Elering’s Financial Results for the First Quarter

Elering’s CFO Peep Soone said that Elering’s financial results were on par with expectations, considering the cyclical nature of electricity consumption. „Good results for the winter period allow the company to have more confidence going into the summer period, which is financially more difficult for the energy industry. In the summer, there is less electricity consumption, and tariffs are also lower; at the same time, most of the repair and maintenance work and new investments are conducted in that period. Elering still has more than 100 million euros of investments planned for this year, which are mainly financed with loans,“ Soone added.

The results are an improvement on the same quarter of last year: earnings are up by 1.3 million euros, while operating costs are down by 0.4 million euros. This has resulted in an increase in operating profit by 1.7 million euros. The growth in earnings is due to the electricity consumption being slightly higher than anticipated, as well as changes in fees that came into force as of January 1st, 2012.

Operating costs have decreased by 0.2 million euros compared to the first quarter of last year, which resulted in an increase in net profit by a total of 1.9 million euros. Cash flows for the financing of capital investment have almost doubled in the same period, going from 8.1 to 15.5 million euros.

For more about Elering’s financial results for the first quarter, see here.
 

Vopak LNG chosen as strategic partner for Tallinn liquefied natural gas terminal project

On May 2nd, 2012 Elering and Tallinna Sadam signed a Letter of Mutual Intent with Vopak LNG, in which the Parties express their mutual willingness to start a feasibility study comprising of the technical and economic parameters, the cost of construction and the need for European Union funding for the Tallinn LNG terminal to be developed at Muuga Harbour.

The work group consisting of Tallinna Sadam and Elering has been concentrating on choosing a partner since the beginning of this year. According to the agreement between Tallinna Sadam and Elering, the partner chosen must have experience in establishing and operating LNG terminals in Europe, they must be independent of vendors and producers of natural gas to ensure open access to the terminal.

According to Elering’s natural gas business developer Janek Parkman, the defining factor in choosing Vopak LNG is their global competence in developing and operating (LNG) terminals their independence from vendors and producers of natural gas and their readiness and interest to contribute to the development of the Tallinn LNG terminal at Muuga Harbour. “Vopak LNG has experience in establishing and operating the largest LNG terminal in Europe: the GATE terminal in Rotterdam, which makes Vopak LNG the most considerable strategic partner for the developers of LNG terminals in the region of the Baltic Sea,” explained Parkman.

Taavi Veskimägi, the Chairman of the Elering Board, says that establishing a strong regional LNG terminal in Estonia is key to enhancing competition in the local natural gas market. “In developing the LNG terminal, Estonia complies with the principles of European Union directives on natural gas, which state that the ownership and administration of energy infrastructures must be kept separate from producing and selling energy.”

Dirk van Slooten, Global Director of Vopak LNG , said that the objectives of Vopak as independent owner and operator of terminals are well suited to the objectives of the Tallinn LNG project. “Our mutual objective is to develop in Estonia an open access LNG terminal with transparent user terms and conditions in compliance with the needs of the market. We are able to offer our experience and contacts to achieve this objective.”

Erik Ringmaa, Chief Commercial Officer at Tallinna Sadam said that having Vopak as a partner will assure all parties that the terminal to be built will be technically perfect and in compliance with all current safety and environmental requirements. “We believe that building the LNG terminal in Muuga will significantly contribute to a cleaner environment of the Baltic Sea. LNG, as environmentally clean fuel, has started to replace existing bunker oils regarding the strict environmental terms that will be implemented by 2015. In addition to that, Muuga’s strategic location near important waterways provides opportunities for ships to be refuelled.”

The LNG terminal is part of the concept of developing the regional and Estonian gas market, developed in cooperation with consulting company Pöyry Management Consulting Ltd (UK) last year. The prefeasibility study is compiled by Ramboll Oil & Gas Ltd. At the same time cooperation with Estonian universities in seeking further potential for the use of natural gas continues.

