Elering’s 2015 Security of Supply Report Summary in English
Taavi Veskimägi Chairman of the Board of Elering The beginning of 2015 marked five years since the formation of Elering, Estonia’s independent transmission system operator. These five years have confirmed that the decision made at that time to separate the transmission network operator from Eesti Energia AS was the right one. The creation of an independent system operator has provided the opportunity for the creation of a competition-based electricity market with many market participants in Estonia. Before the partial opening of the electricity market for large consumers on 1 April 2010, essentially all electricity consumers in Estonia bought electricity from Eesti Energia at fixed rates. Today, Estonia has an effective power exchange offering a range of products; there are tens of electricity sellers; a majority of consumers have valid electricity contracts; many buy electricity at the day-ahead exchange price, and the largest market participant has a market share of approximately 60%. Since 2014, with the entry into service of the EstLink 2 connection, we can now speak of an essentially unified hourly-based Estonian-Finnish electricity market as being part of a larger Nordic-Baltic market. All this has become a reality in less than 5 years. Electricity has become a commodity for Estonian consumers just like any other. And this is exactly as it should be.
The opening of the Estonian electricity market has been a success, and an independent Elering has been one of the architects of that success. As a company, Elering believes in the market. We believe that in the long term, functioning energy markets are the cheapest way to ensure security of energy supply for consumers.
Attention to management quality Elering is committed to showing through measurable economic performance that a state-owned enterprise need not necessarily be mismanaged. In the light of external independent evaluations, it appears that this may well be possible. Elering has the highest credit rate of any company in the Baltic States (Moody’s: A3). According to the National Audit Office’s report, Elering is the most well-managed state enterprise in Estonia. In a survey of European regulators, Elering achieved a 100% rating. These are just some examples that highlight the quality of Elering’s management. This is all based on a clear strategic definition of Elering’s risk profile. We have defined ourselves as a company with a low risk profile operating in a wholly regulated business. Elering will not expand into economic sectors other than regulated energy-related business areas. Although we act in the public interest, all our current and future activities as a company are aimed at gen-
Summary of Elering’s 2015 Security of Supply Report
erating added value for our owner. In five years of independent existence, we have created 63.6 million euros of added value compared with the capital yield granted to us by the regulator, a fact of which we are proud. The support behind these noteworthy achievements includes good financing arrangements, cost-effectiveness, and an electricity transmission system that works efficiently. We understand that Elering’s statutory functions and state ownership entails increased corporate governance expectations. The implementation of good corporate governance practices, together with stringent procedures, must provide the owner with assurance of effective management of the enterprise. The development of good corporate governance practices is a prerequisite for ongoing development and the continued realisation of what has been achieved thus far. To this end, the main task for 2015 in this area is to achieve the formulation of strategy for a united system operator which relies on the knowledge, skills, and experience of the people working at Elering and EG Võrguteenus, the company operating the natural gas transmission network.
Successful large-scale projects 2014 saw us successfully reaching something of a checkpoint. Many of the goals that were set when Elering was founded were finally met,
especially larger investments. When speaking of an Elering that has been independent for 5 years, we cannot overlook the major projects that have been carried out both to support the development of a regional electricity market as well as to ensure a constant, high-quality security of supply to consumers everywhere in Estonia. Elering has invested nearly 500 million euros over 5 years to achieve these goals. The most important projects have been the EstLink 1 and 2 connections between Estonia and Finland; the emergency reserve power plants at Kiisa; and the new Tartu-Viljandi-Sindi high-voltage line.
Vision of a united system operator The company’s long-term strategy is to become a united electricity and gas system operator, which would better enable us to achieve Elering’s goal of providing Estonian consumers with a constant secure energy supply. In addition to improved security of supply for consumers, the joint management of the electricity and gas transmission networks also allows us to create more added value for the owner and to achieve ever-more efficient management of the energy networks. Elering’s activities in the development of the Estonian energy system, including both electricity and gas sectors, stems from the basic premise of the European Union’s energy policy: a unified energy network and
Summary of Elering’s 2015 Security of Supply Report
a common energy market in Europe. In our opinion, future possibilities for Estonia’s energy sector lie in the integration of its energy systems. The merging of energy networks and the liberalisation of energy markets creates conditions for energy security and the strengthening of the security of supply through the diversification of fuels, the expansion of generation prospects, and greater flexibility in the system’s management. The vision that was confirmed in December in Elering’s “Energy Systems Integration 2024” strategy determines the three most strategically important areas of activity for the next decade: firstly, the synchronisation of the transmission systems of the Baltic States with those of the rest of continental Europe; secondly, the final development of the regional electricity market as part of a panEuropean electricity market; and thirdly, the creation of a competitive regional gas market, with many market participants and the necessary infrastructure.
