Do We Trust the Finns?

Kuna Päevalehes ilmunud lugu „ Kas usaldame soomlasi?“ oli piisavalt huvitav ka soomlaste jaoks, siis sai tehtud ka antud lugu inglise keeles. Siin see on.

Attention all English speaking followers. Now is something for you 🙂

Recently the issue of electricity production in Estonia became a political “hot topic”, in light of the analysis of Eesti Energia’s decision to invest in  the new oil shale-fired power plant. The issue became the focus of public attention suddenly and unexpectedly, and then disappeared from view equally quickly.

Estonia has enough generation and interconnection capacity to ensure a secure supply of electricity to its consumers for the following winter, and for ten winters afterwards. Our choices about the electricity economy up to the year 2025 have largely been made. The discussion must now concentrate on what will happen after 2025, and the politics of the day have nothing to do with that. Long-term energy policy can be a product of consensus, at least at the base scenario level.

We have the opportunity, if not the obligation, to think before acting, and set up Estonia’s energy sector in a way that ensures both security of supply and economic competitiveness – and does all that with minimal environmental impact. I would like to suggest that the decision makers take a pause. There is no need to hurry up and build new subsidy-based power stations. Instead, they should concentrate on determining which type of power plant would be economically viable for common European electricity market in future. Today, there is no better view of the future of Estonia’s energy sector than being part of a single European market and network.

In order to understand the substance of that future prospect, we must establish a model of the European electricity market. For example, the commercial viability of electricity production changes significantly if the energy trading market (the model of today’s Nord Pool Spot power exchange) is joined by a capacity trading market, which would instantly breathe new life into combined heat and power plants.

The recent discussion of electricity production in Estonia clearly showed that we have no intrinsic faith in the functioning of the Nordic-Baltic electricity market. Apparently it is great to have a market, but security of electricity supply via a working market does not sound credible, neither to left-wing nor to right-wing politicians. But the European Union regulations are specifically based on the logic of ensuring the security of supply in member states through functional markets. Supposedly, the common market and common network would give us a 25% reduction in required investments into electricity production, compared to a situation where every country would maintain a domestic balance of consumption and output.

The smaller the system, the less efficient is the investment, considering consumption load of the country. This is where Estonia comes to an important and high-cost decision point: do we continue with the strategy stating that while integrated markets and interconnections are nice to have, we still need to have all the production capacity in our “back yard” just in case? From the security of supply viewpoint, is a power station in Finland worse than a power station in Estonia? That approach is seemingly based on the belief that in some non-wartime crisis, the other Nordic and Baltic countries may become so self-centered that treaties would cease to work. This is a very fundamental issue. Do we believe that there can ever be a situation where Finland would shut off our power?

The electricity system of Estonia and the Baltic states is increasingly integrated with neighboring systems (1000 MW of interconnection capacity with Finland by 2014, 700 MW with Sweden by 2016, 500 MW with Poland by 2015 and 1000 MW by 2020, 2600 MW with Russia and Belarus), meaning that it is important to consider developments in generation and consumption in a broader regional context. A regional approach to the sufficiency of output resources based on a common Nordic-Baltic electricity market lets us satisfy the consumption demand with a lower social cost, and gives producers the ability to maximize the use of the most efficient generation capacities. In future, efforts to develop Estonia’s electricity sector ought to consider the possibility that peak load does not have to, but can, be covered by local power plants (based on the market). Therefore, in the rare hours when the system is at peak load, the market would determine the coverage of peak load utilizing external interconnections and generation output in other parts of the Nordic-Baltic market area to cover that unusual load. All this in a situation where over the past four years, the load on the Estonian national grid has exceeded 1200 megawatts for only 13 percent of all hours in a year, on average.

The use of interconnections to import electricity and thus cover power consumption must be accompanied by the fulfillment of supply security criteria. By 2015, to ensure security ofsupply, the transmission system operator will have at its disposal a 250 MW emergency reserve power station plus 400 MW of contracted emergency reserves, allowing for the uninterrupted supply of electricity to consumers in case of a connection breakdown. The Nordics have an approximate 73 GW of available peak load capacity, while the Baltics have nearly 6 GW, which is less than a tenth of the Nordic production capacity. Considering that the Nordic electricity production industry is dominated by hydro power plants with large reservoirs, and that the region’s peak loads do not occur at the same time everywhere, it will be technologically possible in the future to utilize 1700 MW of interconnection capacity to cover part of the peak hours consumption in the Baltics.

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