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© World Energy Council 2015
2nd WEC Baltic Sea Roundtable
Tallinn, Estonia10.09.2015
© World Energy Council 2015
Agenda► Opening words by Margus Vals, Chairman of WEC-Estonia
► Opening words by Einari Kisel, Europe Regional Manager for WEC
► Session 1: Policy measures for regional and national energy security
► Break
► Session 2: Is the price of electricity hurting the competitiveness of Europe?
► Conclusion
© World Energy Council 2015 3
MARGUS VALSChairman, WEC-Estonia
Member of Management Board, Eesti Energia
Opening Words
© World Energy Council 2015 4
EINARI KISELRegional Manager for Europe
World Energy Council
Opening Words
© World Energy Council 2015 5
Policy measures for regional and
national energy security
© World Energy Council 2015 6
ESTONIAPolicy measures for regional and national energy security
© World Energy Council 2015
Estonian perspective
12% 12%26% 32%
49% 56% 63%78%
0%20%40%60%80%
100%
Energy dependence2013 (EuroStat)
Opportunities and strengths
• Estonia is the least dependent country from external energy
supplies in EU
• Interconnector capacities in electricity exceed peak demand
• Electricity market merged with Nordics
• On track to exceed its 2020 RES targets
• Great potential for renewables – both wind and biomass
thus good opportunity to start with cooperation mechanisms
• High share of district heating in heating sector
• Commercially feasible CHP potential mostly utilized
Threats and weaknesses
• Power generation struggling with low wholesale prices (with
capital costs often canalized off-market through various
support schemes)
• No new market based investments to power plants
• Generation aging, security of supply decomposing
• No common views on market design capable of tackling
abovementioned
• Regional cooperation can postpone the consequences not
posing ultimate solution
The discussions on future governance system
beyond 2020 for the Energy Union have started
© World Energy Council 2015 8
LATVIAPolicy measures for regional and national energy security
© World Energy Council 2015
Energy Sector and Primary Sources in Latvia,
2014
► Total energy demand: 188.1 PJ
Electricity import
4.4%
Natural gas
24.1%
Oil products
31.7%
Coal
1.3%Waste incineration
1.3%
Fuel wood
30.8%
Biogas
1.7%
Biofuel
0.5%
HPPs
3.8%
Wind
0.3%
RES37.1%
© World Energy Council 2015
Primary energy consumption
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0
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25
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35
40
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300
350
%PJ
Renewable energy sources (RES) Fossil energy RES share
© World Energy Council 2015
Primary energy consumption (cont.)
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
PJ
Peat
Coal
Imported electricity
Wind energy
Hydro energy
Biogas and biofuel
Solid biomass
Natural gas
Oil products
Municipal wastes
RES share
© World Energy Council 2015
Energy Sector in Latvia
► Total energy demand in 2014: 188.1 PJ (52.2 TWh)
• Electricity 7.5 TWh
• Heat energy 31.8 TWh
• Transport 12.9 TWh
► Distribution of energy
by energy sectors (2013)
Electricity
14.2%
Transport
fuel
26.2%
Decentralized
heating
46.3%
Centralized
heating
13.3%
RES
6,7%
Others
7,5%
RES
0,8%
Others
25,4%
RES
25,6%
Others
20,7%
RES
5,2%
Others
8,1%
© World Energy Council 2015
Natural Gas, 2014
Natural Gas Sales
Million m³
Natural Gas Sales in
Latvia by Industries
%
Natural Gas Deliveries from
Incukalns UGS Million m³
© World Energy Council 2015
Natural Gas, 2014► Expected to implement market rules in 2017
• Limited TPA till 2017
• Rules of the use of natural gas transmission system and Incukalns underground gas storage.
