Dear Speaker of the Riigikogu, dear members of the Riigikogu!
High energy prices are a serious concern for all of us. It is completely understandable that people are shocked by their electricity bills.
Finding a solution to any problem starts with an analysis of the causes. Therefore, before we start talking about solutions, let us look at the big picture to find out how we ended up in this situation.
Firstly, Estonia does not have enough electricity or transmission capacity produced from cheap or renewable energy sources to enable cheap electricity to move into our market area. The cheapest electricity comes from wind farms, both onshore and offshore, then from hydropower, and finally from nuclear and cogeneration plants. Oil shale and coal plants and natural gas plants produce energy at a much higher price – the price difference can be several to ten times.
Secondly, the price of natural gas has unquestionably played the biggest role in the growth of electricity prices. Much of Europe uses natural gas as its energy source. At the same time, Russia has significantly reduced gas supplies to Europe. As a result, the wholesale price of natural gas increased four times in 2021, or 400 per cent. Experts estimate that if Russia increased its gas supplies to Europe by 20 per cent, the price of natural gas would fall by about half. At the same time, we know the security situation with regard to Russia and Ukraine is currently difficult. We will be able to talk about that in more detail tomorrow.
Thirdly, Europe has less production capacity than needed. Old power plants have been closed but the construction of new ones is more expensive, slower, and more difficult, resulting in a deficit.
We now need to look at what will help us overcome this difficult situation. It is important for me that we learn from this crisis and quickly implement solutions that will not allow the same thing to happen again in a year, two, or 10 years. Although there are no fast solutions in energetics, we will soon be back to square one if we do not make the big picture decisions.
Last Thursday, we discussed the situation of the electricity market in government and identified a number of bottlenecks that we are now working to address.
Firstly, environmental protection places a number of constraints on the development of new production capacity, but the coexistence of nature and wind turbines is possible. The government instructed the ministries to submit an analysis and proposals for land areas where wind energy production facilities could be built, taking into account nature conservation and height restrictions, during the first quarter of this year. Knowing which areas could be considered for project development would help wind energy developers. The consent of the local community is still required.
Secondly, like the whole world, Estonia is also struggling with the ‘not in my backyard’ problem, i.e. people are, in general, positive about renewable energy, but do not want to see wind turbines near their homes. That is why we have developed an element of local benefit, which we will discuss in the cabinet this week. This should increase the interest of local governments and communities in renewable energy and also speed up planning procedures.
Thirdly, offshore wind farms are less disturbing to people because they are further away. The potential of wind energy in Estonian waters is at least 7 GW. However, there are protected areas, security restrictions, and areas favourable for fishing at sea. It is therefore necessary to adopt a maritime spatial plan that determines where offshore wind farms can be built and also provides an opportunity to develop new production capacity. The establishment of the Estonian maritime spatial plan is awaiting the adoption in the Riigikogu of the Act on Amendments to the Building Code and Associated Acts. Once the Riigikogu passes these laws, we can start building new offshore wind farms.
Fourthly, energy storage is key to the green transition. Estonia has the necessary potential and technology prices have also fallen. In order to overcome the bottlenecks, the Ministry of Economic Affairs will carry out an analysis and come up with its solutions as soon as in March 2022.
Fifthly, nuclear energy is the next cheapest source of energy after wind and hydropower. We do not know whether we can build a nuclear power plant in Estonia and whether it is reasonable. Such analyses are long overdue. We decided to speed up these analyses and complete them in the years to come.
Sixthly, we do not have access to a lot of renewable energy capacity due to issues related to connecting to the grid. We decided to take steps to speed up the connecting process. First of all, if the network operators are independent of the producers, there is no doubt that the connection of additional production capacities to the network is not in their interests, which is why we want to proceed with the ownership unbundling of Eesti Energia and Elektrilevi. We have decided that the deadlines for processing applications need to be shortened. We are also discussing an amendment to the law, pursuant to which network operators are obliged to provide a connection for producers producing up to 200 kW of electricity and to include this in the network development obligation. This would address the concerns of large consumers, who are thinking of creating renewable energy solutions close to where they consume energy to meet their needs.
