Elering analysis: a strategic reserve must be created in order to mitigate risks that have grown due to the energy crisis

The newly completed security of supply analysis of Elering indicates that energy supply risks have grown, above all due to Russian aggression in Ukraine. In the medium term, a strategic reserve based on guaranteed production capacities must be created by 2027. Based on the new analysis, the Estonian oil shale-fired power plants may not be economically feasible and it could lead to their closure.

“The energy crisis in Europe caused due to the Russian invasion of Ukraine has significantly increased energy supply risks in Estonia and in the entire region, but according to the analysis, security of supply is ensured under normal circumstances. However, the accumulation of an unusually large amount of malfunctions and accidents within the same period of time could bring about very high electricity prices in the coming winter or lead to the necessity of limiting consumption for a little while and to a certain extent. The winter will certainly be tense when it comes to the security of supply of energy,” said Taavi Veskimägi, Chairman of the Management Board of Elering.

Analyses conducted all over Europe together with other European system operators indicate that as of 2027, the Estonian oil shale-fired power plants may no longer be competitive on the electricity market. When oil shale-fired power plants are disregarded from guaranteed production capacities due to their economic infeasibility, the level of security of supply no longer meets the standard established by the Government of the Republic of Estonia.

In order to ensure the security of supply, Estonia must have approximately 1,000 megawatts of guaranteed production capacities. Elering has submitted a proposal for creating a strategic reserve to the Ministry of Economic Affairs and Communications for the purpose of ensuring these capacities. To this end, Elering is prepared to implement state aid measures that comply with the legislation of the European Union.

In 2020, Elering ordered a survey for finding the most suitable capacity mechanism for Estonia. The result was a strategic reserve. In the previous year, Elering prepared the concept of an Estonian strategic reserve that could be used as the basis for elaborating the state aid measure.

With regard to the winter, there are sufficient production capacities in the region in order to cover peak consumption. However, in the last year, the risk for an extraordinary desynchronisation from the Russian electricity system and the stoppage of the operation of the Narva power plants due to the actions of the Russian Federation has significantly increased, and there is a possibility that the completion of the new Finnish nuclear power plant will be delayed. The availability of natural gas and other fuels has likewise decreased.

In addition to these risks, circumstances that could cause issues when ensuring the security of supply upon the accumulation of several events with a negative impact must be taken into consideration. These circumstances are an extraordinarily cold winter in the region, low hydropower reserve levels in the Nordics, adverse wind conditions in the countries bordering the Baltic Sea, and malfunctions and accidents in production and transmission capacities.

Elering estimates that the volume of guaranteed market-based production capacities in Estonia is currently 1,337 megawatts. Along with the emergency capacity of Elering in the volume of 250 megawatts, the volume of guaranteed capacities is currently approximately equal to the current peak consumption of Estonia.

In addition to the sufficiency of production capacities, the reliability of the network and high-quality management are important for ensuring the security of supply, and also the capacity for ensuring cybersecurity in a situation where we are facing higher risks.

The reliability of the transmission network managed by Elering was excellent last year – transmission reliability amounted to 99.9998 percent, and the reliability of the direct current connections between Estonia and Finland was one of the best in the whole of Europe.