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calculated as a sliding premium on top of the market price for electricity delivered to the grid. Payments are calculated using the same floating market premium formula described above, but projects qualifying for the non-competitive feed-in premium are not required to generate any set amount of electricity.
Funding for the renewable support scheme continues to come from a renewable energy charge that supported the previous feed-in premium system. Every electricity customer in Estonia pays this charge, which is collected by Elering, the transmission system operator. There are no exemptions or reductions. In 2019, the charge was EUR 0.0104/kWh (Elering, 2019a).
It should be noted that renewable projects that were operational before the 2018 amendments to the Electricity Market Act came into force and which qualified for the feed-in premium under the previous support scheme continue to receive payments as agreed to under that scheme.
The previous feed-in premium subsidy scheme appears to have been a key driver in the renewable deployment seen since the last In-depth Review. The IEA welcomes Estonia’s transition to competitive auctions, which can be an effective mechanism to support continuing growth of renewables. Tenders and the auction process need to be well designed and implemented. Clarity on the timing and size for future tenders, transparent selection criteria, and an efficient bidding process will help project developers prepare relevant and cost-effective project bids that support a least-cost pathway to achieving renewable energy targets.
Technology-neutral competition based solely on project cost can cause a single technology to dominate renewables deployment and may not result in the most efficient technical and financial operation of the electricity system as a whole. The IEA recommends that Estonia consider the merits of allocating some funds to technology-specific auctions to ensure a diversified renewable generation portfolio that takes full advantage of all renewable resources in Estonia.
The following sections examine policy impacts on renewable electricity generation from specific renewable resources in Estonia.
Wind
The previous feed-in premium support scheme helped to drive strong wind power deployment, which reached 5.2% of electricity generation in 2018. Estonia’s transition to competitive auctions should support accelerated wind power deployment as wind power is already one of the lowest cost technologies and the cost of both onshore and offshore wind projects continue to decline (IEA, 2018b). However, wind power deployment in Estonia has slowed significantly, with only 10 MW of new capacity in 2016 and no new projects deployed in 2017 or 2018 (see Box 8.2).
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Box 8.2 Wind power and national security
Wind turbines can affect the ability of radar to detect and track airplanes, resulting in negative impacts on national security capabilities. However, turbine impacts on radar can be mitigated by adjusting the siting of the wind turbines and through upgrading or expanding radar capabilities (Miller, 2016). Estonia’s small land area and geopolitical location present specific challenges for balancing wind power deployment and national security interests and since 2008, the Ministry of Defence has objected to over 500 megawatts (MW) of planned or permitted wind projects (EWPA, 2019). This represents a significant capacity of potential projects being blocked, as total wind power capacity was 310 MW in 2017. Objections from the Ministry of Defence also appear to be part of the reason that no new wind projects have been deployed since 2016 (EWPA, 2018a).
In 2018, the government created a working group including the Ministry of Defence and wind power developers to clarify national security restrictions on wind project deployment. The working group examined existing restrictions and national security issues related to wind power in Estonia and presented findings, indicating that wind power developers should cover the full cost of any additional radar units needed to compensate for the impacts from wind power projects (EWPA, 2018b). While these findings clarify the responsibility of wind project developers, the government has yet to offer a clearly defined planning and permitting process that will allow developers to understand the full range of national security restrictions and open a pathway for projects to proceed in a manner that does not excessively impact radar and other national security assets.
Given the critical role that wind power could play in meeting renewable energy targets for 2020 and 2030, the IEA recommends that the Estonian government quickly clarify the procedures for project developers to comply with all spatial planning requirements. National security, environmental and other spatial planning restrictions that can affect wind projects should be transparently presented as early as possible in the planning and permitting process, so that wind project developers know in advance what is required to bring a project to successful operation. A complete review and presentation of all spatial planning restrictions would also help policy makers understand the full impact of these restrictions on wind deployment potential and whether or not current restrictions are compatible with Estonia’s mediumand long-term renewable energy targets.
