Study Launched to Switch to LNG in Boiler Plants

The initiative for the study was triggered by plans for the reorganisation of the shale oil industry, which may reduce the competitiveness of shale oil as a boiler plant fuel. So far, shale oil has been an important fuel for generating heat in areas located far from the natural gas pipeline network, which now gives rise to the strategic need for developing a new solution.

According to Andres Siirde, TUT Professor of Thermal Power Equipment, who will lead the study, the strategic plan for Estonian shale oil producers to start producing motor fuels from shale oil in a few years, although in general a welcome idea, is unfortunately bad news for existing consumers of shale oil. It is obvious that turning the industry’s focus to the production of motor fuels will significantly reduce its availability for boiler plants, driving up the price of heat for residential customers. As Professor Siirde says, there are currently hundreds of boiler plants in Estonia using shale oil as their only fuel. “Liquefied natural gas has great potential, both in technical and economic terms, as a replacement boiler plant fuel. Our study aims to identify the modifications required in boiler plants in order to switch to the new fuel, how the liquefied natural gas supply chain will be organised, and to determine the economic effect resulting from such a reorganisation.”

The study was initiated by Elering, since one of the important recommendations of the report on the liberalisation of the Estonian gas market was to determine additional possible sources of demand for gas on the Estonian internal market.

“Liquefied natural gas can definitely offer new solutions for Estonia,” explains Janek Parkman, Elering’s natural gas business developer. “On the one hand, imported liquefied natural gas will start competing with pipeline gas. On the other hand, it will have the potential to compete with liquid fuels in energy generation both for sea and land transport,” he added.

AGA Estonia participates in the study as an industry partner, whose main areas of activity include the production, transport, storage and sale of different gases. According to Andrus Laur, managing director of AGA Estonia, they have lengthy experience in the production and transportation of different industrial and medical gases. “As yet, AGA Estonia does not sell liquefied natural gas in Estonia, but we want to be ready and prepared if an LNG terminal is built in Estonia,” explains Laur. “The first and so far only LNG terminal on the shores of the Baltic Sea, which is located in Nynäshamn, Sweden, was built and is owned by AGA, so we can rely both on the Swedish experience as well as the global experience of AGA’s parent company, the Linde Group, in trading LNG,” added Laur.

The report on the liberalisation of the Estonian gas market, prepared by Pöyry Management Consulting, recommends a complete set of activities in order to liberalise and develop the Estonian gas market. First of all, the natural gas transmission grid must be separated from Eesti Gaas, alternative gas suppliers must be ensured access to the market by constructing an LNG terminal, demand for natural gas must be increased and the gas markets of Finland and the other Baltic countries must be integrated. In December last year, the Port of Tallinn and Elering agreed to commence preparatory work for constructing an LNG terminal at the port of Muuga.
 

Elering’s Financial Results for the Fourth Quarter

Compared with the fourth quarter in 2010 the financial results have improved – although the revenue decreased by 2,5 million euros, the cost decreased even by 2,8 million euros, resulting in the growth of net profit by 0,3 million euros.

In the fourth quarter 2011 a significant increase in the investment activity occurred – cash flow for purchasing fixed assets reached 25,1 million euros, in the fourth quarter 2010 it was 7,8 million euros.

Elering’s CFO Peep Soone said that the unusually warm winter had a negative impact on the revenues because less electricity was used. „At the same time it is important to notice that the weather conditions in Estonia in the the first and fourth quarter of the year cause increased electricity consumption and it also affects Elering’s financial results,“ Soone added.

Elering is the independent and autonomous Transmission System Operator for Estonia, whose main duty is to ensure high-quality supplies of electricity to consumers at all times. To achieve security of supply, Elering maintains and develops the national transmission grid and international interconnections. Elering controls the Estonian electricity system in real time, ensuring the operation of the transmission network, and the balance between production and consumption.

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

Elering’s 2011 audited annual report will be published by 23 April 2012.
 

