The government last week authorized Minister of Energy and Environment Andres Sutt to organize a new renewable energy auction for onshore wind farms. The auction will support the production of one terawatt-hour per year from onshore wind farms, with the possibility of increasing the volume to two terawatt-hours. The generating facilities must be completed by the end of 2030.

For both Enefit and Utilitas Wind, however, the auction raises questions.

Johann-Gustav Lend, head of development at Enefit, told ERR that additional auctions for onshore wind farms are clearly necessary to increase domestic electricity production and reduce Estonia's dependence on imports. At the same time, he said the timing of the auction is concerning.

"At the moment there are not enough projects with valid spatial plans that could fill the one-terawatt-hour auction volume and that also have sufficient certainty of obtaining construction rights," Lend explained. "As a result, there is a risk that the situation seen in the fifth auction will reoccur, where delays in planning processes may once again mean that power plants fail to qualify for the price floor and their completion is postponed."

He added that, given the significant risks related to planning procedures and obtaining construction rights, Enefit is currently approaching the decision on whether to participate with caution.

Lend noted that as the share of renewable energy in the market grows, very low prices on the electricity exchange will become increasingly common, because electricity on the exchange is traded based on variable costs, which for renewable power plants are essentially close to zero. At such times there is not an oversupply of electricity; rather, renewable power becomes the dominant form of generation on the market.

"Developers must therefore recover their investment costs not from the electricity exchange but through other measures, such as the currently proposed price floor mechanism," Lend said. "The new auction's price cap of €45 per megawatt-hour is roughly half of last year's average electricity exchange price and does not cover the investment and operating costs of wind energy."

According to him, the conditions are therefore very favorable from the state's perspective: consumers benefit from low electricity prices and the state's cost under the price floor mechanism is low. For developers, however, this means taking on significant risk at a time when the share of renewable energy in the market is increasing.

"The situation is further complicated by the fact that project costs have risen due to additional fees as well as higher interest rates," Lend added.

According to Rene Tammist, chairman of the management board of Utilitas Wind, the experience of the 2023 auction shows that the main bottlenecks are slow and unpredictable spatial planning procedures as well as restrictions stemming from environmental requirements.

"As long as planning and permitting procedures take years and their outcome remains unpredictable, there simply are not enough mature projects on the market that could compete in auctions," he said.

In Tammist's view, the state should focus on speeding up planning and permitting procedures for wind farms, since the actual pace of wind energy development in Estonia depends on this.

Under the task given to Sutt by the government last week, the auction must be announced within the coming weeks and projects should be selected by the end of the year.

The onshore wind farm support measure, or auction, has been planned for a long time. The measure was already developed at the Ministry of Climate in June last year and submitted to the government, but since it did not receive support from Eesti 200, announcing the auction was delayed.

Under the coalition agreement between Reform Party and Eesti 200, the auction for onshore wind farms was supposed to be announced in the third quarter of last year.

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