8. RENEWABLE ENERGY
Table 8.3 gives the breakdown of renewable heat production by plant type and shows that almost half of renewable heat production came from biomass CHP plants. CHP plants create a direct linkage between the heat and electricity sectors that allows biomass CHP to be a major driver of renewable energy in Estonia. In 2017, biomass CHP plants accounted for 48% of the renewable electricity and 44% renewable district heat.
Table 8.3 Renewable heat production in district heat systems by plant type, 2017
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Plant type |
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Heat from biomass |
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Terajoule |
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Share |
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Combined heat and power |
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5 520 |
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44.5% |
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Heat only |
6 892 |
55.5% |
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Total |
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12 412 |
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100% |
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Source: IEA (2019), World Energy Balances 2019, www.iea.org/statistics.
Renewables in transport
In 2017, oil-based fuels covered 99% of transport demand in Estonia. Renewable biofuels accounted for just 0.32% of total fuel consumption. The share of biofuels has remained essentially unchanged since 2013. The government has introduced a biofuels blending mandate to meet the 2020 target of 10% renewable energy in transport (see Chapters 4 and 7).
Targets, policy and regulation
The Ministry of Economic Affairs and Communications, the Ministry of Environment, and the Ministry of Agriculture share responsibility for the overall legal framework, policies and measures related to renewable energy1.
Obligations established under EU Renewable Energy Directives drive Estonia’s renewable energy targets and policy. The first Renewable Energy Directive (RED I) was approved in 2009 and set binding renewable energy targets for each EU member country up to 2020 (EU, 2009). Under RED I requirements, Estonia submitted a National Renewable Energy Action Plan (NREAP), detailing the plans and measures to achieve its 2020 targets.
The second Renewable Energy Directive (RED II) was approved in 2018 and covers renewable energy deployment through 2030. RED II does not include country-specific targets; instead countries are obliged to make national contributions towards the following 2030 targets for the EU as a whole:
32% renewables share in EU gross final energy consumption
14% renewables share in EU transport sector gross final energy consumption.
1 Annex A provides more detailed information about institutions and organisations with responsibilities related to the energy sector.
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Under RED II requirements, Estonia developed a draft National Energy and Climate Plan (NECP), proposing the 2030 renewable energy targets and detailing the plans and measures to achieve those targets. The draft NECP draws from and is supported by Estonia’s NDPES 2030. The draft NECP was submitted to the European Commission in December 2018 and Estonia must submit the final NECP before the end of 2019.
Table 8.4 gives Estonia’s 2020 and 2030 renewable energy targets (Red I and II) and the status towards achieving these targets as of 2017. In addition, Estonia set a 2030 target of 10% “fuel-free” electricity from wind, solar or hydropower sources. Looking to 2050, Estonia indicates wind energy could cover up to a third of electricity demand.
Table 8.4 Renewable energy shares by sector, 2017 status and targets 2020-30
Sector |
2017 |
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Targets |
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2020 |
2030 |
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Heating and cooling |
57% |
38.4% |
80% |
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Electricity |
13.2% |
17.3% |
30% (50%)* |
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Transport |
0.32% |
10% |
14% |
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Gross final consumption |
29.2% |
25% |
42% (50%)* |
* Goal if flexible collaboration mechanisms are implemented (see Box 8.1).
Sources: EC (2019), Country Report Estonia 2019, https://ec.europa.eu/info/sites/info/files/file_import/2019- european-semester-country-report-estonia_en.pdf; Government of Estonia (2018a), Estonian National Energy and Climate Plan (NECP 2030), https://ec.europa.eu/energy/sites/ener/files/documents/ec_courtesy_translation_ee_necp.pdf; Government of Estonia (2010), National Renewable Energy Action Plan until 2020 (NREAP 2020), https://ec.europa.eu/energy/en/topics/renewable-energy/national-action-plans; IEA (2019), World Energy Balances 2019, www.iea.org/statistics.
The draft NECP notes that flexible collaboration mechanisms with other EU member states could drive a more aggressive renewables deployment and help increase Estonia’s 2030 renewable energy targets for electricity and gross final consumption to 50%. Box 8.1 provides details on Estonia’s current and planned use of flexible collaboration mechanisms.
The IEA encourages Estonia to undertake a robust analysis of least-cost pathways for renewable energy deployment with a comprehensive scope covering domestic renewable resource potential; the role of all viable renewable energy technologies and supporting infrastructure; and an examination of policy, regulatory and market barriers to renewables deployment.
Such an analysis would greatly assist Estonia in setting ambitious but achievable renewable energy targets and would provide needed clarity to energy sector stakeholders developing the plans, policies, regulations and projects required to achieve the 2030 targets. Policy clarity is critical as the NECP and the NDPES lack many of the details needed to ensure a robust and sustained renewable energy deployment. In addition, while Estonia’s “General Principles of Climate Policy until 2050” set greenhouse gas (GHG) reduction goals for 2040 and 2050, they do not define renewable energy targets for these years or specify how renewables will support the GHG emissions reductions goals.