Renewable Energy Reached Almost 13% of Estonian Consumption

Estonian production of renewable electricity was 1160 GWh during the whole year, which represented an increase of 35% on the previous year. The main driver of this rise was the increased production of electricity from biomass, biogas and wind power. In the year as a whole, 66% of renewable electricity came from waste and biomass, 31% from wind energy and 3% from hydroenergy.

Last year, 1066 GWh of renewable energy qualified for subsidies, which meant an increase of 40% in the amount of subsidised renewable energy and an increase of 57.2 million euros in the amount of subsidy paid out. The main reason for the increase in the amount of electricity qualifying for the subsidy was the growth in the amount produced from wind and biomass. The largest new recipients of subsidies were the Fortum Termest combined heat and power (CHP) plant in Pärnu, which started operation at the end of 2010, and the Virtsu III and Vanaküla wind parks. The subsidy to the Narva power plants for electricity production from biomass also increased.

Taavi Veskimägi, the CEO of ELering said that the growth in the amount and the share of renewable energy has been very fast in Estonia, and that this is of course a very welcome development, but one that equally shows clearly how the current system for subsidies needs to be overhauled. “In this context the ministry’s desire to alter the renewable energy subsidy system is very logical and, given the increase in the income of producers as the market opens, it is also very fair. For this reason it is important to make corrections to the system for renewable energy by the time the electricity market opens fully on 1 January 2013. A method that would be fairly proportional for the reasonable expectations of producers and consumers is one where producers give some of the income that they are receiving above the fixed price back to consumers through a lowering of the subsidy for renewables,“ he explained.

“Consumers cannot bear the whole weight of the more expensive electricity. The renewable energy fee now makes up almost 10% of their monthly electricity bill and given the current numbers for renewable energy, it is possible to reach the government’s targets for renewable electricity in a way that places a much lower burden on consumers,” he added.

The amount of wind energy receiving the subsidy rose by 45% from its 2010 level to 272 GWh while the amount of electricity produced from biomass and receiving the subsidy was 36% more than last year at 747 GWh.

Applications for the subsidy for efficient CHP production last year were 21% higher than a year earlier at 4.7 million euros and the amount of electricity receiving the subsidy rose from 121 GWh to almost 147 GWh. The main reasons for this were that a new CHP plant started operation at the end of 2010 in Pärnu and that Kunda Nordic Tsement AS and some other small CHP plants increased their electricity production. There were also changes in the Electricity Market Act that meant that last year subsidies started to be paid for electricity transmitted along lines owned by producers.

Production of electricity from hydro-power was up by 13% on the previous year at 31 GWh due to the heavy precipitation during the year.
 

Last Year Electricity Production Exceeded Consumption by Almost Half

The fall in electricity consumption last year was not surprising given the warm winter in the whole region, and consumption also fell in the other Baltic and Nordic states. Consumption in Estonia fell back from its more recent highs to the level of 2006.

A total of 11.4 TWh of electricity was produced in Estonia last year, which was 1% more than in the previous year. The amount produced from oil shale fell by 0.2 TWh or 2%, while production from renewable sources rose by 0.3 TWh, or about one third, with wind and biomass supplying most of the growth.

In 2011 the only countries in the Baltic and Nordic region that produced more than they consumed and were exporters of electricity were Estonia, Sweden and Norway. Electricity production was down in the Baltic region as a whole by 7%, with falls of 11% in Latvia and of 19% in Lithuania.

Despite this there was no shortage of installed generating capacity in the Baltic states in 2011. The net capacity of the power plants was 8.7 GW, which is enough to cover the consumption of the whole Baltic region. Taavi Veskimägi, the CEO of Elering said that this shows the rational thinking of market participants, which shows up the difference between domestic production and imports. “This is why the regional market is good for both consumers and producers. All decisions to invest in building new power stations in the region must be based on economic logic and respond to market demand. It is not necessary to build uneconomic new power stations on the grounds of security of supply as there is sufficient production and connection capacity in the Nordic and Baltic region. Building power stations with direct or indirect subsidies will be very expensive for society,” he said.

The fall in Latvian production was caused by a drop in output from hydroelectric plants, with the plant at the Daugava cascade producing 18% less electricity than in the previous year. For the year as a whole, Latvian domestic production was enough to cover 82% of Latvian consumption, leaving a shortfall of 1.2 TWh.

