District heating involves hot water being piped in from a plant – natural gas is often used in the actual heating process – solely for heating apartment buildings. For this reason it is generally found only in the towns.

A vivid example is in Märja, just west of Tartu limits and once a collective farm, where a brand new and impressive boiler house was recently built — yet instead of prices going down, they now threaten to rise to what residents call exorbitant levels.

"Pealtnägija" discovered on investigating the Märja case that the further people are from major centers, the higher district heating prices tend to be, making apartment owners almost "serfs" chained to expensive heating contracts, even in mild winters.

"We have a completely new central heating system that we built last summer, and this past winter — 2024–2025 — we really had normal indoor warmth, but only the price — two euros per square meter even when there was barely a winter at all — is high," said Märja resident Aili Kärner.

Arvi Pärnmägi and Olev Soro are also Märja apartment owners, in the same development, and say they are all victims of the same situation. A year ago, a new boiler house started operating in their small township of several dozen apartment buildings, but, contrary to the slogan displayed on the heating company's fence, prices remain high, and are threatening to go even higher.

"My apartment is 65.8 square meters, and the heating alone cost €133," Kärner said, referring to the monthly cost.

"It depends on how cold it is outside, but if I'm not mistaken, two years ago the December bill for heating alone came to €399," Arvi said.

What makes the situation even bleaker is that leaving the expensive service and switching to other heating solutions is extremely difficult because of strict regulations, which residents feel is unfair. "Of course this is unfair. In fact, there are already people in our building who are considering selling their apartments before it's too late, because if heating stays this expensive, who would want to overpay? It would be cheaper to buy a flat somewhere else," Olev said.

Residents in smaller places like Märja are often caught in Estonia's district heating "trap," where rural decline interfaces with new environmental regulations.

"Their average price is somewhere around two euros and something per square meter. If we compare that with other prices, this is not at all low, but our heating prices are strictly set by the Competition Authority — what they consist of and how they are calculated," development manager Lia Reks, of district heating firm N.R. Energy, said.

New boiler house led to higher, not lower prices

High district heating prices are not a new phenomenon in Märja, but previously an aging oil boiler and worn-out pipelines were thought to be at fault.

However replacement work did not solve the issue.

Last year, N.R. Energy, which supplies the area, opened a new wood chip-burning boiler house built using EU funding — yet prices did not fall and in fact rose.

At the end of the last heating season — taken to run from October to March inclusive — N.R. Energy submitted an application to the Competition Authority (Konkurentsiamet) to hike prices by nearly 30 percent, from €117 to €149 per megawatt-hour — which would make it the highest district heating price nationwide.

"We were told that when the new boiler house starts operating and using wood chips, prices would go down. But we were lied to, and the prices actually went up," Pärnmägi said.

N.R. Energy is effectively a monopoly in the area. It is owned by controversial businessman Nikolai Reisman, from Ida-Viru County, who already has one criminal conviction to his name, "Pealtnägija" reported. Nearly a decade ago a company of his, Avoterm, was found guilty of inflating construction costs for boiler house projects in other regions, which allowed him to obtain larger environmental investment grants and reduce his own share of costs.

Suspecting that a similar inflation of costs had happened in Märja, residents contacted "Pealtnägija" in early summer, also appealing to Tartu city government and the police, who declined to investigate.

"The police wrote to us that they had no grounds to investigate, but if we found something ourselves, we should let them know," said Soro.

Residents are all the more frustrated as, although the Märja borough, population around 500, was officially merged with Tartu during the sweeping 2017 local government reorganization and is now a city district, it remained a separate district so far as heating provision was concerned.

Heating in nearby Tartu much less costly

Just about a mile away in Tartu, heating is much cheaper.

Tartu Deputy Mayor Raimond Tamm (Reform) explained more.

"The price people have to pay for warmth in their homes is high. It's well above the Estonian average, and if we compare it with the price in Tartu's district heating area, it is currently 80 percent higher," referring to Märja.

"While Tartu city residents pay €68 with [district heating firm] Gren, we, just a kilometer away, pay €149; it just feels so unjust," Aili Kärner said.

Competition Authority director general Evelin Pärn-Lee was also mystified by the situation.

"The service should become better and cheaper for consumers, but instead it's becoming several times more expensive. You have to ask yourself how such a thing can happen," she said.

N.R. Energy, which manages 19 district heating areas across Estonia, has upgraded boiler houses in many regions. The Environmental Investment Centre (KIK) and N.R. Energy explain that the construction costs rose due to global market conditions, which pushed the cost of Märja's boiler house from the planned €1.5 million to €3 million, of which KIK covered half — €1.5 million — using EU funds.

The company insists the price was not artificially inflated, and Reks said that people have not been deceived.

"The grant provider has inspected us and paid everything out. We've been issued an efficient district heating certificate, and we wouldn't have received this funding if we had done anything shady," Reks said.

Kristjan Kalda, head of energy at KIK, said: "The application was prepared in 2020. Back then it was quite common that, since wood-chip prices were low, switching from oil to wood heating could lower consumer prices. Unfortunately, prices went in the opposite direction from what was expected at the time."

However Tamm rejects this. "Competitors have said that they could have built the same boiler house for about a third less," he said.

N.R. Energy's lawyer Martin Mäesalu told "Pealtnägija" reiterated the line that if anything improper had been going on, KIK funding would not have been forthcoming.

"The assurance that no wrongdoing occurred derives from the fact that nearly half the investment was funded by KIK. The use of that money was audited and nothing improper was found — there's no basis to claim misuse," Mäesalu said.