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8. RENEWABLE ENERGY
Box 8.1 Flexible collaboration mechanisms to support renewables
Flexible collaboration mechanisms were established under the Renewable Energy Directive I (RED) (EU, 2009) and extended through 2030 under RED II (EU, 2018). The mechanisms Estonia is interested in implementing can be summarised as follows:
Statistical transfers allow one EU member state that has exceeded its renewable target to sell a portion of the statistical surplus to help another member state achieve its renewable energy target. Statistical transfers do not require the physical transmission of renewable electricity, heat or cooling between the member states.
Joint projects allow two or more member states to co-operate on projects producing renewable electricity, heating or cooling. Each participating state can then count an agreed-upon proportion of the produced renewable electricity, heating or cooling towards the achievement of their renewable energy targets.
In 2017, Estonia reached 29.2% renewable energy in gross final consumption, well above its 2020 target of 25% (EC, 2019). In November 2017, Estonia became one of the first EU member states to use the statistical transfer mechanism, signing an agreement with Luxembourg to sell 300 gigawatt hours (GWh) of statistical renewable electricity in 2018 and 400 GWh in 2020 for EUR 10.5 million (EC, 2017). Revenue from statistical transfers has been allocated to reduce the renewable energy charge paid by all Estonian electricity customers to fund Estonia’s renewable support scheme. Building on this successful transfer, Estonia is working to expand the use of collaboration mechanisms to boost domestic renewable energy deployment.
In 2018, Estonia established an expert group of government and industry stakeholders to: 1) identify EU member states interested in collaborating with Estonia; 2) prepare a list of possible statistical transfers and joint projects; and 3) create offers for interested countries (MEAC, 2017b). The MEAC notes there are 600 GWh of statistical renewable energy available for transfers in both 2019 and 2020. Estonia amended its Electricity Market Act in 2018 to allow the government to issue tenders for renewable energy projects specifically to support statistical transfers (Government of Estonia, 2018c).
The draft National Energy and Climate Plan notes a strong potential for joint projects to increase deployment of renewable energy projects in Estonia. It cites 4 GW of wind power projects and a 500 MW pumped hydro project that could benefit from co-operation on funding and deployment with other EU member states (Government of Estonia, 2018c).
If properly implemented, collaboration mechanisms could accelerate the deployment of renewables in Estonia through increased foreign investment and additional money for Estonia’s renewable support schemes. This could allow Estonia to raise its 2030 renewable energy targets and contribution to the overall EU 2030 renewable target. Successful implementation of the collaboration mechanisms will require Estonia to present a favourable environment for renewable project deployment and ensure markets are in place to support increased levels of renewables production. This will likely require significant expansion of both domestic consumption of renewables and increased interconnection capacity to export renewable electricity.
Measures supporting renewable electricity
Estonia’s current renewable energy support scheme is based on a floating market feedin premium that is automatically given to qualifying suppliers of electricity from renewable
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energy. This system was established in 2007 and Estonia is in the process of replacing it with competitive auctions, which are planned to start in 2019.2
Amendments to the Electricity Market Act, which passed by parliament in June 2018, mandate a reverse auction process in which the government issues tenders for a certain amount of renewable generation. Project developers then compete in a reverse auction where the lowest cost renewable energy projects that meet qualifying standards are selected to receive a feed-in premium subsidy (Government of Estonia, 2018b). The 2018 Electricity Market Act amendments define the process for the government to organise public tenders with the following objectives:
tenders to increase renewable generation to meet the 2020 target of 17.6% renewable electricity, limited to projects of over 1 MW
tenders to increase renewable generation by 5 GWh per year from 2019 to 2021, limited to projects of 50 kW to 1 MW
tenders for renewable generation to meet obligations stemming from any statistical transfers of renewable energy established under the EU flexible collaboration mechanism
tenders for renewable generation to meet to any targets established by the government beyond 2020.
The government is planning for technology-neutral auctions that allow bids from wind, solar, geothermal, hydropower, biogas and biomass projects. 3 Qualifying projects selected through the auction process receive monthly payments for generating electricity from renewable sources, which are calculated as a sliding premium on top of the market price for electricity.
The premium is equal to EUR 0.0537 per kWh, which is paid on top of the average electricity market price of the last month. The premium is reduced if the average price rises above EUR 0.0393/kWh and reaches zero once the average price is above EUR 0.093/kWh. The sliding premium is guaranteed for 12 years if the project generates the agreed amount of renewable electricity (Government of Estonia, 2018b).
This subsidy scheme encourages project developers to bid by guaranteeing auction winners a minimum payment of EUR 0.0537 per kWh even if the average market price for electricity is very low, or even zero. But it also exposes producers to some market signals as the premium decreases when market prices go up, and the risk of overpayment is eliminated as the premium is gradually reduced to zero if electricity prices increase.
The renewable support scheme established under the 2018 Electricity Market Act amendments maintains a non-competitive feed-in premium for wind, solar, geothermal, hydropower, biogas or biomass projects with a capacity of less than 50 kW. Qualifying projects do not have to participate in auctions, but automatically receive a payment
2The introduction of auctions is driven by mandates in the European Commission Guidelines on State Aid for Environmental Protection and Energy 2014-2020, which required that by 1 January 2017, aid for renewables is granted as a premium to the market price in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria (EC, 2014).
3Plants co-firing biomass with non-renewable fuels are eligible to receive subsidies for the portion of electricity coming from renewables.
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