The short-term objective of the Letter of Intent entered into by Elering, Tallinna Sadam and Vopak LNG is to clarify the feasibility of establishing an LNG terminal in Tallinn, at Muuga Harbour. The results of the study are expected to be presented in August 2012 to the Natural Gas Committee at the Ministry of Economic Affairs and Communications. This study is also useful to convince the European Commission of the suitability of the Tallinn LNG terminal project as a terminal supplying the whole of the Baltics and Finland. In the past the European Commission has reported that it will support the development of the LNG solution in the Baltics on the condition that it is able to cover at least 25% of the consumption of the entire region.

Vopak LNG Holding B.V. is a 100% subsidiary of the Dutch company Royal Vopak (Koninklijke Vopak N.V.) with a history dating back 400 years. Royal Vopak is the world’s leading independent provider of conditioned storage facilities for bulk liquids. Its shares are quoted on the Amsterdam Stock Exchange. Vopak LNG specialises in handling liquefied natural gas by owning and operating LNG terminals in Rotterdam, The Netherlands and Altamira, Mexico.

Elering AS is Estonian transmission system operator, whose primary task is to ensure a constant high-quality electricity supply to the Estonian consumer and to ensure the security of the energy supply. In order to achieve the best possible security of energy supply in Estonia, the development of the electricity and gas industries must be linked to developing Elering as the integrated administrator of electricity and gas systems.

AS Tallinna Sadam is the largest complex of cargo and passenger ports in Estonia, that plays an important role in Estonian transportation system and in the economy as a whole. AS Tallinna Sadam consists of five harbors: the Old City Harbor, Muuga Harbor, Paldiski South Harbor, Paljassaare Harbor and Saaremaa Harbor. Last year a total of 8.48 million passengers passed through the harbours of Tallinna Sadam, the volume of cargo amounted to 36.6 million tons.
 

Elering borrows 15 million euros from Nordic Investment Bank

The new Tartu-Viljandi-Sindi transmission line will increase the capacity of the Estonian electricity network running east to west; it will significantly increase the security of the energy supply in the Pärnu area and create an opportunity for building a third Estonian-Latvian power line in the future. In addition to increasing the security of the energy supply, it will also enable new power plants in western Estonia to be connected to the electricity network. The construction work started in 2011 and will finish in 2014.

According to Peep Soone, CFO at Elering, the NIB loan has a significantly longer tenure compared to standard offers from commercial banks and currently the repayment period will be between 2017 and 2032. "It is especially beneficial for Elering because during the most intensive investment period between 2012 and 2014 when we will invest 378 million euros in the electricity network, we will not spend money paying back the loan. In addition, the interest rate will be fixed before we draw the loan," adds Soone.

This loan is already the second funding from NIB. In 2010, an initial loan contract of 25 million euros was signed and the goal was to finance the construction of the second cable between Estonia and Finland – EstLink 2.

Elering is Estonia’s transmission system operator, whose primary mission is to ensure constant high-quality electricity supplies to Estonian consumers. To ensure consistent supply, Elering maintains and develops the national transmission network and external connections. Elering manages Estonia’s electricity network in real time, ensuring the operation of the transmission network and balanced production and consumption.

More information about the Tartu-Viljandi-Sindi power line is available here.
 

Renewable Energy Makes Up 16% of Estonian Power Consumption

The majority of renewable energy, 69%, came via electricity production from waste, biomass and biogas, with 28% coming via wind power and 3% via hydro power production.

Applications for renewable energy subsidies totaled 19 million euros for the first quarter of this year, which is nearly half as much as in 2011, when the figure was 12.1 million euros. The subsidy payouts increased the most for electricity produced from biomass and biogas, with the amount paid to Narva Elektrijaamad AS (Narva Power Plants) increasing by a factor of over 4.2 in the first quarter. Compared to last year, however, subsidy applications for electricity produced in combined heat and power mode have decreased.