Authority: You don't need a 'Maserati' to heat apartment blocks

Pärn-Lee was not satisfied, however. "Certainly, when you look at the figures, this investment is many times higher than comparable projects, and since this company has quite a few such facilities, we decided to take a closer look. After all, we're regulating the market for the company, and consumers can't tell a company that what it's doing doesn't make sense," she said.

Ultimately Märja's boiler house is suspiciously costly and unnecessarily grandiose, in the authority's view.

"We have been seeing a pattern where businesspeople who have renovated their units with structural funds may not have aimed for the most efficient or optimal solution, but rather followed the mindset of 'who wouldn't like to drive a Maserati?' But is a 'Maserati' really what's needed to provide a district heating service? Perhaps it could just as well be done with a perfectly good mid-range car," Pärn-Lee noted.

Mäesalu continued with that analogy, calling it "a colorful comparison, but we're not in a Maserati. We're actually in a Škoda Octavia right now. There's nothing here that shouldn't be," he said.

"The price is high because there are few consumers — and that's not only Märja's problem, it's the problem for all smaller areas," Reks said.

"The question is also about business risk: If a company decides to make an expensive investment, should consumers always have to pay for the entire investment, or only for what's necessary to provide the service?" Pärn-Lee inquired.

Kalda said ultimately dictating what sort of heating solution a development should have was beyond KIK's competency.

"Our role is to check how procurements get carried out — whether they are reasonable, necessary, and justified. The conclusion was that nothing more could be done, and we can't dictate to the applicant what exact solution to build, if they justify that higher quality means lower maintenance costs and longer service life.

So we can't step in — the final choice of what to build is up to the company," he said.

Buck being passed around

On the one hand, KIK stated that their priority was not the heating price but making the new boiler house more environmentally friendly. On the other, Tartu city authorities and the Competition Authority are pushing for negotiations for N.R. Energy to sell the Märja heating area to Tartu's provider, Gren, which could theoretically bring prices down significantly if Tartu prices noted above are anything to go by.

"That could indeed be a solution which lowers prices, but the difficulty lies in the fact that it requires agreement between companies. The municipality can't force one company to sell its assets or another to buy them," Tamm said.

"We've made the investments, we've disclosed all prices, and coordinated everything with Tartu city. They have always agreed and said Märja needs investment. To me, it seems absurd — who will pay for that investment?" Reks added.

"The legislation is based on the principle that companies act rationally, and it doesn't account for inefficiency or poor decision-making. But if a company acts otherwise, the result can be that consumers end up paying for that inefficiency or overinvestment," Tamm continued.

While officials circle around the hot boiler issue, locals are looking for ways out — but that has not proven easy, as under local planning rules, apartment buildings can disconnect from district heating only if their new system is even greener.

"Unfortunately, today's Estonian laws really do mean that, literally, consumers can remain trapped," Tamm added.

N.R. Energy has 21 apartment buildings or large district heating clients in the Märja area. Two of them — buildings with 30 apartments each — opted to switch to a solution from Sunly, which offers heating from renewable electricity.

"Air-to-water heat pumps are being installed, with a fixed price for ten years. The price will be €110 per megawatt-hour, including VAT. Nearby buildings have already asked what solution we chose, and people are interested. The question now is, if more buildings pull out, what will this modern boiler house out in the fields even do? Will it just stand there empty?" one Märja resident said.

In fact, a shrinking customer base could lead to even higher prices for those that remain with the boiler house.

"This is a new situation for us. No apartment building has ever expressed a wish to leave district heating," Reks noted.

"This actually [is] a worrying trend — in a district heating area that already has few consumers, if buildings start leaving, consumption drops further. That could mean those who remain will have to pay even higher prices," said Tamm.

"In my view, we shouldn't create a situation where consumers are turned into serfs bound to a producer who isn't efficient and can't be motivated to make the best decisions from the consumer's perspective," Pärn-Lee summed up.

This leads to a broader issue: Looking at the table of district heating prices, the most expensive options are often in small settlements. If a boiler house is old, the price is high; if it's new and fancy, like in Märja, consumers must pay for the investment — keeping prices from falling. This is particularly since the number of residents in such areas is often falling. For example, in Keila-Joa the decision was made that maintaining district heating no longer made sense, and the local government instead helped remaining apartment owners buy air-source heat pumps.

"Such cases are usually analyzed by the network operator together with the municipality and residents, and it's concluded that investing wouldn't make sense — it would make prices too high. These calculations get done constantly," Kalda said.

Whether because of delays by the Competition Authority or media pressure, an unexpected turn occurred over the summer, however: N.R. Energy decided to back down somewhat. Whereas in spring they had sought a 30 percent price hike, in September they submitted a new application to reduce the price from €117 to €110 per megawatt-hour. The company says this can happen once the Competition Authority approves it.

"This is viable because we've found new clients here and also managed to get cheaper wood chips, and electricity prices are now more stable," Reks said.

Pärn-Lee noted that the buck had been passed to them in other cases too.

"We are seeing this not only in district heating but in other regulated sectors too: Companies say they must wait for Competition Authority approval before applying a new price. But if you can sell more cheaply, you can do so immediately — you don't need permission. If you can give consumers a lower bill, you should do that right away," she explained.

While prices at least won't rise, then, N.R. Energy confirmed to "Pealtnägija" on Tuesday that they won't fall either, again until the Competition Authority approves their application. Yet the agency has repeated the line that no approval is needed to lower prices, leaving things as they stand deadlocked.

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