Security of supply report: Estonia risks a shortfall in production capacity from 2016

The report on the security of supply in the Estonian electricity system that Elering produced for the European Commission, the Ministry of Economic Affairs and Communications, and the Estonian Competition Authority finds that electricity production capacity in Estonia will fall significantly by 2017, and that without major investment in new production there could be insufficient production capacity to cover peak consumption by 2016. There is enough production capacity for both summer and winter until 2015.

Elering has been informed of investments planned for 2011-2017 in 896 MW of new production capacity, including the 250 MW emergency reserve station being built by Elering, which would only be activated in an emergency and is not part of the electricity market. The new capacity also includes the two new blocks at the Narva power plants with a little less than 600 MW of capacity, although some questions still remain over them. It is planned that 1358 MW of capacity will be closed during this period.The critical point will come in 2016, as all electricity production must then be harmonised with EU requirements and limits will be placed on the production machinery used in the Narva plants. The plants’ operator intends to close down six of the twelve blocks currently working and to install desulphurisation filters on four.The conservative scenario of the report on security of supply says that after 2016 there is not enough production capacity to cover peak-time demand from domestic production, and the shortfall could be as much as 900 MW. In 2020-2025 the shortfall could rise to around 1400 MW if there is no new investment.Chairman of the Board of Elering, Taavi Veskimägi, commented that Estonia’s strategic plan for energy calls for sufficient production capacity in Estonia to cover peak electricity consumption. The analysis shows that from 2016 this is not realistic without major new investment. The cornerstone of security of supply in the European Union’s third energy package is a functioning market for electricity which should give the correct price signals to new investment in connections and production. “The possible shortfall in production in Estonia will raise price pressure further, especially given that Latvia and Lithuania are already short of capacity now, following the closure of Ignalina. Years of under-investment, because regulated prices meant it made no economic sense, have now put us in a situation where the electricity industry faces major challenges in the next decade. We now in theory have a choice of either finding a way to subsidise new production capacity under non-market conditions, or accepting that at peak periods we will have to rely on imports to cover demand. As there are currently many questions and a lack of clarity surrounding the development of new production capacity, then new connections with neighbouring countries, above all the Estlink2 cable, are of vital importance for maintaining the security of supply in the future” said Veskimägi. Assessing the security of supply in the Estonian electricity system gives Elering as Transmission System Operator an overview of the sufficiency of production capacity and network connections. It can also consider the regional electricity market and management of the electricity system. The security of supply report aims to inform the public and energy policy-makers of the level of security of supply in Estonia at the present moment and for the future as far as 2025.Elering has currently been informed of the following planned additional production capacity: •2011 – VKG Põhja power plant +30 MW •2011 – Pärnu CHP plant + 28 MW                 • 2013 – Elering emergency reserve first block +100 MW • 2013 – Enefit OÜ oil production plant +38 MW • 2014-2016 – Elering emergency reserve second block +150 MW •2015-2017– Narva power plants new blocks +2x275 MWAt the same time the following reductions in capacity are planned: •From 2008 – mothballing of the first block at Iru, -62 MW •2009-2011 – mothballing of two blocks at the Balti power plant, -302 MW •2011 – closure of the Ahtme CHP plant, -24 MW •2010-2015 – DeSOx/DeNOx for up to four blocks at the Narva plants, -22 MW (reduction in capacity caused by increase in internal consumption) •2016 – shut-down of six blocks at the Narva power plants.The security of supply report is available at: http://www.elering.ee/ (Estonian only)