Lithuanian production was enough to cover only 36% of consumption in the country and the shortfall was 13% higher than in 2010. The main reason for this was cheap imports from non-EU countries, with imports from Kaliningrad, where a second generating unit at a combined heat and power plant started up at the end of 2010, replacing the output of Lithuania’s largest power station.

Electricity trading boosted cheap production from hydropower in the Nordic countries. Estonian exports to Finland suffered most, while the share of exports going to Latvia and Lithuania rose by a total of 30%. In 2011, 39% of exports went to Latvia, 33% to Finland, and 28% to Lithuania.

Latvia supplied 46% of Estonia’s imports last year, Finland 31% and Lithuania 23%. The amounts bought from Finland increased during the year, while the Latvia’s share of imports fell.

A longer summary in Estonian can be found here.
 

Trading Activity on the Power Exchange Increased Last Year

The amount of electricity sold in the Estonian price area was higher than the amount bought over the whole year. A total of 5.8 TWh of electricity were sold in the last year in the NPS Estonia price area and 4.6 TWh were bought. The difference of 1.2 TWh was exported through the EstLink 1 undersea cable to Finland.

Last year 90% of the sellers were Estonian market participants, while Latvians and Lithuanians accounted for 5% each. At the same time the buyers were mostly Estonians and Latvians, respectively 55% and 40% of the total, and only 6% were Lithuanian market participants.

Taavi Veskimägi, the CEO of Elering said that the power exchange, which started operation following the partial opening of the electricity market to large consumers from 1 April 2010, has become a successful part of the electricity market. “Our experience of running an electricity market successfully will certainly boost faith in the likelihood of success for the full opening of the market. For that success to be achieved, it is imperative that we have rules in place that can limit the danger of concentration in the market or the creation of unequal competition.”

He added that competition needs sufficient connections to other countries if it is to function. “The past year showed clearly how well good international electricity connections work for both consumers and producers. FennoSkan 2, the second undersea cable between Finland and Sweden, which came into operation in the middle of November, gave our consumers access to Nordic hydropower, which is why the electricity price on the open market in December was basically the same as the regulated market price for residential consumers. The second cable between Estonia and Finland, EstLink 2, will improve matters further because it will allow unlimited access to Nordic electricity and traders in the Nordic market. If Latvia and Lithuania finally manage to join the Nordic power exchange, we would have a regional market that would have sufficient capacity to cover demand for the next ten years without production needing any additional subsidies.”

The general fall in prices in 2011 in all the price areas of the power exchange also affected the prices in the NPS Estonia price area. The average price in the Estonian price area in the last year was 43.37 EUR/MWh, which is almost 3 EUR/MWh lower than it was in the last nine months of 2010. Prices in December 2010 were extremely high because the very cold weather pushed consumption up at a time when the reservoirs of the Nordic hydropower stations were low. In contrast, the main cause of the fall in prices in 2011 can be attributed to the warm weather at the end of the year and high water in the Nordic reservoirs.

Prices on the exchange vary seasonally, and are especially volatile in the winter and summer. The volatility in winter is caused by high consumption and a shortage of generating capacity at peak times contrasting with night time hours when prices are much lower. In summer the price volatility is mainly due to the lack of transmission capacity between Estonia and Latvia, which means there is a shortage of generating capacity in Latvia and Lithuania when combined heat and power plants are not being used and hydropower stations are producing less than they do during the spring thaw. Latvian and Lithuanian market participants trade in the Estonia price area, and this means our price is affected by the conditions in the regional market and the balance of consumption and production throughout the Baltic states.

The Estonian electricity market will open fully from 1 January 2013, meaning that each consumer can choose their supplier by choosing the best package and conditions from among the many available choices and agreeing on prices and amounts with the supplier. Those consumers who don’t want to or don’t manage to choose a supplier by that date will not be left without electricity, but will receive electricity as a generic service, which means that by law the price will be based on the average exchange price of the previous month with a reasonable margin added.

A complete summary about NPS Estonia in 2011 can be found here (only in Estonian).