Energy situation in Estonia, current and future developments. Ando Leppiman Deputy Secretary General Ministry of Economic Affairs and Communications

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1 Energy situation in Estonia, current and future developments Ando Leppiman Deputy Secretary General Ministry of Economic Affairs and Communications

2 Energy consumption pattern in Estonia TJ x RES, TJ Natural gas, TJ Liquid fuels, TJ Solid fuels, TJ 5 0 Source: Eurostat

3 Energy balance Peat 0,6% Other transport fuels 13,0% Other import energy 5,2% Other domestic energy 0,5% Wood 11,5% Gas 8,4% EXport 20,3% Electricity from oil shale 18,7% Shale oil 12,7% Wood and Peat 3,0% Oil shale 26,3%

4 Estonian energy policy

5 National energy policy Adopted in Parliament June 2009 Key issues for Estonia Security of electricity supply, reduction of carbon intensity on power generation mix Future of domestic oil shale power generation Oil shale mining and shale oil production Diversification of natural gas supply sources Opening of electricity market More efficient energy consumption Higher share of renewable energy Becoming a member of IEA

6 New Long-term energy market development plan Renewal process of energy strategy initiated Initial phase outsourced to Estonian Development Fund (setting up expert groups, discussions) Seminars organized by WEC-Estonia Topics under discussion Quantitative analyses of external factors influencing Estonian future on energy matters Technologies, sources and locations for future power portfolio Future energy consumption Ways for energy efficiency and smart solutions Definition of energy security of supply for Estonia and to what extent we can afford that Future of the district heating and decentralised energy production

7 Power market

8 Baltic regional electricity market Existing Planned Market volume

9 Electricity market opening Estonia got transitional period for market opening - fixed in the Estonian accession agreement Preconditions were fulfilled Connections with other countries Well functioning regulative environment Existing power exchange Independent regulator Independent transmission system operator and functioning infrastructure Existence of market participants producers and electricity sellers Possibility to change seller before or after market opening Agreement with seller should be signed 21 days prior to change of the seller Universal service is provided by the distribution company if no agreement with electricity seller is signed

10 Electricity market opening Teadlikkus elektrituru konkurentsile avanemisest Kas Te olete kuulnud, et Eest i elektrit urg avaneb 1. jaanuarist konkurentsile? % Eesti aastastest elanikest jaanuar juuni septem ber det sem ber jah ei 1 % 2 1 % 8 % 2 % 3 5 % 6 4 % 7 9 % 9 2 % 9 8 % Knowledge on electricity market opening increased during a year 34 percentage points H kasv -september), mil teadlikkus elektrituru By the midnight of 31 December 66,4% of electricity consumers in Estonia signed E contract for power purchase ( contracts) Contracts with fixed end date 80% aastaste vanusegrupis, keda elektrienergia ostmisega seonduv Ka mitte-eestlastest ja Virumaa elanikest, kes olid eelmiste uuringulainete ajal halvemini informeeritud 7 sellers to household market, 9 sellers to larger customers Elektrituru konkurentsile avanemine

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12 Gas market

13 Great Baltic area relies entirely on Russian gas imports

14 Challenges and oportunities in Estonian gas market Single supplier of natural gas, vertically integrated gas monopoly No compressor stations in the border Gas infrastructure doesn t meet N-1 criteria Gas price highly tied with oil prices Gas share in total energy consumption around 10% Unbundling TSO and gas supplier New infrastructure (interconnections, LNG terminals) Diversification of gas suppliers, Internal gas productions Harmonised gas market development within the region (Baltic States, Finland), market based gas prices Gas share increase in total energy consumption (power, transportation, industry, district heating) Bunkering services and harbours development

15 Challenges in Estonian gas market Summer Winter

16 Great Baltic regional gas market development Great Baltic area relies entirely on Russian gas supplies and only Latvia and Finland are compliant with N-1 rule regarding the security of supply Finland, Estonia, Latvia and Lithuania gas market is currently total about 10 bcm/y If gas supply diversification were enhanced and the required infrastructure were developed accordingly, market could grow up to 16 bcm/y With the additional upside of 1.5 bcm/y for LNG bunkering To expand supply options and achieve security of supply, an LNG terminal of 4bcm/y is foreseen Upgrades of the existing interconnections Intrabaltic connections New pipeline connections as Balticconnector and GIPL

17 Development of Renewable Energy

18 Targets of EE and RES policy National RES target target for renewables 25% from gross final energy consumption in 2020, 10% for transport Support scheme for renewable electricity Premium tariff support scheme to market price (ca. 45 /MWh) premium tariff 53.7 /MWh for RES Premium tariff 32 /MWh for efficient co-generation available for 12 years from start of production for wind, support is available until 600 GWh is generated during the calendar year Investment support schemes for installation of wind energy capacities for small CHPs (biogas, biomass) less than 2 MWel For district heating networks and boiler houses to lower the losses and fuel switch

19 Liquid fuels market

20 Liquid fuels balance 2011 NGL, kt Bitumen, kt Lubricants, kt Fuel oil, kt Estonia depends on oil import 100% (excl. shale oil). In case of incl. shale oil, the dependency is 47% There is no refinery in Estonia, but under planning are 1,6 Mt/y refineries which exceeds Estonian liquid fuels consumption by 60% Eesti Energia bbl/d (980 kt/y) VKG bbl/d (685 kt/y) Shale oil, kt Light fuel Oil, kt Diesel, kt Gasoline, kt Jet fuel, kt Import Export Marine bunkers Net import Inland consumption Import dependency 47.3% Total, kt

21 Fuel quality directive of EU Implementing act proposed under the Fuel Quality Directive at the end of 2011 turned out that its main aim was to keep all unconventional transport fuels (produced from Canadian and other oil sands, Estonian oil shale, coal) away from the EU market Estonia is concerned that the methodology in the implementing act of the Fuel Quality Directive will not produce GHG savings globally which is the aim of the climate change policy Instead, it will bring along several negative effects that will damage the competitiveness of the EU industry: The proposal has a negative impact on the EU refineries It endangers energy security by discriminating against domestic unconventional petrol and diesel fuels that have the potential of bringing an added value and security of supply to the EU market. The EU is already heavily dependent on import fuels It will lead to carbon leakage. Transporting fuels to third countries will cause additional CO2 emissions It creates severe administrative burden to suppliers and the state It will not take into account the investments already made or planned in the EU refining sector (including the oil shale sector. Estonia pursues towards less carbon intensive use of oli shale

22 Oil stockpiling Oil Stocks in tons in days *1 Gasoline Diesel * Jet A Heavy Fuel Oil All stocks are owned and maintained by OSPA All stocks are established in the form of final product Significant share of the stocks are held in neighbouring countries

23 Thank you!