Key institutions

2. GENERAL ENERGY POLICY

The NDPES 2030 integrated six policies that had been adopted earlier; those for the electricity, energy efficiency, renewable energy, housing and buildings sectors, and the energy technology programme, with the aim to ensure that comprehensive planning of the energy sector is guided by a single development plan. Reducing the number of strategy documents also allows for better integration with national budget preparation. This will facilitate the planning and funding of policy measures to 2030. The IEA commends Estonia for implementing this strategic planning framework.

The NDPES 2030 describes the objectives of Estonia’s energy policy to 2030 and lays out the vision for the energy sector until 2050 as follows (MEAC, 2017):

reducing the energy intensity of the economy by 66% in 2030 compared to 2012

maintaining the final energy consumption in 2030 at the same level as in 2010 (3 Mtoe), with renewable energy accounting for at least 50%

reducing primary energy consumption by 10% compared to 2012

not exceeding 57.7 TWh of primary energy supply by 2030

imported fuels will not account for more than 25% of domestic primary energy consumption in 2030

making Estonia a net exporter of energy by 2030

limiting the share of the largest gas supply source to 70%

reducing greenhouse gas (GHG) emissions in the energy sector by at least 70% by 2030 and by over 80% by 2050, compared to the 1990 level

reducing emissions from outside the EU Energy Trading System (ETS) by 13% below the 2005 level.

The NDPES 2030 also integrated the targets and objectives of the NDPES 2020 as well as the targets to 2020 that were set in line with EU requirements. The targets for 2020 are:

emissions outside the EU-ETS will not increase by more than 11% compared to the 2005 level

final energy consumption in 2020 will not exceed the level of 2010 (3 Mtoe)

renewable energy will account for at least 25% of gross final consumption.

Estonia has already exceeded the 2020 renewable energy target in 2017 and in the same year non-ETS emissions were actually below their 2005 level. However, since 2017, total final energy consumption and total GHG emissions have been increasing. There is a possibility that Estonia may miss its 2020 target of keeping final energy consumption at the 2010 level. Moreover, while Estonia has made impressive progress to increase the share of renewable energy in the electricity and heating sectors, it is far from meeting the mandatory 10% target in the transport sector, with renewables accounting for less than 0.5% in 2017. Initial government data for 2018 show a 3.7% renewable share in transport, indicating that the biofuel mandate has been successful. The government is positive about meeting 10% target in 2020.

Reaching the energy and climate targets to 2030 requires substantially greater efforts, as for the first time Estonia needs to reduce its emissions instead of merely containing their

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ENERGY INSIGHTS

2. GENERAL ENERGY POLICY

also increases the overall efficiency of the primary resource use, further improving the economics for liquefaction of oil shale.

Estonia places a high value on energy independence, which is one of the objectives of the NDPES 2030. This is largely the result of the country’s history. Estonia’s energy policy since the country regained its independence in 1991 sees energy independence as a requirement for energy security. Estonia has the highest energy independence in the EU due to the dominance of oil shale and the large share of renewables in the energy mix.

However, energy independence is increasingly less relevant for a country that is as well integrated with neighbouring EU member countries as Estonia is and that is promoting additional electricity and gas interconnectivity projects to further increase this integration. Estonia’s interconnection with neighbouring Baltic and Nordic countries in the electricity market already exceeds the EU target and completion of the Baltic gas connector will further increase security of supply. The government should now shift focus towards energy security and resilience, to prepare for possible external shocks and adapt to climate change.

According to Eurostat, Estonia had the lowest energy import dependency of all EU countries measured as the share of total energy needs met by imports from other countries (Eurostat, 2018). However, using an index with a single indicator to judge energy independence can be misleading, as total energy exports and imports are balanced out, and Estonia’s dependence on imported oil products is not properly reflected. Estonia also is promoting the increased liquefaction of oil shale for reaching the objective of energy independence in liquid fuels, as synthetic petroleum can also be used to produce motor fuels (MEAC, 2017). A sustained shift towards liquefaction of oil shale could eventually produce sufficiently large volumes to justify the operation of a refinery in Estonia (see Chapter 4). This would not only enlarge the value chain of oil shale, but also increase security of supply and potentially position Estonia as an oil product exporter.

Estonia has significant renewable energy sources, with great unexplored potential. As most other IEA member countries, there are delays in administrative approval for construction of wind farms and transmission lines. However, in the case of Estonia, the delays are due to spatial planning issues and objection by the Ministry of Defence, as wind turbines interfere with radar capabilities and potentially undermine national security. There is a technically straightforward but expensive solution: the installation of additional radar systems. This solution has already been deployed in other IEA member countries, notably the United Kingdom, which might offer some best practice experiences. However, the larger issue to be assessed relates to the overall procedures for spatial planning requirements that project developers need to comply with. This will become increasingly relevant also for expanding grid infrastructure with the expected increase in decentralised generation.

Taxation

Estonia’s commitment to an open market economy with minimal state intervention is also reflected in its tax structure. Estonia has no domestic carbon-pricing system as around two-thirds of total emissions fall under the EU-ETS. There is a marginal domestic carbon

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ENERGY INSIGHTS