A proactive approach to quickly identify sites with strong wind resource and access to adequate transmission capacity and with minimal impacts on defence capabilities could help restart the sustained growth of wind power Estonia experienced up to 2016. Looking forward, a potential solution would be to establish a database of all relevant data needed to plan wind projects while respecting national security and other restrictions. This would allow project developers to modify projects before they are submitted and help policy makers to identify areas where additional investment in defence capabilities would be warranted and most effective to support significant increases in wind power deployment.
Current electricity market regulations guarantee network access for all generators, but require that the project developer pay the cost of any improvements to the transmission and distribution system required to connect the project to the electricity grid. This policy
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treats all technologies equally, does not appear to have limited the impressive renewable energy growth seen from 2007 to 2017, and has the advantage of encouraging project developers to build on sites that have the lowest grid connection costs, thereby reducing the overall cost of the electricity generated. However, requiring project developers to pay grid connection costs could represent a barrier to deployment of offshore wind projects due the high cost of connection versus other technologies. In Denmark, one the largest offshore wind markets, connections costs have fallen but can still be up to EUR 0.4 million per MW (Energinet, 2018).
Notable offshore wind capacity has been installed in countries that require projects to pay the full cost of grid connection. However, other countries have moved away from this system to regimes that require the transmission system operator to cover the cost while giving them greater control over the siting of offshore wind projects (Schittekatte, 2016). The IEA recommends that Estonia examine how connection costs are regulated in the major offshore wind markets to determine which system of allocating connection costs best matches Estonia’s electricity market and the government’s desire for notable offshore wind power deployment.
In addition, the IEA notes that the higher connection costs for offshore wind could make it difficult for offshore wind projects to compete in technology-neutral auctions based solely on lowest project costs.
Solar
Elering indicates that solar photovoltaic (PV) capacity experienced a ten-fold increase in 2018, growing to 110 MW from just 11 MW in 2017. This development appears to result from a drop in PV installation costs coinciding with the expiration of the guaranteed feed-in premium on 31 December 2018, which encouraged developers to quickly bring PV projects to market (Elering, 2019b). PV has now surpassed hydropower to become the third-largest source of renewable electricity in Estonia and will likely continue to grow.
Estonia’s updated renewable support scheme will most likely drive additional PV deployment. PV is among the lowest cost renewable technologies and continues to experience rapid cost reductions (IEA, 2018b). These low costs mean PV projects will be competitive players in Estonia’s reverse auction process and could result in the first deployment of multi-MW PV systems in Estonia before 2020. PV could also have a substantial advantage in the upcoming renewable electricity auctions as wind power developers may be reluctant to submit bids until a clear solution for siting issues is reached (see previous section).
PV is also well positioned to take advantage of the continuation of the guaranteed feed-in premium for systems of less than 50 kW. PV is one of the few technologies that can be easily deployed at this scale and at a cost competitive price (IEA, 2018b). This subsidy could support a rapid growth of distributed PV on residential and commercial properties.
In addition, the government-owned utility Eesti Energia has plans to deploy 50 MW of PV by 2022 (EE, 2018). The utility will pursue this goal through PV projects on utility-owned land and development of PV projects on customer properties, which will be built, owned and operated by the utility and funded through power purchase agreements with property owners (Bellini, 2018).
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Taken together, these factors indicate that PV has a notable role in renewable electricity generation that could grow substantially in the future. However, Estonia’s current energy sector planning documents lack a clear strategy on the desired role of PV. The only direct mention is an aspirational 2050 target for 100 MW of PV in the 2017 “General Principles of Climate Policy until 2050”, but this level of deployment has already been achieved, in 2018. The IEA recommends that Estonia re-examine the role that PV can play in meeting renewable energy targets and the potential impact that substantial PV deployment could have on the electricity system and market.
This includes a need to reconsider technology-neutral auctions where wind and PV generation compete solely on the basis of price. PV and wind offer complementary generation profiles and simultaneous development of both resources could support an increase in renewable energy that is more cost effective and easier to manage from an operational electricity system perspective, versus trying to reach the renewable energy target by relying primarily on just one of these technologies.