According to Taavi Veskimägi, Chairman of the Board of Elering, the percentage of subsidized renewable energy continues to rise quickly, and the need for a review of subsidies is increasingly clear. “Subsidy payouts have increased primarily for renewable electricity produced from biomass. The amounts paid are significantly larger than the Q1 biomass usage volumes that were forecast by the producers themselves and were used as the basis for the 2012 renewable energy tariff (0.97 euro cents/kWh). If the upper limit on biomass usage subsidies, planned as part of the changes to the Electricity Market Act, is not approved, and the use of biomass continues on the same scale, this year’s payouts that exceed the tariff will have to be added to next year’s renewable energy tariff. That, however, may not mean an increase in the renewable energy tariff to the consumer, because according to the law, this is the last year when renewable energy subsidies are paid for generating equipment that became operational before 2002, including Block 11 of the Balti power plant,” commented Veskimägi.

A total of 348 GWh worth of electricity from renewable energy sources received a subsidy, compared to 225 GWh in the first quarter of 2011.

Application submissions for combined heat and power subsidies fell by 25% compared to 2011, totaling 1.5 million euros. The decrease can be attributed to both reduced production capacities and the producers’ choice of fuel – more biomass is being used in CHP production, and that is subsidized at a significantly higher rate than electricity produced from other fuels in combined heat and power mode.

Compared to Q1 2011, subsidized hydro electricity production has increased from 7.5 GWh to nearly 10 GWh. Subsidized wind power has decreased compared to the same period of last year, from 74 GWh to 70 GWh.

A detailed report on subsidies paid per company is available here.
 

Electricity Consumption Grows 2% Year-on-Year

All of the Baltic States saw a decrease in Q1 electricity production compared to last year. Overall, consumption exceeded production almost by a factor of three, with the deficit totaling nearly 2 TWh. Compared to the same period last year, Estonia’s electricity consumption for the first quarter of this year grew by 2% to 2418 GWh. This was primarily caused by proportional increases in power draws by major consumers, with the growth trend supported by a 1% increase among small consumers.

Estonia’s production volumes fell by 18% due to a decrease in output from shale-burning power stations. On the one hand, this was affected by the relatively low price level dictated by the cheap Nordic production capacity and its impact on the Estonian price area, while another factor was the introduction of new environmental measures. The beginning of 2012 saw the entry into force of new restrictions on sulfur and nitrogen emissions, which decreased the limit on SO2 emissions permitted to electricity producers to 25 000 tons per year. As a result, Estonia’s electricity exports were three times smaller than last year, and while the same period of the previous year saw no electricity imports from Finland, this year they accounted for 56% (391 GWh) of the entire electricity imports for the quarter. The decrease in production points to the fact that for many hours, Nordic electricity was cheaper than the cost of maintaining Estonian power stations operational in the current conditions.

The decrease in hydro energy on the Daugava and a low price level on the power exchanges meant that Latvia’s electricity production also fell by 26% compared to the same period last year. Latvia consumed 0.6 TWh more electricity than it produced, and nearly half of the shortfall was covered by imports from Estonia.

In Lithuania, Q1 electricity production decreased by 4% when the output of the country’s Kruonis hydro accumulating plant fell by 11%. At the same time, production at Lithuania’s thermal power plants increased considerably. Lithuania’s total output was enough to cover 41% of domestic consumption in the first quarter, resulting in 70% of all electricity being imported from third countries.

Electricity production for the Nordics as a whole grew by 7% in the first quarter, compared to the same period of last year, on the back of the highest hydro reservoir levels in recent years. Only the Finnish electricity network required energy imports in the first quarter of this year, totaling 4.6 TWh. Combined Nordic electricity exports for Q1 came to 3.5 TWh, compared to an overall deficit of 6.5 TWh a year ago.

The full report is available here (only in Estonian).