► Underground storage • up to 2.32 billion m³ ( > annual national demand)
• International importance (e.g., re-export to Russia)
• Possibility to increase to 3.2 billion m³ (for regional needs)
• Latvia has appropriate geological structure for total storage amount of 50 billion m³
► Gas transmission system • Enhancement of Latvia-Lithuania interconnection
(new pipeline with a length of 40 km and capacity of 12 million m³/day)
• Enhancement of Estonia-Latvia interconnection (upgrade of pipeline to 10 million m³/day)
► Possibility to use LNG (Lithuania)
14
© World Energy Council 2015
Electricity, 2014► Installed capacity in Latvia 2.6 GW
► Base load capacity ~ 1 GW
► Peak load ~ 1.4 GW (January); minimum load ~ 0.5 GW (July)
► Strong tie-lines with neighbouring countries
► Different / diverse generation technologies, regional cooperation for
reserve capacity
► Capacity of connections to other
countries will exceed peak demand (~4.6 GW)
of Baltic Countries after 2015
► Third link to Estonia will reduce price differences
© World Energy Council 2015
Topical issues for security of electricity supply in Latvia
1. Recently built new modern CCGT in Latvia (Riga CHP-2) serve as a significant improvement of
generation adequacy
2. Removing bottleneck causing price difference between Estonia and Latvia by adding the new
interconnection.
3. Interconnections (Estlink I & II, 1,000 MW, NordBalt, 700 MW, LitPol, 1,000 MW) increase power
security and continuation of tie-line development with Poland can lead to synchronous connection
with Central Europe in long-term
4. Desynchronization from IPS/UPS is possible through large investments for strengthening of
interconnections in the region
5. Uncertainty in market development and high subsidy burden leads to lack of incentives to build new
dispatchable capacities and postponing state support for new RES capacities till 2017
6. In above mentioned conditions the special attention should be paid to types of generators able to
participate in improving security of supply
16
© World Energy Council 2015
Importance of CHPs► Provides security of supply (reserve capacity)
► Riga CHP-1 and CHP-2 (capacity 1 GWel) ensure indirect competition:
imported electricity vs electricity generated from natural gas
► CHP plants operates according to heat load and market demand
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2015
Electrical power
Electricity price
P, MW Electricity price,EUR/MWh
23.01.2006
14.01.2015
0
200
400
600
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1200
1400
MW Euro/MWH
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HESTEC
Tirgus cena, LatvijaSlodze
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© World Energy Council 2015
Local Renewables
► Using local resources reduces import
► Latvia – at the top of the World • RES are 37% of the total energy demand
► Local RES • Hydro resources 2 ... 4 TWh per year
• Fuel wood 16 TWh (in 2014)
• Biogas 0.9 TWh (in 2014)
• Waste incineration 0.7 TWh (in 2014)
► Biomass technologies are appropriate for decentralized heat systems
► Over usage of biomass for district heating and electricity production might force to shut down modern CHP plants thus reducing security of electricity supply
► There is potential for new wind farm development, incl. offshore
© World Energy Council 2015
Sustainability
► Latvia has market economy
► Undisguised to international cooperation
► Appropriate legislation • (EU Third Package, Competition Act etc.)
• Measures to motivate energy saving
► Scientific long-term planning
► Promoting local RES resources
► Willingness to exploit regional opportunities • e.g., LNG in Lithuania
• HV DC links to Nordel grid
► Seamless renovation and upgrade of generating capacities
► Investments in both infrastructure and human resources
© World Energy Council 2015 20
LITHUANIAPolicy measures for regional and national energy security
© World Energy Council 2015
Lithuania
► Lithuania achieving its energy security with increasing biomass use and
decreasing consumption of natural gas for district heating and power.
Biomass is more than two and half time cheaper than natural gas domestic
energy source and helps in creation of jobs.
► Lithuanian LNG terminal in Klaipeda helps diversify natural gas supply for
country and secure market price for natural gas.
© World Energy Council 2015 22
GERMANYPolicy measures for regional and national energy security
© World Energy Council 2015 23
Energy Security
There is no pan-European definition of security of supply
Source: Prognos, Security of supply: a pan-European approach, June 2015, commissioned by Weltenergierat – Deutschland e.V.
© World Energy Council 2015 24
The increasing share of renewables requires regional
approach to optimize residual load
Sum of national viewsPotential efficiency by
international harmonization
The sum of the individual load duration curves for all countries in a group of countries is
not equal to the (concurrent) load duration curve of the group as a whole.
or:
„On the load side, the whole is less than the sum of its parts.”
Source: Prognos, Security of supply: a pan-European approach, June 2015, commissioned by Weltenergierat – Deutschland e.V.