Hydropower
Hydropower plays a small role in renewable energy generation in Estonia, covering 0.1% of generation in 2018. Estonia indicates that hydropower generation resources are fully utilised. The draft NECP makes note of a potential 500 MW pumped storage hydro project that would be a valuable asset to support system integration of variable renewable energy (VRE) from PV and wind. The IEA recommends that Estonia identify opportunities for pumped hydro storage to support VRE integration. Additional VRE integration issues are discussed below.
System integration of renewables
The current level of generation from variable wind and PV in Estonia does not present any notable issues for stable operation of the electricity system. However, the draft NECP indicates 4 GW of planned wind power projects and the NDPES 2030 has an aspirational goal for wind power to cover one-third of Estonia’s electricity generation in 2050. In addition, PV generation has expanded much faster than government predictions. System integration measures could be needed in the medium to long term to ensure that the full potential of VRE can be harnessed in a secure and economic manner. The IEA has identified several strategies supporting VRE integration:
adequate transmission and distribution infrastructure
efficient utilisation of cross-border interconnectors
system-friendly VRE deployment
maximising the flexibility of the non-VRE generating fleet
leveraging demand-side flexibility
increased electrification of the energy sector.
Estonia is already making upgrades to its transmission network to help to integrate a higher share of wind and PV generation. These include expanding the reach of the domestic high-voltage network, which will provide grid access to a larger number of wind projects and utility-scale PV projects. However, the scale of wind and PV deployment required to achieve the 2030 target of up to 50% renewable electricity could require
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additional investment in the transmission system to ensure that the grid reaches the best sites for wind and PV generation and that there is adequate transmission capacity.
Transmission adequacy could be a concern for offshore wind as the current system does not reach many coastal areas and may lack the capacity needed to securely integrate the multi-hundred MWto GW-scale projects envisioned in government planning documents (Government of Estonia, 2018a). The rapid and unanticipated growth in PV generation means that the adequacy of the distribution network may also need to be reexamined, especially given the potential growth of the distributed PV system taking advantage of the feed-in premium for systems under 50 kW.
The rapidly falling cost of battery storage should also be considered. Batteries can provide a wide range of capabilities that support VRE integration and if properly deployed can reduce the need for investment in traditional transmission and distribution infrastructure. For example, batteries allow for self-consumption of renewables at the site of the end user, reducing the need for additional distribution capacity. Estonia should examine the wide range of services that can be provided by batteries and where relevant consider policy and regulatory changes that would allow batteries to participate in the electricity system. Estonia may also wish to examine the inclusion of aid for batteries in its support scheme.
Cross-border electrical interconnectors assist with VRE integration through regional balancing, which helps the electricity system react to wind and PV generation variability and by allowing export of wind and PV generation to avoid curtailment and lost revenue when VRE generation exceeds local demand. Estonia already has notable interconnection capacity with Finland and Lativa (Elering, 2019c). A third interconnector with Latvia is under construction and there are plans to increase interconnections further so that Estonia can become part of the synchronous European grid system by 2030.
System-friendly VRE deployment means that wind and PV assets are deployed in locations and configurations that make it easier for the electricity grid to integrate the generated electricity. One means to encourage system-friendly deployment is the inclusion of specific locational or performance requirements within auctions as has been done in Denmark and Mexico, for example. Locational requirements allow auctions to promote renewable energy projects in areas with a good balance of renewable resource quality, grid access, and reduced concerns over national security or environmental restrictions. Technology-specific performance requirements could be included in the auction process to steer project developers to design projects that are easier to integrate into the existing grid in a secure manner. Examples included requiring larger blades on wind turbines to reduce the variability of their generation and/or setting the orientation of PV systems so that their generation is better aligned with the daily electricity demand.
Another key factor affecting VRE integration is the flexibility of the existing fleet of generation assets. This includes both the technical ability of power plants to rapidly change their output or run efficiently at low levels of generation and the ability of the market to financially support flexible operation. Estonia should examine its current fleet of thermal power plants to see what limits they place on VRE integration and determine if there are any operational or market changes needed to allow for more flexible operation of thermal generators. Looking to future investments in thermal generation, Estonia should consider prioritising technologies and plant configurations that allow for greater flexibility in responding to the significant anticipated growth in VRE generation.
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