Seventhly, in recent months, Nord Pool prices in Finland or the Nordic region have been cheaper than in Estonia. This is due to the fact that the connections between Finland and Estonia are congested and they cannot be used to transmit electricity. In order to increase the transmission capacities, we will proceed with the third Estonian–Finnish connection, i.e. the Estlink 3 project, which must be completed by 2030.
Finally, hydrogen will be a key element in energy production in the future. At the beginning of January, we decided to support the construction of three hydrogen technology projects of European importance in Estonia, which will hopefully bring additional investments as well as future technologies that will help solve the energy crisis.
Dear listeners!
The fact that we have been a part of the Nordic electricity market from 2016 until the second half of 2021 has meant 40 per cent cheaper electricity prices for Estonian household consumers than in the European Union on average. These low prices have made our society somewhat too comfortable. In resolving this crisis, we need to make sure that we keep a level head.
It is clear that not everyone has the desire or the ability to adjust consumption based on market prices, so we need to explain more the risks and opportunities when choosing between contracts with fixed price and fluctuating exchange price.
In the case of contracts with exchange price, the consumer may enjoy very low prices, but there is also a risk of price hikes. This risk can be hedged with fixed price contracts. In order for people to sign more fixed-price contracts, we need to create better conditions for electricity sellers so that they can offer lower fixed prices to household consumers.
At present, household consumers can withdraw from fixed contracts at any time, which does not motivate electricity sellers to offer cheaper prices. The Electricity Market Act is being processed in the Riigikogu, which specifies the conditions for withdrawing from contracts so that fixed-price contracts become cheaper for consumers. According to electricity sellers, providing security would make it possible to bring the prices of fixed packages down by as much as twenty euros per MW/h. The sooner the Riigikogu passes the Electricity Market Act, the faster electricity sellers will be able to offer more favourable fixed electricity prices.
Another solution, albeit a more long-term one, is to reach an agreement with Finland on the sharing of the market bottleneck fee, which we already have with Latvia. If this agreement does not move fast enough at the technical level, I am ready to address it at a higher political level. This would also make it possible to offer fixed prices at a lower level.
Once the conditions are created by the Electricity Market Act, people would be able to stabilise their prices for a longer period of time in order to avoid electricity price shocks next winter, because it is clear that we will be in this situation for a long time.
The European carbon price mechanism is also directly linked to the functioning of the electricity market, which I believe needs to be reviewed. Life has shown that the current solution is not the best and needs to be improved. It would be understandable and tolerable for the economy if the change in the price of the emissions trading system were more predictable, or more linear. Right now, it feels like being on a roller-coaster.
Dear Riigikogu!
As I said, the long-running low electricity prices have made us too comfortable and we have not really felt the need to save energy. However, it is still true that the cheapest electricity is saved electricity. That is why we need to look at how we can help people help themselves.
This requires both energy-saving measures and measures to set up small-scale production to meet own needs. From 2022, most of the support measures planned in the recovery plan of the European Union will be launched, which should total more than 110 million for residential and apartment buildings. In the coming weeks, we will launch housing energy efficiency measures for residential buildings and apartment buildings: an energy efficiency measure for small residential buildings and an emergency energy efficiency measure for apartment buildings. We are looking for ways to increase these volumes quickly as they are clearly too small compared to the interest that people have. A housing investment fund is also being negotiated with banks. We will hopefully be able to talk about it in more detail soon.
We also have the enterprise green transition programme which has a total value of 220 million euros.
Dear listeners!
These are all long-term solutions that will help people protect themselves against price shocks in the future. However, we must face the fact that the energy price shock has hit both household and business consumers painfully. As the government saw this shock coming, we developed measures to help people and businesses as early as October. Firstly, we omitted the excise duty increases legalised by the previous government. Secondly, we reduced the electricity network fee by 50 per cent for all consumers. Thirdly, we reduced the gas network fee by 100 per cent for all consumers. Fourthly, we introduced a targeted measure to compensate households with up to median income for 80 per cent of the increase in electricity, district heating, and gas prices.
The total cost of these measures is 245 million euros. This is much more than the additional revenue to the state budget due to high energy prices. For example, 41 million euros of VAT on energy carriers was received last year.
