Estonia halts expansion of 'expensive' windmills

  • 2005-11-16
  • By Kairi Kurm
TALLINN - Wind power has fallen out of Estonia's favor in recent months, with the Economy Ministry deciding to limit support to wind-power producers and Parliament adopting amendments to the energy law that will give preference to other forms of renewable energy.

Einari Kisel, head of the Ministry of Economy and Communications' energy department, puts it bluntly: "We do not want to have too many wind mills," he says. "The price of wind energy is expensive. The unstable production causes additional costs to other producers."

On the other side is Hannu Lamp, managing director of Tuulepargid, which developed the Pakri wind park, Estonia's largest. He finds the recent decision short-sighted and discriminating.

"So far we had no limitations. It took us five years for preparations and the state is turning its back now," says Lamp.

"There is a good opportunity to gain additional financing through the Kyoto joint implementation scheme from countries with high level of CO2 emissions. These funds last only until 2012. We would not be able to utilize this financing to reduce the cost of green power if the state sets limits on production," says Lamp.

With its long coastline, Estonia has a comparative advantage for generating wind power and can do it at a favorable cost compared to many European countries, argues Lamp. The average payoff period of a windmill investment depends on the site wind conditions, wind power purchase tariff, the cost of capital and share of "carbon" financing. Still, the average return on investment is 10 years, and Kyoto funds could help cover up to 10 percent of expenses.

Currently Tuulepargid has contracts with the governments of the Netherlands, Finland and Denmark, which are ready to support green power projects in Estonia in exchange for greenhouse gas emission reductions generated by these projects.

It has been estimated that Estonia's possible revenues from selling emission quotas to renewable energy producers could amount to 7 's 17 million euros annually. Most of this revenue would go to the state utility Eesti Energia, which has obtained the highest share of emission allowances under the European emission trading scheme.

Kisel says that limits are set in the current regulation as well. Network companies are obliged to buy renewable energy in the amount that does not exceed their network losses. "The establishment of risk-free wind energy projects has come to an end today. However, those mills already established should not worry," says Kisel.

Currently 91 percent of Estonia's energy is based on oil shale. The rest is natural gas, and about 1.5 percent is renewable energy. State owned energy producer and distributor Estonian Energy would continue to have a monopoly on the market until 2013, as agreed with the European Union.

Still, by 2010 Estonia has promised to boost its share of renewable energy to 5.1 percent of total electricity consumption. But for the Economy Ministry, that doesn't translate into favoritism for wind.

"It does not mean that wind energy should have the privilege," says Kisel.

With the recent changes to the law, the ministry wants to facilitate the development of other renewable energy such as landfill gas and wood.

In the future, the ministry wants to limit the amount of wind energy purchased to 200 GW. This can be produced by wind farms with an aggregate capacity of roughly 75 MW. But as of February this year, the subsidiary of Eesti Energia has contracts to the amount of 185 MW, and there is a request to produce a total of 400 MW of wind energy annually.

Kisel says that many of the companies with contracts have not taken financial obligations and have not started work. Mills currently established can produce a total of 35 MW.

According to some calculations, every additional percentage of market share that wind energy acquires will increase the price of energy for customers by 0.01 kroon/kW (0.064 euro).

Kisel said that the market share of wind energy could increase 10 - 15 percent, and the subsequent 0.15 kroon price rise would be significant.

Wind energy producers counter this by saying that the true cost of oil shale energy, with all environmental and social expenses included, would be several times more expensive.

Lamp says there are few locations in Estonia to set up new windmills, only if they are placed near the sea. This ultimately means that there is little reason to fear the arrival of many newcomers. Windmills will also have to predict the exact amount of energy they produce, which according to the producers is not possible.

Under the current agreements, Estonian Energy will buy electricity from wind parks at a price of 81 kroons/kWh, which is double the 0.41 kroons/kWh that Narva Power Plants sells. The price would be valid for 12 years for 200 GW of wind-power in each year.

At the same time, it will be possible to sell electricity directly to eligible customers at the market price and to get a premium of 0.5 kroon/kW, the ministry announced.

"[Windmill producers] will have to learn to predict. They were given a lead-time. Electricity can't be stored in warehouses," says Kisel.

Lamp prefers to use the Danish analogy. "On windy days Danish mills produce 100 percent of energy demand in western Denmark, and in Estonia we're talking about a possible problem if the share should exceed 2 's 3 percent," he says. "Energy can be exported if there is a surplus, and wind turbines could also be shut down in crisis situations."

Wind producers require that inflation be added to the fixed price annually and that limitations should not be set on the amount of energy produced by wind mills.

Kisel, however, says that there are several price models offered in the amendment, some with inflation included.

"The problem with wind mill projects is that they take it as a financial investment. They build the mill and wait for the money to come. They should start marketing the electricity themselves. There is an opportunity to sell the electricity on the market for a higher price. Our aim is to direct them to the market and not depend on the minimum state guarantees," he explains.