viru County

In light of these changes, the power industry's trade unions have already declared their opposition against the European and Estonian policies.

Vladimir Aleksejev, a former trade union chairman who has had plenty of meetings with Eesti Energia as well as policymakers, commented that "They told us that they're going to buy electricity from Finland, Sweden, and so on. We tried to tell them that it will be more expensive and that it would destroy domestic electricity completely. But their response was, well, the consumer will buy it anyway."

The change in energy policy and production is having a serious effect on the local economy in Ida-Viru County. At this point, the state is pursuing the course of scaling back electricity production based on burning oil shale, and decommissioning outdated production blocks.

As a result, Eesti Energia is now laying off well over 100 workers. Though the company is trying to limit the layoffs to people of retirement or pre-retirement age, according to union estimates, in the worst case a complete shutdown of the Narva power plants would affect the jobs of 6,000 people in the region.

Editor: Ksenia Fadina, Dario Cavegn

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