Summary

Estonian power engineering has a long history and traditions. Electric lighting was first used in factories in 1882. The first industrial power plant was built at the Kunda cement factory in 1893 and the first public power plant in Pärnu in 1907. 1918 is regarded as the year of establishment the Estonian power system. The first national electrification programme developed in 1930. Until World War 2 the sources of electricity were thermal power plants that used local peat and oil shale, and numerous small hydro plants. The era of oil shale – based power production began in the 1950s and two of Estonia's oil shale power plants are still the world's largest.

Regaining of political and economic independence in 1991 brought about drastic changes in Estonia's economy. For the energy sector, these changes meant a dramatic rise of fuel and raw material prices, a decrease in energy consumption and electricity exports, but also problems with imports of oil products from Russia. A decisive factor that helped the energy system survive through the difficult first years was the fact that all necessary electricity was produced locally and 99% of it from oil shale.

Based on conference materials "Energy and Culture", IUB, Bremen, 18-20 March 2004, by Prof. Olev Liik, TTU.

Energy market

Liberalization of electricity market means opening of electricity production and sales for competition when the transmission and distribution remain natural monopolies. Estonian electricity market has been open for eligible customers whose annual consumption exceeds 40 GWh since 1999. These consumers have a right to purchase electricity from any producer or seller in the market and an obligation to pay for network services. Consumption of eligible customers forms presently ca 10% of the total consumption. During the accession negotiations, Estonia and the EU reached a compromise solution for further step-by-step opening of the electricity market. At least 35% of it must be opened before December 31, 2008 and for all non-household consumers (ca 77%) before December 31, 2012. The market will operate according to the rules of the new Electricity Market Act and the Grid Code.

It is a common understanding that liberalization will raise system’s efficiency and quality of services. Reductions in consumer prices are probably only short-term. An open market creates also new problems. In Estonia's case, the main risks are:

• market will not be open in practice if there are insufficient independent producers and sellers (no competition with Eesti Energia Ltd.);
• shortage of generation capacity can occur and prices rise if the market participants (also in the neighbouring countries) want just to sell and buy, but not to invest – it is the most important risk;
• Estonia is so small that large-scale cheap import can destroy local production and investments, and make the country dependent on neighbouring states;
• new power plant investments can increase the share of imported fuels (natural gas technologies are cheaper, more efficient and environment-friendly than the other fossil technologies) and cause supply security and price risks, and worsen foreign trade balance
• low interest of big customers in small producers and the cheap electricity import can slow down the development of cogeneration;
• the pressure to increase the electricity prices of the closed part of the market (especially households) will increase;
• considering the small size of Estonian electricity market, the complication of power system control, costs of operating the market, volatile prices and possible lowering of supply security and reliability due to insufficient investments in the whole region can easily surpass the expected positive effect of liberalization.

Opening of the electricity market causes also institutional changes in the energy companies: production, network and sales activities have to be separated from each other. The national grid and existing strategic power plants and oil shale mines will remain in the state ownership.

It has to be mentioned that during 1995-2001 all activities of the power sector were influenced by the negotiations of selling 49% of shares of the two biggest oil shale power plants to the USA capital (NRGenerating International B.V). This deal met strong opposition among energy specialists and also in the society. In spite of the positive political decision to sell the shares, the privatization process failed at the end of 2001.

Based on conference materials "Energy and Culture", IUB, Bremen, 18-20 March 2004, by Prof. Olev Liik, TTU.

Legal situation

Development of legislation and regulatory framework

In independent Estonia, drafting of legal acts, governmental programmes, etc. and transition from the Soviet system of standards to the international ones have been pursued. Until July 2003 the most important law in the energy field was the Energy Act that was adopted by the Parliament in 1997. The Electric Safety Act, the Law on Energy Efficiency of Equipment, the Law on Minimum Reserves of Liquid Fuels, etc. regulate narrower areas. In 1992, the Government adopted Energy Conservation Programme and in 2000 it was updated as the Target Programme of Energy Conservation. The independent Energy Market Inspectorate, the main regulator in the energy field, was established in 1998.

To harmonize Estonian legislation with the EU directives and to improve the regulation of dynamic energy markets, the Energy Act was replaced by four separate laws: the Electricity Market Act, the Natural Gas Act, the District Heating Act, and the Liquid Fuels Act. Drafting of these laws took more than two years, they were adopted by the Parliament in February 11, 2003 and they came into force in July 1, 2003. Also, the Electric Grid Code was elaborated as a supplement to the Electricity Market Act.

The Energy sector is strongly influenced also by environmental legislation, like the Sustainable Development Act, the Atmosphere Protection Act, the Pollution Fees Act, the Environmental Strategy, etc.