© World Energy Council 2015 25
Load, feed-in from renewables, and residual load was analyzed for
15 European countries
Source: Prognos, Security of supply: a pan-European approach, June 2015, commissioned by Weltenergierat – Deutschland e.V.
© World Energy Council 2015 26
Potential of European Integration: Reduction of the Annual Peak
Load
Source: Prognos, Security of supply: a pan-European approach, June 2015, commissioned by Weltenergierat – Deutschland e.V.
V1: “Slow Progress”; V3: “Green Transition”
© World Energy Council 2015 27
Secured Capacity from Wind Energy
© World Energy Council 2015 28
Ensuring generation adequacy by an international process
© World Energy Council 2015
► With an integrated assessment for ensuring generation adequacy • residual load in peak hours will sink by 2 to 15 GW in the PLEF group of countries and by 15 to 50 GW in the
entire study domain until 2030,
• –the potential existing today will increase largely due to the expansion of renewable energy
• –the potential is increasing significantly when considering a larger study domain
► Wind power will be able to provide reliable available capacity of between at least 1,3 % in the PLEF and more than 4 % of installed wind capacity for the entire study domain • –We recommend a review of the process of evaluating guaranteed wind power capacity
► The residual load of the group of countries in the study domain would be negative for barely any hours per year in 2030, even considering a strong expansion of renewables • The lowest residual load for the entire study domain in case of a collective assessment scheme is up to 100
GW higher compared to the lowest residual load in case of a national assessment scheme
Conclusion (1)
Source: Prognos, Security of supply: a pan-European approach, June 2015, commissioned by Weltenergierat – Deutschland e.V.
© World Energy Council 2015
► If the potential to reduce residual load could be realised, then less power plant capacity would have to be reserved and less storage capacities would be necessary • Both of these factors can result in cost reductions
► The following requirements are necessary to achieve this potential: • Cross-border methods of generation adequacy assessment need to be further developed
• Processes of ensuring generation adequacy need to be internationally harmonised
• Grid infrastructure has to be developed
• In doing so, obstacles as well as transaction and transformation costs - which can be difficult to quantify but important - need to be considered
► Potential benefits from synergies need to be compared with the costs required to realise this level of integration
► Regional cooperation (e.g. in the PLEF region) can achieve quick wins which would serve to realise some of the reported potential for harmonisation. This cooperation can then be incrementally extended to larger regions
Conclusion (2)
Source: Prognos, Security of supply: a pan-European approach, June 2015, commissioned by Weltenergierat – Deutschland e.V.
© World Energy Council 2015 31
SWEDENPolicy measures for regional and national energy security
EU Energy Union outlines the EU energy policy programme
• The strong focus on the internal energy market highly appreciated,
• Market integration should be followed by policy harmonisation,
• Stronger EU energy policy needs stronger regulatory framework:
– Enforced cooperation of national energy regulators (ACER)
– Better regional cooperation of transmission operators to improve network
planning
• Decarbonisation through ambitious climate policy, energy efficiency and
renewable energy is an essential part
– EU ETS main driver for renewables and energy efficiency for the sectors covered
by the scheme
32
Investments in transmission are key to develop the European wholesale electricity market
• Development of the internal energy market needs to be in the centre:
– Larger markets enforce competition, more stable and competitive prices and a
better service level for the benefit of customers,
– Investments in transmission infrastructure are key to improving the market efficiency
and security of supply as well as integration of RES,
– Development of regional energy markets is the way towards a common energy
market
• The current energy only market model should be enhanced to handle more
intermittent renewable electricity with very low marginal costs:
– Energy only market model is the preferred model also in the future
– Clear EU framework needed if a Member States have to implement capacity
mechanisms, including rules for cross-border participation
– Renewable energy needs to be properly integrated in the energy market
33
Outstanding mix of generation in the Nordic;
More than half of the production is flexible hydro –need to get political support to understand the role and develop the hydro
Källa: ENTSO-E Statistical Factsheet 2013
34
Denmark Norway Sweden Finland Baltics
*) Normal yearly hydro production 200 TWh, variation +/- 40 TWh.
