Grants
The economic profitability of power plants is primarily influenced by technological efficiency, fuel prices, environmental taxes, and support paid. In general, fuels that pollute the environment more are cheaper than cleaner energy sources (such as biomass and gas), but significant quantities of products can affect the market and drive down the price of low-margin renewable energy sources such as wind and hydropower.
Given the peculiarities of Estonian electricity production, where oil shale plants dominated, alternative plants were not yet cost-effective without additional support. Various support schemes were established in Estonia to increase the share of renewable energy sources and meet the goals of the European Union. Their aim is to increase investments in electricity production from renewable energy sources and in efficient cogeneration of electricity and heat to ensure both primary energy savings and security of supply.
In December 2017, Estonia obtained a new state aid permit from the European Commission for the renewable energy support scheme, which has been published on the European Commission’s website, along with Guidelines on state aid for environmental protection and energy 2014–2020. According to the terms of the requested state aid permit, Estonia may pay renewable energy and efficient cogeneration support to producers for electricity generated using production devices that commenced production before the end of 2020.
In the future, based on European Union regulations, support for the production of electricity from renewable energy sources will be permitted, primarily in the form of reverse auctions. As a result of reverse auctions, those producers who are willing to produce electricity from renewable energy sources with the lowest support will receive support. In the case of reverse auctions, the legislation limits both the maximum support rate per megawatt-hour of generated electricity and the sum of the support and the day-ahead electricity exchange price in the Estonian price area. Therefore, no support is paid if the exchange price of electricity is high, as in this case the producer will receive the expected income from the electricity price. In this way, the aim of reverse auctions is to ensure that support is provided in a competitive procedure to overcome the so-called market barrier, i.e. to the minimum necessary extent. At the same time, when the State orders new renewable energy projects through reverse auctions, it should be guaranteed that the State’s renewable electricity targets are met at the lowest possible cost to the electricity consumer.
Read more about the topic in the “Electricity market handbook”(in estonian).