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ecodriving
parking management and pricing
integrated spatial planning
congestion charges and other measures.
The main barriers to reach the energy efficiency targets in the transport sector are the lack of comprehensive fiscal measures to improve the fuel efficiency of vehicles and to provide incentives for a modal shift, and the lack of long-term funding schemes for developing public transport, cycling infrastructure and pedestrian zones. The IEA encourages the Estonian government to rapidly finalise the new transport sector development plan for the period to 2030 and to accelerate the introduction of a smart tax environment to improve the fuel efficiency of the vehicle fleet. Estonia should explore how best to leverage its leadership in the area of digitalisation for the introduction of country-wide shared mobility services and “mobility as a service” schemes, for instance by exchanging best practices with neighbouring Finland. See Chapter 7 for a more detailed discussion of the transport sector.
Assessment
The TFC of Estonia has nearly halved since 1990. It decreased mostly in the immediate years after the restoration of independence of Estonia in 1991 and was relatively stable from the mid-1990s until the financial crises in 2008. In 2017, Estonia’s TFC was 2.9 Mtoe (3.4 TWh), in line with the 2020 target to limit TFC at the 2010 level (3.0 Mtoe).
The residential sector accounts for the largest share of TFC, followed by transport, the commercial sector and the industry sector. The current national energy efficiency measures have mostly focused on improving the energy performance of buildings, as this is the sector responsible for the highest energy consumption rates and has a large unexplored efficiency potential.
Traditionally, the Estonian government favours market-based solutions and aims to limit government interventions to the minimum degree required. However, the NDPES 2030 acknowledges that meeting the country’s 2030 energy efficiency targets in the transport and building sectors will largely depend on extensive public intervention. Relying on markets only to implement the required energy efficiency measures in these sectors would likely result in increasing energy consumption.
Reaching the primary energy consumption target for 2030 will largely be determined by future developments in the oil shale industry that is subject to the National Oil Shale Development Plan to 2030 (see Chapter 3).
Buildings and demand for heating and cooling
The residential sector is the single largest energy-consuming sector in Estonia. This is largely due to the country’s cold climate with an average yearly temperature of 6.7°C. Estonia’s building stock is old and inefficient, although building energy efficiency has improved in recent decades. Renovation of the housing stock could reduce the heating demand of buildings substantially according to the NDPES 2030.
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The government has only limited possibilities to lead by example in the residential housing sector, as the public sector owns less than 4% of residential buildings. It is therefore important to encourage private owners to undertake the complex renovation work required. Due to the high proportion of owner-occupied residential units, Estonia has less of a principal-agent problem than most other IEA countries. The hurdle facing Estonia is the need of the housing associations to reach agreement on efficiency upgrades. There is a general distrust in Estonia to embark on collective solutions, explained by the country’s history. Identifying project champions that can convince the association members and explain the benefits of the renovation is therefore critical for increasing the rate of residential renewal rates (CO2mmunity, 2018).
The main measure implemented for improving the energy performance of residential buildings are subsidies for the renovation of the existing building stock financed by EU structural funds and the revenues of the Emissions Trading System. Between 2014 and 2017, the measure allowed 1 000 apartment buildings to be renovated with higher efficiency standards (out of a stock of 22 000 buildings), for a corresponding energy savings of 57 GWh. However, a large share of private house owners did not apply for the energy efficiency grant, due to a complicated application process.
The government’s plan to develop sample designs and renovation packages as part of its commitment to undertake extensive renovation of public sector buildings could also boost private sector investments. However, a key requirement for a higher uptake of energy efficiency investments in the public and private sector is the availability of qualified professionals to undertake the energy improvement works.
Recent years have seen an increase of temperature in summer, leading to a growing need for cooling. The use of air conditioning is regulated in the new minimum efficiency standards of 2013. In the Tallinn region, for example, it would be possible to introduce district cooling. While cooling does not have the same priority as heating, it would still be advisable to explore the technical potential of district cooling to pre-empt any move towards inefficient individual cooling solutions.
District heating
The vast majority of Estonia’s population is connected to a DH system. DH accounts for one-third of total energy consumption in the residential and commercial sectors. Biomass is the largest energy source for DH production, accounting for around half of total DH generation, followed by natural gas and oil shale related fuels. Around half of DH is produced in CHP plants, often using biofuels and waste or oil shale. The share of CHP generated heat has increased strongly in recent years.
Estonia has 230 DH networks, the majority of which are operated by small private companies at the local level. The DH system is old and in need of substantial rehabilitations to reduce heat losses in the transmission and in the boilers. Until 2016, the regulatory framework gave most DH systems monopoly status and prevented the emergence of alternative heating solutions in these regions. The prices of DH services are regulated on a cost-plus basis and differ markedly throughout the country depending on the fuel used.
