Power Perspective: Estonia launches new renewable energy auctions

Tasmin Chowdhary

09-Dec-2019

This story has originally been published for ICIS Power Perspective subscribers on 06 December 2019 at 12:30 CET.

Plunging power generation from traditional oil shale and further plant closures scheduled in 2020 has forced Estonia to increase its renewable energy capacity and fill the supply gap in the coming years. The Economic Affairs ministry recently launched the country’s first round of competitive renewable auctions to obtain 5GWh of additional generation, open for bids until 18 March 2020. Based on capacity size limits of 50kW-1MW, we expect solar to emerge most successful. Following this, a technology-specific auction round procuring an extra 500-550GWh of annual production is expected in 2020.

Background

  • To achieve an ambitious target for a 42% RES share in final consumption by 2030, the Estonian government is planning to procure more renewable assets
  • Estonia had already hit its 2020 target for a 25% renewable share in final consumption, reaching 29.2% in 2017, latest Eurostat data shows
  • Renewable and efficient cogeneration units smaller than 100MW could receive support under the old scheme, a fixed feed-in premium lasting 12 years
  • However, the scheme has been closed to new applicants since 31 December 2016
  • In the previous scheme, wind producers could receive subsidies up until an annual 600GWh generation cap, but this limit has never been reached
  • Last year, the economic affairs ministry found a way to pass changes to the subsidy scheme under a separate draft amendment, which extended support for small-scale producers
  • By the end of 2018, renewable producers <1MW had to connect to the grid to receive support under the old scheme, which led to a surge in PV installations. Solar capacity rose from 11MW in 2017 to 110MW in 2018 according to data from TSO Elering

Auction design

  • Estonia’s economic affairs ministry in January 2020 will submit to parliament a draft of amendments to the Electricity Market Act, which include details on the upcoming technology-specific renewable tenders
    • This marks Estonia’s first step into competitive auctions following expiry of the old fixed support scheme at the end of 2018
    • All technologies and efficient cogeneration units are eligible in the first round
    • Producer support is paid as a floating feed-in premium, depending on the market price, and subsidies are guaranteed for a 12-year period
    • Participants will bid for a strike price, which is made up from the market price plus the premium
    • Following approval from parliament next year, the changes must then be accepted under EU state aid regulation
    • A ministry spokesman told ICIS that priority would be given to projects with a higher chance of being commissioned
  • First tender
    • Subject to the law amendment in parliament, the tender is currently open and the deadline for submissions in this auction round is 18 March 2020
    • The first tender will be for units between 50kW and 1MW in size, with the aim of obtaining 5GWh of additional generation onto the market annually from 2021
    • Bids in the first tender are capped at €53.70/MWh and the total subsidy plus market price is set at a maximum of €93.00/MWh
  • Next tenders
    • After the initial auction, the ministry is planning another in 2020 to obtain an additional 500-550GWh of annual renewable production and a third in 2021 for 450GWh
    • A spokesman told ICIS that the second tender for 500-550GWh could take place by June 2020 at the earliest, if it receives parliamentary approval
    • Unlike the first auction, projects of any size can compete in the following rounds
    • Winners will have a maximum of three years to be fully commissioned

Analysis

  • Most of the winning generation capacity is likely to go towards solar projects in the 5GWh round, given the size limitations. Whereas we anticipate in the larger scale auctions, onshore wind could emerge successful
    • Producers with <1MW capacity who previously missed out on receiving support under the old scheme last year are likely to participate in this round
    • Solar installations <50kW still have until 31 December 2020 to be commissioned to receive a premium under the old scheme
    • Assuming all 5GWh goes to solar and a 12% capacity factor, the first round would only bring around 5MW of solar PV capacity
    • In Finland’s 2018 technology-neutral auction, only onshore wind producers participated and so won all of the output
    • Assuming an onshore wind capacity factor of 25%, the 2020 and 2021 auctions could potentially bring online around 200MW and 230MW of wind capacity, respectively
  • An additional 5GWh of RES generation could go towards brokering a future statistical transfer deal with another EU member state behind on its 2020 target, the country signed such an agreement with Luxembourg in 2017
  • In case Estonia is short on its obligations for a transfer deal, it could hold another small tender round to secure this extra capacity in 2020, a ministry spokesman told ICIS

Our ICIS Power Perspective customers have access to extensive modelling of different options and proposals. Our long-term price forecast now also includes Bulgaria, Greece and Ireland. If you have not yet subscribed to our products, please get in contact with Justin Banrey (Justin.Banrey@icis.com) or Audrius Sveikys (Audrius.Sveikys@icis.com). 

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