Nearly three years ago, at the end of August 2022, the government led by Kaja Kallas (Reform) — who had previously worked for wind energy companies — approved a legislative amendment that raised Estonia's 2030 renewable electricity production target from 40 percent to 100 percent of the electricity consumed in the country. The coalition at the time consisted of the Reform Party, Isamaa and the Social Democratic Party.

The bill passed through the Riigikogu without delay, and by October, the change had been written into law. Domestically, Estonia had set itself the ambitious goal of generating as much renewable electricity as it consumes just over seven years later. This does not mean all electricity consumed must be renewable or produced in Estonia — only the statistical balance matters.

The bill stemmed directly from a clause in the coalition agreement signed a month earlier, which included this exact commitment.

The explanatory memorandum did not include a substantive impact assessment — such as how much money would be needed, whose money it would be or when it would be required to build the production units. Nor did it address whether meeting the requirement was even realistically achievable in Estonia.

The memorandum appeared to be an add-on to an unanalyzed political decision, stating, among other things: "The amendment will have a positive impact on the working-age population and, in terms of social impact, primarily on those living in areas where renewable energy production facilities are planned, both onshore and offshore."

Current situation

Last year, Estonia consumed 8.1 terawatt-hours of electricity. Domestic production totaled 5.4 terawatt-hours, or 65.8 percent of consumption. Of that, 3.4 terawatt-hours — 41.7 percent of consumption — came from renewable sources. Broadly speaking, renewable generation is divided into thirds: one-third from burning biomass and waste, one-third from wind and one-third from solar.

Renewable energy production is steadily increasing. Enefit Green's Tootsi-Sopi wind and solar park, which generates 770 gigawatt-hours — or 0.77 terawatt-hours — annually, was recently launched, though it had already started feeding electricity into the grid, albeit not at full capacity, last year. Meanwhile, Sunly is building a solar park in Risti expected to produce around 250 gigawatt-hours — or 0.25 terawatt-hours — a year.

Still, production is not growing fast enough to meet the 2030 renewable electricity target. This comes as no surprise. The National Audit Office raised the same concern at the beginning of last year.

At the time, Kristen Michal (Reform), then climate minister in Kaja Kallas' government, responded to the audit by expressing confidence in the target. "As of today, the forecast from various energy and environmental sector analysts is that we're on track to reach the goal," Michal said at the end of January last year.

Now, Michal is prime minister and leader of the Reform Party — and no longer holds the same view. Speaking on ETV's "Esimene stuudio" on Wednesday, he told host Johannes Tralla that the goal of generating 100 percent of electricity from renewable sources is no longer attainable.

"It was already fairly clear six months ago that the target of meeting 100 percent of electricity consumption with renewable energy by 2030 is not realistic at the current pace," Michal said, adding that the goal might instead be achievable by 2033 or 2035.

Why is it impossible to meet the goal?

So what has changed in the meantime? First, this spring the government decided not to proceed with a reverse auction for offshore wind farms, the cost of which would be an order of magnitude higher than for onshore wind farms, with potential subsidy needs reaching up to €2.6 billion. Initially, this step was taken by simply postponing a decision.

Officially, the plan has not been scrapped, but the coalition agreement between the Reform Party and Eesti 200 makes the development of offshore wind farms conditional on the creation of new financial instruments under the European Green Deal for Industry. In other words, nothing concrete — certainly nothing comparable to the existing support schemes for onshore wind.

In contrast, the approach to onshore wind is more concrete. The government is currently reviewing a bill that would authorize Estonia's transmission system operator, Elering, to carry out a reverse auction to bring onshore wind-generated electricity to market. The plan is to procure up to two terawatt-hours of renewable electricity per year, with a subsidy cap of €20 million annually — up to €200 million over 10 years.

In the explanatory memorandum, the Ministry of Climate, which drafted the bill, states that existing renewable energy units under development are not sufficient to meet the renewable energy target. The ministry estimates that projects resulting from earlier auctions will add a total of 1.32 terawatt-hours of renewable electricity annually in 2026 and 2027.

If we add the planned two terawatt-hours from the upcoming auction, which is expected to be announced early next year, the total additional production could reach a maximum of 3.32 terawatt-hours per year.

Adding that to last year's 3.4 terawatt-hours would, under ideal conditions, bring total annual renewable electricity production to 6.72 terawatt-hours by 2030.

Of that, variable sources — wind and solar — would account for approximately 4.5 terawatt-hours, or about 67 percent of annual consumption.

All of this assumes that every project currently in development is completed and that the final reverse auction does not face delays. Even the drafters of the bill acknowledge that this last assumption is uncertain. Given the ambitious timeline, there is a real possibility the process could be delayed by years.

If Estonia's electricity consumption remains at the current level of eight terawatt-hours in 2030, the country would fall 17.5 percent — or 1.4 terawatt-hours — short of its target. And if consumption increases, the gap would be even wider.

How sensible would 100 percent renewables be?

When Kristen Michal ended the coalition with the Social Democrats and the Reform Party continued governing with just Eesti 200, then-Climate Minister Yoko Alender (Reform) returned to the Riigikogu, and Andres Sutt was appointed as the new minister of energy and environment. For the first time, the coalition agreement included a commitment to ensuring competitive electricity prices.