At present, the Estonian programme to support household consumers and entrepreneurs is one of the largest, most long-term, and most extensive support programmes in Europe. Our programme should support all energy consumers in one way or another. For 380,000 households, we will repay the 80 per cent increase in the prices of electricity, gas, and heating bills over seven months – retroactively from the beginning of September 2021 to the end of March this year.
As you all know, we essentially have two options – to give everyone a little or to target those who need it more with more support. The advantage of supporting everyone is the quick procedure, as we did for electricity and gas network fee. Helping those who need more support to a greater extent will inevitably mean more work on the part of both applicants and processors.
There is a widespread perception that applying for energy support is unusual. On the contrary, people are in constant contact with the state through applications: an application must be made in order to receive a tax refund or child benefits from the state, support for hobby education from the local government, or maintenance allowance. Companies also applied for wage support in the COVID-19 crisis. In an ideal world, applying for a grant would be easier, but right now, it is a matter of speed – the most important thing is that people can start submitting their applications quickly and receive the support quickly, ensuring that the payment of support is not postponed for many months due to an IT solution being developed.
Some local governments, such as Tartu, have already processed some applications and paid the support to the first people. I encourage local governments to act quickly and help their people. More information on grants is available on the website of the Ministry of Finance.
We want the measure to mitigate the rise in energy prices to help a great many people in Estonia. We will give this support measure the opportunity and necessary time to work. However, I would like to emphasise that if it turns out that this is not enough help for people who need support, we will be ready to make additions or changes. I promise that we will react quickly, as we have done so far. Finally, as I already said, this measure is retroactive from September to March.
Dear Riigikogu!
All the activities and measures I have listed for you have already been decided, together with our coalition partner, to resolve the energy crisis. I thank the Centre Party for the work it has done during these months. However, the coalition has a common understanding that these measures are not enough to successfully overcome the crisis. Therefore, we will continue to work to provide relief to those who are excluded from previous measures.
The sharp rise in energy prices has also hit businesses and other legal entities, so we must avoid the snowball effect of a lack of liquidity. We are also looking for solutions among KredEx measures, such as a loan guarantee measure or additional measures for guarantee agreements. To complement the existing system, support for the additional liquidity needs of energy sellers and a plan to reopen an emergency working capital loan are also being considered.
Today, we will discuss with the coalition partner setting an upper limit on the exchange price of electricity and bringing the network fee to zero for entrepreneurs. These are steps that are still being discussed and where we are looking for a common ground with the coalition.
I would like to thank the Centre Party for the fact that we have been able to make many decisions to resolve the crisis over the past year. All ministers have thought along and offered their own solutions. This makes me hopeful about the current situation.
We know that solutions come from discussions, by considering different facts and arguments, and by working hard for a common agreement. Finding solutions is made more difficult when the media appearances of politicians become more important than their substantive work. These have always been the rules of the coalition government, and by adhering to them, solutions to the concerns of the Estonian people have mostly been found. We know how to reach a consensus and we need to do it again.
Dear listeners!
The whole of Europe and a considerable part of the world have been watching the energy prices with shock and disbelief since the autumn. This shock has become a startling reality on the invoices of many Estonian people and entrepreneurs. It is all the more startling because only a few predicted such a price increase.
I assure you that the government will not make the people of Estonia deal with this shock alone. No one has to worry or lose sleep over their energy bills. The state will help its people. Both now and in the long run. The worries of our people and entrepreneurs are the worries of the state.
At the same time, we are looking for long-term solutions to reduce price shocks, ensure the operation of all Estonian production capacities, and boost the entry of new production capacities into the market.
In the 30 years since the restoration of independence, Estonia has overcome more difficult situations than the energy crisis we are facing today. Be it the withdrawal of Russian troops, joining the EU and NATO in a limited period of time, or the double-digit recession in the global financial crisis. We were able to overcome all of these difficulties by moving towards a solution together and consistently while overcoming political tensions.
What makes the current situation unique is that we are facing both an energy crisis and a security crisis, culminating during the two-year exhausting health crisis. However, we will also overcome this. We have done it before by working together towards a common goal.
Our government is ready to discuss all solutions in order to find a common ground that will help us move forward. I am convinced that looking back in a few years, we will be able to say that Estonia emerged from this crisis stronger, more independent, and more sustainable. Thank you!