Elect production,
Total year 2013
23
86
TWh %
48
203
23
6
23
13
53
6
Nordic
383 TWh
Baltics
22 TWh
1
-
TWh %
16
4
1
5
-
72
18
5
Net export, Norden 2013: 0.4 TWh
Net import, Baltikum 2013: 4.8 TWh
Fossila bränslen
Nuclear
Biomass
Wind
Hydro *
23
86
%
48
203
23
6
23
13
53
6
1
-
TWh %
16
4
1
5
-
72
18
5
© World Energy Council 2015 35
FINLANDPolicy measures for regional and national energy security
© World Energy Council 2015 36
• Structural dependency on elecricity imports (20 % of total, mainly from the Nordic
countries)
• Dependent on ”imported” capacity during peak demand
• Finland is also very dependent on energy imports (no domestic coal, gas or oil
reserves)
• Current government will try to increase domestic energy use to 55 % of total
• Mainly by replacing oil with biofuels
• Share of biomass (including peat) will likely increase in the heat and power sectors
• Drive for more domestic electricity generation
• Energy security also reflected on ownership issues of projects (e.g. Fennovoima
nuclear power plant)
Policy measures for regional and national energy security
Finland’s perspective
© World Energy Council 2015
Discussion and questions
► Common definition for energy security
► Cross-border methods of generation adequacy assessment
► Harmonized capacity mechanisms
► Natural gas: regional LNG terminal, regional market
© World Energy Council 2015
Conclusions
► Harmonize regulation (definitions, capacity markets)
► Implement technology neutral policies (energy security)
► Promote regional cooperation (LNG terminal, gas storage)
© World Energy Council 2015 39
Is the price of electricity hurting the
competitiveness of Europe?
© World Energy Council 2015 40
FINLANDIs the price of electricity hurting the competitiveness of Europe?
© World Energy Council 2015 41
SWEDENIs the price of electricity hurting the competitiveness of Europe?
Cost Competitiveness from a Swedish Perspective
• From a customer perspective:
– Focus on total cost for energy
• Market price
• Transmission and distribution cost
• Policy costs, such as subsidies
• Taxes such as electricity tax, carbon tax
– On the agenda
• Raised ambitions in the green certificate scheme (not payed by energy intensive companies)
• Revision of electricity tax for the business sector
• EU ETS and indirect effects (that Sweden does not compensate)
• New support scheme for of-shore wind power under discussion
• Revision of tariff structure for distribution (both gas and electricity)
• Raised carbon tax for fossile fuels used by industries outside EU ETS - from 64
Euro/tonCO2 to 105 Euro/ton CO2 proposed starting from Jan 1, 2016
42
Solar is becoming to compete with fossils in part of Europe, but present prices are toolow for investments for all sources without subsidies
The levelised cost shows the achieved electricity price required for an investment to break even over the lifetime of the project.
Disclaimer: The presented figures do not represent Fortum’s own view on the levelised costs of electricity. The figures are based on recent external publications. Key assumptions: real discount rate 5%, corporate tax 20% . Overnight costs, €/kW 5400 for nuclear, 747 for gas, 2304 for coal, 1269
for onshore wind, 3400 offshore wind, 2700 for hydro, 975 for ground mounted solar. Peak load factor for ground mounted solar 19%; for onshore wind 27%; for offshore wind 34%, for
large hydro 40%, for nuclear, gas and coal 91%. Economical lifetime: 30 years for solar, 40 years for nuclear and hydro, 25 years for others. Fuel prices are the market forward prices as of
August 2015 extended by applying inflation of 2%. Note, there are large variations in cost of hydro, wind and solar depending on location and conditions.
Sources:
1. World energy council 2013, Cost of energy technologies
2. European PV Tehcnology Platform Streering Committee, PV LCOE working Group: PV LCOE in Europe 2014-30, Final report
3. IRENA: Renewable power generation costs in 2014
4. Fraunhofer: Levelised cost of electricity, Edition November 2013
5. Lazard's Levelized Cost of Energy Analysis - Version 8.0. 2014
0
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Nuclear Gas Coal Solar PV inSpain
Onshorewind
Offshorewind
Largehydro
€/MWh
Average levelised costs of new electricity generation(including 20% corporate tax)
LCOE (fuel prices based on futures as ofAugust, 2015)
Nordic SYS futures for 2020 (as of 12August, 2015)
German futures for 2020 (as of 12 August,2015)
© World Energy Council 2015 44
GERMANYIs the price of electricity hurting the competitiveness of Europe?
