A few years ago, both the European Union and Estonia set ambitious climate and energy policy goals, despite lacking practical solutions or a clear understanding of the costs involved. This was a naive approach that has since triggered a backlash — often populist in nature — against the broader goal of climate neutrality.

To move forward, we need a more realistic path. This doesn't mean promising a miraculous future, but rather ensuring the preservation and growth of people's economic well-being. Such an approach could gain consistent public support both in Estonia and across Europe.

The updated Estonian National Energy and Climate Plan 2035 (ENMAK) reflects a more grounded understanding of climate and energy policy. Abandoning the goal of 100 percent renewable energy marks a key step in breaking away from the naive dogma unexpectedly written into law in 2022. It's striking to recall that just a decade ago, Europe's mainstream — led by Denmark and Germany — was chasing a 100 percent renewable energy model and was intolerant of all other forms of energy, particularly nuclear power.

The EU's energy policies and market mechanisms were shaped to serve renewables and member states are required to meet renewable energy targets and justify the subsidies provided to support them. All EU funding mechanisms prioritize renewable energy and conference after conference continues to proclaim its inevitable dominance.

Indeed, renewable energy has reduced the use of fossil fuels and electricity prices significantly, both in Estonia and across Europe. But it's also true that the subsidies paid for renewables over the last 20 years have been enormous — nearly €85 million annually in Estonia alone. That adds up to almost €800 million over ten years.

At the same time, network, stabilization and capacity reserve costs are rising rapidly in both Estonia and Europe. This is the downside of the inherent intermittency of renewable energy: capacity factors remain between just 10–50 percent throughout the year and production is unstable. This objectively requires overbuilding reserve capacity and grid infrastructure, making the overall solution expensive for end users — despite occasional days or weeks when market prices dip very low.

The solar energy discount in June rose from 33 percent last year to 62 percent this year. The wind energy profile discount in the first quarter of 2025 was 18 percent in Estonia and 51 percent in Finland. This means that the market value of renewable energy is falling fast and during many hours, producers actually reduce output, instead earning income from providing balancing services.

Returns from existing capacity are also declining — especially when factoring in the cost of balancing services, which should rightfully be paid by the sources of imbalanced production, not consumers. This suggests that the economically justifiable scale of solar energy in the Baltics is already near its limit and the same could be true for wind power within the next five years.

Unfortunately, the hope that the energy transition would become Germany's or Europe's next industrial success story has proven misguided. Between 80 to 90 percent of the world's solar panels, batteries and permanent magnets for wind turbines are manufactured in communist China. German and Danish wind turbine manufacturers are constantly struggling and grand hydrogen ambitions are being replaced with the reality that only a few small projects will materialize — and even those only with major subsidies.

It's also worth noting that Estonia will still be a net importer of electricity from Finland in 2025 — about 3 terawatt-hours at an average price of €90 per megawatt-hour or roughly €250 million a year. That's €1 billion over four years flowing to Finnish electricity producers and the transmission system operators of Finland and Estonia. The price gap with Finland remains nearly twofold, whether or not the EstLink interconnectors are operational.

It would be naive to believe it's in Estonia's economic interest to remain dependent on Finnish energy for decades. A realistic solution would be to secure Estonia's energy independence through public investment in sufficient reliable generation capacity — at least 1,400 megawatts, as ENMAK envisions.

Complete decarbonization of industry, transport and heating would mean a doubling of electricity consumption and production in both Europe and Estonia. A 100 percent renewable solution would triple the costs of grid infrastructure and require a massive increase in wind turbines and power lines across rural areas.

Experience in the Netherlands, Germany and even Estonia — with the fourth Latvia–Estonia interconnection via Saaremaa and wind farm planning — proves that in democratic societies governed by the rule of law, this is either extremely difficult or outright impossible.

People in cities may support wind turbines, but if rural residents are — quite rightly — unwilling to see their living environment permanently altered by them, the result in a democracy will be political change. Forcing things through simply doesn't work in a democracy.

There's also a backlash from price increases, even in cities. A few cheap weekends or summer months thanks to renewable energy are nice, but it's little comfort when the electricity bill — and the number of line items on it — keeps growing. Despite the so-called "success" of renewables, Europe still faces a major problem: its industries pay twice as much for electricity as in the United States and three times as much as in China. Industrial facilities across Europe are shutting down. So how can anyone claim the shift to renewables is a success?

A full retreat from climate goals isn't realistic either. Human-caused climate change and its painful consequences in Western and Southern Europe are a fact and the political will of the majority in the EU remains committed to climate neutrality, as evidenced by votes in the European Parliament and Council. The real question is how to proceed and what Estonia's energy policy should look like. How do we honestly acknowledge the reality: that while renewable energy has benefits, it also has limits?

The most urgent need right now is to bring CO₂ prices under control. €80 per ton is a level that no European Commission document predicted prior to 2022. A price that high does not accelerate the development of either renewable or nuclear energy, but it does significantly increase costs for consumers and businesses. The CO₂ price, which is essentially a tax, must be predictable and economically bearable: closer to €50 than €80 per ton.

Second, after nearly 20 years of massive policy and financial support for a single type of energy, it's unrealistic to expect that other types can now enter the market without state intervention. If the government simultaneously sets goals for supply security, climate neutrality and affordable electricity, then the comfortable stance of "let investors handle it" simply doesn't work.

For example, without state support, Elering's tender for a 500 MW frequency reserve would not have attracted even the 186 MW of gas plant bids it received. The majority of that — 100 MW from the Narva gas plant — was only made possible by a government decision to increase Eesti Energia's equity by €100 million. Without state participation, it's not feasible to ensure sufficient reliable generation capacity in a small market.

Third and most substantively, following the abandonment of the 100 percent renewables target, is the planned 26 percent hike in transmission network fees next year — justified by long-term network development and overcapacity in cross-border connections — still fully warranted?

The idea of economic stagnation or managed decline supported by a small elite will not win majority backing in Estonia or Europe anytime soon. People demand that their governments improve their standard of living — not worsen it. Always. A realistic, fully transparent and honest energy and climate policy must support that goal.

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