Summary of Elering’s 2015 Security of Supply Report
Key points of the report The European Energy Union framework • The goal of the Energy Union is to ensure the sustainability of the energy economy and to reduce dependence on imported energy sources, thereby improving energy security. • In order to achieve these goals, the EU should create a Unionwide energy system and a common internal market where energy can flow freely across borders, common market rules apply, and free competition is ensured. Every energy consumer must have the option of choosing a supplier, and the prices of energy carriers must be reasonable for consumers. • The Energy Union must support energy efficiency and the radical reduction in greenhouse gas emissions, or, in other words, the Energy Union must use the available resources in the best way possible. • Since its acquisition of the transmission system, Elering has supported the implementation of the principles of a unified network and the common market. Based on the example of the successful Estonian electricity market, we can confirm that the liberalisation of the market is politically possible, and long-term security
of supply for consumers throughout the whole of Europe, including Estonia, is best ensured through a well-functioning energy market. • The regulation of the energy sector will gain clearer boundaries once the new grid codes dealing with issues from the connection of grids to balance handling are established and come into force.
Synchronisation 2025 • Synchronisation is required to ensure the long-term energy security of Estonia and the Baltic States, as well as to reduce dependence on third countries. • In the long term, the Baltic electricity grid will become less important to Russia, as Russia is strengthening its own domestic grid and no longer uses the Baltic States’ grids as alternative transmission channels in the event of power failures. As a result, the ability of the Russian energy system to influence the Baltic energy system would increase during synchronisation work, while leaving Russia’s own power grid largely unaffected. • Synchronisation with the continental European power grid allows us to complete the integration of the Baltic transmission systems into the European transmission system.
Summary of Elering’s 2015 Security of Supply Report
• Synchronisation is part of the comprehensive development of the electricity network and, in addition to the strengthening of north-south interconnections due to changing conditions, the domestic network needs to be modernised and adapted to ensure the security and reliability of supply of the transmission system. • Synchronisation by the year 2025 requires the realisation of the investments covered in the plan, as well as necessary political agreements being achieved in expedited order. • All the planned investments would still need to be realised in the event that the synchronous grid switch is not implemented in the Baltic States, but this means that investments would be realised over a longer period of time.
•
•
Developments in the electricity network until 2030 • In the near future, the development of the Estonian electricity network will be focused on synchronisation with the Continental Synchronous Area. Besides this, it is important to ensure security of supply for local consumers through the modernisation of the electricity network. • The ongoing planning for the development of the transmission system is being done in close cooperation with Elektrilevi AS. The
•
•
Summary of Elering’s 2013 Security of Supply Report
outcome of this partnership is optimal planning and lower network tariffs for consumers. The most attractive areas for regional development are the modernisation and transformation of the Tallinn regional electricity network, including the replacement of overhead lines with underground cables in Tallinn proper, the construction of the Kiisa-Topi-Kvartsi connection, and the optimisation of the Aruküla-Tapa regional network. The security of supply and network capacity in western Estonia, including the islands, will be increased by the Harku-Lihula-Sindi 330/110 kV line currently under construction. This also serves as part of the third Estonia-Latvia electricity connection and part of the 330kV ring network that covers mainland Estonia. In order to massively improve the security of supply on the large islands, two 110kV underwater cables will be constructed within the next 5 years. The Rail Baltic project offers new challenges, as the north-south electric train service will require the strengthening of the grid in several regions. Elering is investing nearly 354 million euros during the period 2015-2019 in order to ensure security of supply in Estonia.
Assessment of security of supply
Electricity market
• According to the best current information, Estonia’s security of supply is guaranteed until 2030 through production and transmission capacity. However, the margin for the security of supply in Estonia, the Baltic States, and the Baltic region as a whole is falling, and Elering is closely observing and analysing further developments. • EstLink 2 has greatly increased Estonia’s link with the Nordic electricity market, bringing lower-priced electricity from the Nordic states to the Estonian market. This has led to early increases in competition for Estonian producers. • The network’s operational security in 2014 meant that the year ranked as one of the best ever. Faulty disconnections in the network totalled 166 last year, a full 100 lower than in 2013. The total amount of energy that remained undistributed to final consumers was also at an all-time low – 28MWh. • According to the most likely scenario in the consumption forecast, electricity consumption will grow at an average of 1.1% per year, exceeding 10TWh in 2031. If warmer winters continue, the peak load will grow slowly as compared to consumption, and may reach 1700MWh by 2031.
• Looking at the principles and objectives of the European common electricity market model, we can see that Estonia has purposefully steered the Baltic States along the course of the European common electricity market model. • The Baltic electricity market has transformed from a wholly regulated market at the beginning of 2009 into an entirely open market. • A functioning electricity market is also needed to ensure security of supply, since, although the cost of maintaining security of supply at the required level is costly for an individual country, significant financial savings for society can be achieved when cooperating with other European nations, ensuring the security of supply through regional energy markets and better cross-border connections.
Elering research and development projects supporting security of supply • Elering’s objective as a transmission system operator in the organisation of research and development (R&D) activities is to contribute to ensuring security of supply through the execution of applied research and product development, investing more financial and human resources into R&D activities, and increasing awareness of energy challenges.
Summary of Elering’s 2015 Security of Supply Report