© World Energy Council 2015 45
Power prices for large companies (>>1 GWh)
Source: Fraunhofer ISI, Ecofys, Stromkosten der energieintensiven Industrie, Juli 2015 für BMWi
© World Energy Council 2015 46
Power prices for small companies (<1 GWh)
Source: Fraunhofer ISI, Ecofys, Stromkosten der energieintensiven Industrie, Juli 2015 für BMWi
© World Energy Council 2015 47
LITHUANIAIs the price of electricity hurting the competitiveness of Europe?
© World Energy Council 2015
Lithuania
► Support schemes for wind and solar power producers existing in Lithuania and some European countries distorts competition and lays with additional burden increasing electricity price for final consumers. Electricity generated by solar and wind power producers are purchased at a higher than market price and the difference has to be covered by other electricity consumers. Less distortion would be created in the market by subsidizing investment in generation capacities.
► Implementation of network codes requires huge resources from Baltic States comparing with its small electricity consumption only 1% of EU electricity consumption. Implementation of network codes foresee not only economic, but also technical issues to solve for NRAs, and that is why it might not ensure the appropriate protection of interests of market participants and consumers. Network codes’ implementation process may decrease the overall market coupling benefit, taking into account the above mentioned issues. All these issues could be resolved if decision are taken in institutional EU level.
© World Energy Council 2015 49
LATVIAIs the price of electricity hurting the competitiveness of Europe?
© World Energy Council 2015
Market
Fundamental problem:
long-term investments vs short-term marginal cost market
► Competition in electricity market in Latvia
• Nord Pool (national generators, import)
• Retailers
► Further efficiency increase by market integration
• Fair competition with import suppliers
• Primary resources influence on electricity generation
► Market distortion elimination ?• Large amount of feed-in tariff is not compatible with spot-market
© World Energy Council 2015
EU Requirements and Challenges
1) Energy efficiency Directive 2012/27/EU implementation:
3) Requirements of ENTSO-E Network codes:
According to analysis results - new Network codes requirements cannot be fully executed at existing
Latvenergo power plants. Analysis should be continued through cooperation with firms and
equipment manufactures.
Total saving of 9,896 GWh
Included
in EEOS
Heat
Natural gas
Electricity
2) RES target: + 40 % until 2020
Electricity
Transport
Heat
?
?6,44
3,44
EEOS (65%),TWh
Alternativemeasures (35%),TWh
© World Energy Council 2015
600MW
1000MW
1400MW
800MW
1200MW
Power Plants
► All national demand and
generation is sold via pool
(Nord Pool Spot)
► Majority of power plants receive
some kind of support
NPP
Fossil fuels
HPP
WPP & other RES
Largest Production Units MWel MWth
Pļaviņas HPP 894 –
Ķegums HPP 240 –
Rīga HPP 402 –
Rīga CHP-1 144 493
Rīga CHP-2 832 1,124
© World Energy Council 2015
Effect of Subsidies ► 368 power plants receive some kind of subsidy
► The proportion of the subsidies varies (e.g., among technologies)
► The value of subsidies is assembled from electricity
end users resulting in higher electricity prices • Additional component of 2.68 ¢/kWh (2013)
0
50
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200
CHP, > 4 MW Wind CHP, < 4 MWBiomass Small HPP Biogas
€/MWh
Average purchasing tariff (2011 ... 2013) Latvia Nord Pool Spot prices
(32.22 EUR/MWh in March, 2015)
© World Energy Council 2015
Effect of Subsidies (cont.)► Unfair competition among generators
• Some generators receive subsidy together with assured sale to wholesaler authority
► Electricity-to-heat ratio: • A typical wood chip plant from 1 : 4 to 1 : 5
• Riga CHP-2 from 1 : 1 to 1.5 : 1
• Biomass CHP plants generate less electricity than natural gas plants at the same
heat amount produced
• By developing biomass
technologies to substitute