Sutt also brought on an energy advisor: Tallinn University of Technology (TalTech) energy professor Einari Kisel. Kisel is involved in updating Estonia's National Energy and Climate Plan (ENMAK), which, according to unconfirmed reports, may introduce significant policy shifts when released in the near future.

Kisel said he is not ready to discuss the broader energy plans publicly. His colleague at TalTech, economics professor Kadri Männasoo, has recently analyzed Estonia's energy strategies from an economic perspective, with the findings publicly available online.

According to Männasoo's analysis, if the Baltic states achieve their stated goals of producing as much renewable electricity as they consume, it would cost Estonia an additional €100 million per year.

Her analysis suggests that Estonia would achieve the lowest total cost of electricity if variable renewables — wind and solar — accounted for between 60 and 80 percent of consumption.

Männasoo notes that the higher the share of variable renewable energy, the lower the price for consumers. However, once the 80 percent threshold is reached, the fixed cost component grows large enough that prices stop falling meaningfully.

She also points out that as renewable electricity production increases, profit margins for producers decline — at 80 percent, support subsidies would suddenly need to increase significantly.

University of Tartu economics professor Urmas Varblane agrees with his TalTech colleagues. After reviewing their work, he concluded that the 100 percent target is not a reasonable one. Speaking to Mirko Ojakivi on Vikerraadio's "Reporteritund" on Thursday, Varblane said the energy sector is undergoing a shift in thinking.

"It seems to me that over the past three to four months, there has been a change in mindset. Certain mantras have been set aside. There's now an understanding that simply announcing slogans and target years doesn't actually change anything," Varblane said.

"People have started thinking more in terms of the actual energy portfolio we have. It's not just one source — we have several different ones that complement each other and are available at different times of the year, in spring or autumn," he added.

Varblane also referenced an earlier study by Martti Randveer, head of monetary policy and economic research at the Bank of Estonia, whose findings broadly aligned with Männasoo's.

Randveer's research concluded that the lowest total electricity cost in Estonia would be achieved if renewables accounted for between 50 and 80 percent of energy use across the Baltic states.

The core concern is that variable renewable energy sources cannibalize each other's profitability. The more favorable the conditions for renewables — sunny or windy weather — the more likely it becomes that production will need to be curtailed. This, in turn, increases the fixed-cost component in electricity prices.

Installing storage systems could help ease the problem, but those come at a cost as well. Moreover, no storage system currently exists that could carry large volumes of summer electricity into the spring.

Ministry of Climate standing by

The Ministry of Climate is reluctant to speak openly about possible changes to current plans before political decisions are made. Rein Vaks, head of the ministry's energy department, repeatedly emphasized that their work is guided by the 100 percent renewable energy requirement written into law.

"We can't do our work based on the assumption that things might go wrong. We work according to the mandate given to us by the legislature. And current indicators suggest that fulfilling this obligation is not impossible," Vaks said.

He made these comments to ERR on Wednesday afternoon — before Prime Minister Michal stated on "Esimene stuudio" that the legal obligation to meet the target would not be achieved.

Asked how Estonia was supposed to reach the 100 percent renewable electricity production target by 2030, Vaks pointed to unsubsidized private-sector investments.

"That's exactly what developers have to evaluate. The discussions we've had with them reflect this clearly. Everyone builds their own Excel model, talks to their financiers and assesses whether the conditions we have here are suitable," Vaks said.

"I agree there are risks. I can't swear on it today that we'll definitely hit 100 percent by 2030, but that's what we're working toward," he added, suggesting that market participants be consulted for further insight.

Sunly's outlook positive

Klaus-Erik Pilar, country manager for Estonia at renewable energy developer Sunly, said meeting the 2030 renewable energy target is entirely possible.

In an almost hour-long interview, Pilar spoke of the need to speed up planning as the main concern. As for renewable energy, his tone remained optimistic, and his view of the economic realities of the electricity market's future differed from that of the scientists whose positions ERR had previously presented in the article.

He acknowledged that a high concentration of new renewable energy capacity could indeed reduce profitability across projects, but said the solution lies in active portfolio management, energy storage capabilities and participation in frequency markets.

According to Pilar, having a 100 percent renewable electricity production goal is a good thing for Estonia, even if reaching it may be challenging.

"I agree — those final tens of percentage points before reaching 100 percent will definitely be difficult. But that doesn't mean we should abandon the target at a declarative level," he said.

Pilar also suggested that one possible solution could be increased electricity consumption in Estonia. "If your claim is true — that electricity prices really are that low, and the trend appears logical — then, by market logic, more consumption will follow from people who want to take advantage of cheap electricity," he said.

Asked how that aligns with a target based on 100 percent of consumption, he replied that there's no need to maintain exactly 100 percent in 2031 — and at the very least, Estonia would be covering eight terawatt-hours of demand annually.

When asked whether Sunly would still have invested in a solar park if Estonia's renewable energy production had already exceeded 80 percent of electricity consumption, Pilar said only if the electricity could be sold outside the exchange.

"Again, it depends. If you're relying solely on market forecasts and can only sell into the day-ahead market, then in the kind of situation you're describing, probably not," Pilar said. "But if you have a buyer for that specific project's output, outside the exchange price, then it's [possible]."

--

Follow ERR News on Facebook, Bluesky and X and never miss an update!