The price regulation requires that any efficiency savings be directly passed on in lower prices for consumers, with little benefit for the investor. This limits the incentive for DH companies to invest in efficiency measures. The introduction of a mechanism by which
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the potential benefits of such efficiency measures could be shared between consumer and producer could lead to more energy efficiency investments.
The DH sector in Estonia is undergoing a transition in light of decreasing heat demand due to building upgrades, the introduction of more local solutions for supplying heat, and the gradual emergence of energy associations that produce heat and electricity for their own needs (prosumers). DH regulation should not prevent the introduction of costeffective and environment-friendly solutions from competing with DH. At the same time, it is a challenge for the government to ensure continuous investments in improving the efficiency of DH while simultaneously encouraging alternative policy approaches.
The revised DH Act of 2017 aims to strike a balance between the two objectives. It aims to create a favourable investment environment for the implementation of sustainable solutions, either as DH or through local solutions. It sets the framework for the government to continue providing investment support for the rehabilitation for DH systems that have a long-term perspective. But it also paves the way for the gradual transition away from unsustainable DH solutions towards localised solutions.
Industry
The industry sector is the third major final consumption sector after housing and transport. The Ministry of Environment anticipates that the greatest potential for saving energy in Estonia arises from mining, food, wood and paper sectors. The oil shale industry has large efficiency potential and is already undertaking extensive investments to reduce the energy intensity of the mining and processing of oil shale, as this will directly improve their profits (see Chapter 3).
Estonia transposed the EU EED that imposes regular energy audits for non-small and medium-sized enterprises into national law in 2016. The number of energy audits is growing gradually and it is uncertain if the target of 270 audits by 2020 can be met. There is no obligation to implement energy efficiency measures following an energy audit and only about one-third of the energy audits undertaken have resulted in follow-on investment projects. It would be important to understand why companies are opting not to undertake energy efficiency investments and what kind of incentive structures and policy framework could change this. The IEA encourages the government to launch a study in this regard.
At the moment, the findings of the individual energy audits are not used for further research or to inform policy making. There is no monitoring system in place to collect information on energy savings potential from the energy audits. This is a great loss of information for the country and hampers further understanding of the potential for and the best way to better exploit the energy efficiency potential with a view to meeting the 2030 targets. The systematic collection and analysis of data would also contribute to gathering evidence of the actual energy savings achieved through specific energy efficiency measures; data which are currently also not available on a systematic basis. While international benchmarking might not be feasible for all industries in Estonia, it would still be worthwhile to explore to the extent possible how the energy performance of industry in Estonia compares to that in other countries.
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Challenges
Estonia has a good chance to reach its 2020 target to limit total final consumption to the level of 2010. The 2030 energy efficiency targets will be harder to reach without further energy efficiency measures and funding. Accelerating the uptake of energy efficiency investment across the economy requires a comprehensive campaign to increase the awareness of households and industry about the benefits and support schemes available to them. Facilitating access to planning and management support for complex rehabilitation works is another important barrier to overcome.
The application process for government grants is considered complex and lengthy and has proven to be a barrier for energy efficiency improvements in the residential sector. In the industry sector, and specifically in the small industry segment, the provision of technology-specific information for energy efficiency solutions will be helpful to further unlock the potential. Both of these barriers could be addressed through the development of a broader ESCO market that could also offer energy audits, energy managers, and supervisory and building services for the construction process. The lack of qualified builders and supervisors that can ensure that quality work is being undertaken has been a hindrance for potential investors to embark on technically complex renovation projects.
The ESCO market in Estonia is in the nascent stage. This is partly due to the relatively recent requirement for energy audits, as the energy efficiency obligations were only transposed into national law in 2016. Another reason for the slow growth is the limited pool of qualified professionals that have the required certifications.
The government is in the process of developing an integrated professional qualification system in close co-operation with the education system and by making necessary changes to the curricula. The objective is to create a network of qualified specialists offering energy services in Estonia. This is a welcome initiative and applauded by the IEA.
However, there is a limited pool of interested candidates to train as energy services professionals and raising awareness about the possible career paths in this area will be important. The energy services career path could be of particular interest in the structurally weaker sections of Estonia that offer limited alternative employment opportunities. Establishing a nationwide register of qualified companies will also facilitate the uptake of ESCO solutions.
Estonia is a small market and the traditional ESCO business model might not be sustainable on its own. However, with adequate support from the government, there is a large scope to make the ESCO concept attractive. A more targeted offer by ESCOs could help unlock the significant potential for energy savings in both industrial processes and industrial buildings, and the residential sector. A functioning ESCO market would also offer additional financing possibilities for projects in those sectors.
Finally, if Estonia wants to realise its potential annual energy efficiency investment, it will need to assure continued provision of sufficient public grant schemes and to allocate additional public funds to complement funds received through the EU structural funds. This is especially important with a view to the reduced CO2 allowances for the period to 2030 that will reduce the revenues available for the green investment schemes.
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