natural gas CHPs, Latvia
will increase electricity
import dependence
© World Energy Council 2015 55
Summer
Riga CHP ir working
Com
puls
ary
purc
hase
HPPRiga CHPImport
Elektrėnai
unit 9
Old
units o
f
Ele
ktr
ėnai
Night Day Peak
Price
Demand
Night
DayPeak
July 20 (Sunday)
CHP -2 stand by
July 21 (Monday)
TEC-2 is running
CHP influence
on prices
in Latvia
Electricity price formation in Latvia
© World Energy Council 2015
Power Plant Challenges in MarketFossil fuel prices fluctuation: HOBs are going to be more in operation than CCGT
Electricity price fluctuations in NPS market: changes in CCGT operation
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2013Electrical power
Electricity price
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P, MW
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2015Electrical powerElectricity price
P, MW Electricity price,EUR/MWh
© World Energy Council 2015
Setting of CO2 Prices
► Uncertainty
► Price fluctuation from 0 to 30 €/t
► Too low to stimulate RES development but raises the price of
electricity for end users • CO2 price increase by 1 € means electricity
price increase by 0.67 € in Baltics and
0.55 € in Scandinavia
► Unfair competition as generation
partly depends on political
conditions
© World Energy Council 2015
Setting of CO2
Prices
► CO2 price mounting will • Shift plant merit order
• Decrease awareness of future investments
► Price increase should be significant
to attract investments into carbon-
free technologies
0
10
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30
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50
60
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100
0 1000 2000 3000 4000 5000 6000 7000 8000 9000
Pri
ce, E
UR
/MW
h
Capacity, MW
CO2 7.5 EUR/t
Win
dB
iom
ass
Sola
r
Hydro
Oil shale
RU
-LT
SE-L
T
FI-E
E
Larg
esc
ale
CH
P
Small scale CHP
PL-
LT
Hyd
ro p
um
p s
tora
ge Gas Condensing
0
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0 1000 2000 3000 4000 5000 6000 7000 8000 9000
Pri
ce, E
UR
/MW
h
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CO2 20 EUR/t
Hydro
RU
-LT
SE-L
T
Larg
esc
ale
CH
P
FI-E
E
Small scale CHP
Oil shale
Hyd
ro p
um
p s
tora
ge
PL-
LT
Gas Condensing
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0 1000 2000 3000 4000 5000 6000 7000 8000 9000
Pri
ce, E
UR
/MW
h
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CO2 60 EUR/t
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dB
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ass
Sola
r
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RU
-LT
Hyd
ro p
um
p s
tora
ge
Larg
esc
ale
CH
P
Small scale CHP
SE-L
T
FI-E
E
PL-
LT
Gas Condensing
Oil shale
Baltic merid order,
2017
© World Energy Council 2015
Effect on Economy
► Some businesses are very sensitive to
electricity prices • Large metal processing plants, e.g., Liepajas metalurgs
• Public electrical transport
• Railway electrification in Latvia in future (consumption increase from 40 GWh to ca 500
GWh in 2030)
► People generally dislike utility bill increase
► Forecast of required financing for compensation
2015 2016 2017 2018
68.6 M€ 97 M€ 109 M€
© World Energy Council 2015 60
ESTONIAIs the price of electricity hurting the competitiveness of Europe?
© World Energy Council 2015
Urgent need to focus on competitiveness
7167 66 65 66
22 21 21 23 25
13 1519
2327
2008 2009 2010 2011 2012
Energy Grid Taxes
EU
R/M
Wh
-10%
+19%
+109%
Number of big
consumers
Change in grid
tariffs
-50 +12%
-20 +5%
-5 +1%
+5 -1%
+20 -4%
+50 -10%
Estonia needs to reduce the cost of electricity 11…24 EUR/MWh to be
competitive with neighbouring countries, even more compared to US.
© World Energy Council 2015
Questions, discussion
► What is the future of new technologies?
► Do we even need new conventional power plants?
► Will the grid survive?
► Will we manage to have harmonized policies for renewables?
► Will there ever be a single European market?
© World Energy Council 2015© World Energy Council 2013
www.worldenergy.org
@WECouncil
WEC-Estonia
Thank you for coming!