Estonia has ratified several international agreements, like the European Energy Charter Treaty, the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol, Convention on Long-range Transboundary Air Pollution and its protocols, and Vienna Convention for the Protection of the Ozone Layer.

The electricity production from renewable sources is subsidized. The network companies have the purchase obligation with the feed-in tariff 1.8 times higher than annual average selling price of large oil shale power plants. These subsidies are in force during 7 years after construction of plant for hydro and biomass power plants and during 12 years for the other renewable technologies. All subsidies end in 31 December 2015.

Elaboration of a comprehensive and optimal system of energy and environmental taxes and subsidies is an important task for the near future.

Based on conference materials "Energy and Culture", IUB, Bremen, 18-20 March 2004, by Prof. Olev Liik, TTU.

Acceptance among the population

No information available at the moment.

Impacts in the economy

No information available at the moment.

Problems

Huge investment needs

It was 20 years ago that the last sizeable power plant (Iru CHP) was built. Units of oil shale plants are at least 40 years old; of which several have been closed during the last years.

Today domestic consumption and small export of electricity are adequately covered, but severe restrictions are expected in 2005, 2008 and 2015. Estonian Environmental Strategy and agreements with Finland state that sulphur dioxide (SO2) emissions in 2005 should not exceed 20% of the 1990 level, emission of solid particles must be reduced by 25% as compared to 1995 and NOX emissions should not exceed the 1987 level. Until now the SO2 emission constraints have been fulfilled mainly thanks to decreased consumption and electricity export. No problems exist with regard to fulfilling of UNFCCC Kyoto Protocol commitment on CO2 reduction (8% decrease in 2008 as compared to 1990) since over 50% of emissions have been reduced.

Starting from 2008 our power plants have to comply with the EU directive on the limitation of emissions into the air from large combustion plants. During the accession negotiations with the EU Estonia got some transition periods but existing oil shale pulverized combustion units cannot work after 2015.

Based on conference materials "Energy and Culture", IUB, Bremen, 18-20 March 2004, by Prof. Olev Liik, TTU.

Statistics

Indigenous fuels (oil shale, wood and peat) form approximately 2/3 of primary energy supply of Estonia. The share of renewable energy sources (mainly wood) was 10,5% in 2000 (see Fig. 1). Estonian oil shale is rather unique, its reserves are the largest commercially exploited deposit in the world. Oil shale is characterised as a low-grade fuel with a low heating value (average 8,6 MJ/kg). Oil shale is a sedimentary formation, which consists of organic matter or kerogen, carbonate matter and sandy-clay minerals (18–42%). Oil shale contains 1.2–1.7% sulphur, mostly as organic and pyretic [4].


Estonia imports gas, coal, motor fuels and fuel oils, and exports electricity and part of secondary fuels – oil and coke from oil shale, peat briquettes and wood pellets. In 2000, the primary fuels (199 PJ = 55.2 TWh) were consumed as follows:

1. 44% for electricity production,
2. 19% for heat production,
3. 13% for production of secondary fuels,
4. 4% for non-energy purposes,
5. 20% for direct final consumption (industrial processes, household use, transport, etc.).

A decrease in the share of oil shale in electricity production began in 1996 when the use of natural gas began to rise. In 2000 about 91% of electricity was produced from oil shale and ca 7% from gas. The other resources (hydro, wind, peat, fuel oils etc.) covered a total of 2%.

In the heat production, switching from imported fuel oils to natural gas and woodchips should be mentioned. In 2000 heat production in the boilerhouses was based mainly on natural gas (38%) and local fuels - oil shale, wood, peat and shale oil (over 40%).

About 12-14% of electricity and one third of heat is produced in the combined heat and power plants (CHP). The share of district heating in the heat consumption is approximately 70%.

The decrease of energy intensity in Estonia's economy is an extremely positive development. GDP has increased substantially after 1994, while the energy consumption has slightly reduced. The energy intensity of GDP has decreased from 2.1 kWh/EEK95 in 1993 to 1.0 kWh/EEK95 in 2000 [5]. Still, the level achieved is not satisfying, higher efficiency of energy production, transmission, distribution and consumption are the priorities.

After economic restructuring, energy consumption in industries, transport, in particular in agriculture has decreased and the households are now the largest energy consumer group (see Fig. 2 and 3). Household consumption includes also private cars (see Fig. 4).




By the early 1990s, Estonia's power system had maintained substantial electricity and heat production capacities, however the keywords still were: low efficiency, high age, high pollution and inconsistency in relation to restructured economy. Although marked changes have taken place in the energy sector, the bigger challenges are yet to come.

Based on conference materials “Energy and Culture”, IUB, Bremen, 18-20 March 2004, by Prof. Olev Liik, TTU.