There are enough power plants in Estonia to get through this winter and security of supply is currently assured; the reserve capacity is sufficient not to worry about one or even two unexpected failures at power lines or plants, TSO Elering said in its supply security report published Tuesday, adding that the likelihood of restrictions is very low.

However, without additional measures, that security will not hold in the future. While the electricity market is capable of selecting the most cost-effective producer at any given moment, it does not ensure investments in power plants that only operate during cold, dark and windless conditions, the report states.

According to Elering, Estonia must have 1,200 megawatts of dispatchable electricity generation capacity by 2028, 1,300 megawatts by 2030 and approximately 2,100 megawatts by 2035. This means that if electricity storage systems can be expected to cover about 400 megawatts of the need ten years from now, Estonia will still require around 1,700 megawatts of traditional power plant capacity.

As a result, Estonia is far from meeting its 2035 target without building new plants. Of the country's current power stations, only the Kiisa gas-fired plant, which the state has previously said it may sell off in 2028, Auvere power plant, some smaller stations and new units secured through long-term frequency reserve tenders are expected to remain operational beyond 2035. Taken together, their output falls far short of what is needed, the report says.

"We therefore definitely need at least an additional 800 to 1,000 megawatts of new power plants in Estonia. This is something Elering and the state must now treat as a fairly high priority and then there will be no need to worry excessively about keeping the lights on," said Elering CEO Kalle Kilk.

Kilk added that it is essential to both keep existing power plants running and move quickly to plan and build new ones, as constructing power plants takes a long time.

A new capacity mechanism will be established to bring the necessary new power plants to market by 2035, the report notes. This mechanism is currently under development, with a tender planned around 2030. That tender is expected to ensure that the new dispatchable generation capacity can be built by 2035. According to the report, 2035 is the year when much of Estonia's current generation capacity (including older oil shale power plants – ed.) will reach the end of its operational life.

Until 2035, Estonia has the capacity needed to ensure supply security, provided that current investments are completed as planned, the report says.

If, however, market-based solutions are not sufficient to guarantee the required capacity and the strategic reserve becomes inadequate or the state aid authorization granted by the European Commission expires, a new solution must be found, the report said. For this reason, Elering will commission an analysis at the end of 2025 and, with the help of a consultant, carry it out in 2026 to explore additional capacity mechanism options for Estonia.

If relying on a purely market-based approach, shortfalls would already appear in 2028: only 851 megawatts of dispatchable capacity would be secured, compared to the required 1,200 megawatts. The shortfall would grow in 2030 (751 megawatts secured out of 1,300 needed) and become massive by 2035 (976 out of 2,100 megawatts).

Growing renewable energy volume also requires more reserves

The growth of wind and solar energy is increasing the complexity of balancing the power system and the need for reserves, requiring more accurate forecasts, better real-time monitoring and greater use of flexible resources, Elering notes.

"Forecasting errors and the volatility of generation increase the demand for reserves and create a need for both upward and downward regulation. In addition, power flows in the electricity grid are becoming more unpredictable, voltage issues may arise and the decline in system inertia is forcing the use of synchronous compensators and other support tools," the report states.

Currently, reserves needed for balancing can be procured from the Baltic frequency market on a day-ahead basis and exceptions have made it possible to conduct long-term reserve service tenders, which should give investors the confidence to build new plants. "This, together with the availability of the Kiisa emergency reserve power plant, ensures that the power plants needed for balancing exist and will remain available in the future," Elering says.

For crisis situations, Elering has developed contingency plans, including consumption restrictions, island operation and system re-energization. The Kiisa emergency reserve plants enable the grid to be restarted from scratch if it goes dark.

New links with Finland and Latvia in a decade's time

According to the updated plan, EstLink 3 — the planned electricity connection between Estonia and Finland — and the fourth Estonia–Latvia interconnection are scheduled for completion between 2035 and 2038. Both projects have moved from the preparatory phase to detailed planning and environmental impact assessment.

The third submarine cable between Estonia and Finland, EstLink 3, is expected to be completed during the 2035–2038 period. A national special plan has already been launched for the project, and an investment decision is scheduled for 2028, Elering said.

The fourth alternating current interconnection between Estonia and Latvia is planned for the same timeframe as EstLink 3 — between 2035 and 2038. The goal is to strengthen the main grid connections between the two countries, improve reliability and enable the integration of large-scale renewable energy. A national special plan is also underway for this project and an investment decision is expected between 2027 and 2028.

Regarding electricity consumption in Estonia, the report notes that while overall consumption has seen a slight upward trend, peak loads have remained stable over the past decade, ranging between 1,400 and 1,600 megawatts. The current record was set in January 2024, when peak demand reached 1,595 megawatts.

In December 2024, Estonia also set a record for electricity generation: on December 12, output reached 1,631 megawatts.

"In the future, peak demand is expected to rise more rapidly due to the electrification of energy consumption. The increasing cost of fossil fuels used for heat production, along with climate goals, is also likely to drive the adoption of electric heat pumps and heating elements in the coming years," Elering stated in the report.

In 2025, Estonia will have 1,493 megawatts of market-based dispatchable capacity (compared to 1,609 megawatts in 2024), 1,214 megawatts of renewable capacity (wind, solar, hydro; up from 510 megawatts last year) and 53 megawatts of storage. Including the non-market Kiisa power plant (250 megawatts), Estonia's total electricity generation capacity in 2025 will amount to 3,687 megawatts (up from 3,518 megawatts last year).

Two new lines on electricity bills

According to Eurostat data, the final electricity price in Estonia in 2024 was 15 to 20 percent lower than the regional average for households and business consumers in the Baltic Sea region. However, for large industrial consumers, Estonia's final electricity price was 7 percent higher than the regional average.

Within the region, Finland and Sweden stand out for their lower electricity market prices, largely due to their high shares of low-variable-cost energy sources such as hydro, nuclear and wind power.

Electric bills for consumers have also been driven up by the cost of procuring and maintaining necessary reserves. Elering notes in its report that if the recent trend of falling electricity prices continues, it is reasonable to expect that, despite the addition of new line items to electricity bills, the overall cost of electricity for Estonian consumers will not increase. "In fact, we may even expect it to decrease," the report states.

For example, to ensure island operation capability — in the event Estonia is disconnected from the rest of the Baltic States, with whom it jointly procures reserves — Elering will procure 1,036 megawatts of capacity service for the next year by the end of this year. The cost of this procurement is €60 million. This will add €6.30 per megawatt-hour to the electricity price, which translates to an additional €19 annually for the average household.

Starting next year, the electricity bill will also include new charges for balancing capacity and supply security.

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