Estonia's Search for Electricity to 2018 and

C O N F I D E N T I A L SECTION 01 OF 03 TALLINN 000349

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E.O. 12958: DECL: 09/28/2018
TAGS: PREL PGOV ENRG KGHG EN
SUBJECT: Estonia's Search for Electricity to 2018 and
Beyond

Ref: (A) 07 Tallinn 227
(B) 07 Tallinn 352
(C) 06 Tallinn 1090
(D) 07 Vilnius 077

Classified by: DCM Karen B. Decker for reasons 1.4(b/d).


1. (SBU) SUMMARY: Greater energy independence is a high
voltage political issue, and economic necessity, in
Estonia. The Government of Estonia (GOE) is well aware the
clock is ticking to replace the aging, dirty and CO2-
intensive oil shale-fired power plants that generate 90
percent of the country's electricity. Discussions of an
Estonian piece of a new nuclear power plant either in
Lithuania or Finland have been overshadowed lately by an
increasingly serious conversation about the possibility of
a new nuclear power plant in Estonia. A major new GOE
energy plan lays out the parliamentary debate this fall,
and keeps an eye on EU carbon limits post-2012 as well as
progress, or lack thereof, on regional nuclear power
options. The new plan could emphasize new investment in
wind power, but so far, use of renewable sources is modest.
No matter what the mix, Estonia will remain dependent on
Russia for natural gas. END SUMMARY





2. (SBU) This summer, Estonia's Ministry of Economic
Affairs and Communication (MOE) released the final draft of
its proposed energy strategies for 2008-18. Since 2007
(Ref B) MOE and Estonia's national energy monopoly, Eesti
Energia, have encouraged open debate about what direction
the country should take to achieve several national energy
priorities. These include: less dependence on Russia as an
energy supplier, lower levels of greenhouse gas (GHG)
emissions, and compliance with EU mandates both on GHG
emission and 'unbundling' of power generation, transmission
and distribution networks. (NOTE: 90 percent of
electricity consumption in Estonia comes from domestically
mined oil shale, burned at the country's largest power
plant, the Narva Power Station. END NOTE)

Keeping All Options on the Table
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3. (SBU) MOE's strategic proposal for meeting energy needs
through 2018 and beyond includes four scenarios to get to
1600 megawatts (MW) of capacity. Each scenario offers a
different proportionate mix of nuclear-, wind- and oil
shale-generated electricity. All scenarios assume a
continued 100 percent dependence on natural gas from
Russia. (NOTE: Natural gas accounts for roughly 15 percent
of total energy consumption in Estonia - providing for 5
percent of electricity needs, and 50 percent of heat. END
NOTE.) While the GOE will have these four scenarios to
choose from under the 2008-18 plan, MOE recommends Plan
'C', in which 50 percent of electricity (800 MW) comes from
oil shale (versus today's 90 percent),25 percent (400 MW)
from windmills and gas turbines, and 25 percent from
nuclear power. This plan calls for new legislation to be
in place by 2012 enabling a nuclear power plant (NPP) in
Estonia, thus paving the way for one to be up and running
perhaps by 2020-2025.


4. (SBU) Einari Kisel, MOE's Deputy Chancellor for Energy
Affairs who wrote the plan, told EconOff that inter-agency
coordination has been extensive throughout the drafting of
the plan, so he expects Plan C to receive GOE approval this
fall, so that Parliament will have a chance to approve it
before the end of the year. Kisel and other interlocutors
are pragmatic about the future: they recognize that energy
demand throughout the region will only increase in the next
decade, soaking up almost all additional capacity that
comes on-line. For that reason, they have been actively
pursuing partnership either in a new nuclear plant in
Lithuania, a share of the output from Finland's latest
reactor, or construction of a small one of their own here
in Estonia. The Estlink cable to Finland (Ref C) links up
the Baltic and Nordic grids and opens options either north
or south. Eesti Energia and FinGrid are planning an
Estlink II with twice the capacity by 2013. Estonia
currently gets 1-2 percent of its electricity from
renewable sources and aims to raise this level to 5 percent
by 2010.

Time Running Out on Ignalina?

TALLINN 00000349 002 OF 003


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5. (C) Since the February 2006 signing of the Trakai
communiqu pledging Baltic cooperation to develop a new NPP
at Visaginas, Lithuania (40km from the site of the old
plant at Ignalina) the GOE has been waiting for Vilnius to
move forward. The GOE was not flustered by Lithuania's
inclusion of Poland to the project (Ref A),but now over a
year later, with the GOL injecting politics into the
process and insisting on a 51 percent share of the
development phase of the project, patience in Tallinn is
wearing thin. One Member of Parliament (MP) who sits on
the Economic Affairs Committee, Hannes Astok, told us that
he was "...more optimistic a year ago than today..." that
the INPP deal would happen with GOE participation. Astok
said it seems Estonia and Latvia are pushing this deal, but
Lithuania is not. For his part, Kisel of MOE said that the
Lithuanian insistence on a 51 percent share of the
development phase was "unacceptable". Mart Ots, Director
of the regulatory body the Energy Market Inspectorate
(EMI),addressed the question of Ignalina as a way to
motivate Poland to connect the western European electricity
grid (the UCTE) and the Soviet-era grid the Baltic
countries are on (Ref D). "The Russian power grid is very
stable" Ots said, with high-capacity lines, and serving a
valuable role to even out spikes in the system.
Policymakers at MOE also acknowledged it may be more
politically desirable than it is technically feasible to
hook up to the UCTE and the eastern grid. A unified grid
could complicate numerous other issues from WTO tariff
levels to Kyoto Protocol emissions targets.


Nuclear Power in Estonia?
--------------


6. (SBU) Meanwile, Estonia is talking more and more
seriously about a possible NPP on its own soil. The option
has been on the table for some time (Ref B),but over the
past 18 months, Minister of Economy Juhan Parts has made
several trips to Helsinki to express Estonia's interest in
cooperation on a new Finnish reactor, and this fall the
debate has become more focused. The Bank of Estonia and
MOE sponsored a conference in August on nuclear power for
emerging energy markets, and Estonian Academy of Sciences
recently formed and NGO for the purpose of raising public
awareness of safe nuclear power. This NGO will host a
conference in October expressly on nuclear power management
and safe handling of waste. Eesti Energia has expressed
its keen interest to be included in a possible Orientation
Visit (OV) to the United States to visit nuclear power
plants and utilities. (NOTE: Post has been working closely
with Embassies Vilnius and Riga, DOE and USTDA on a
potential OV to the United States. Supporting the GOE's
goal of greater energy independence is a key MSP priority.
END NOTE) MFA is also on record that as soon as Estonia
joins the OECD, they plan to seek USG support for
membership in the International Energy Agency (IEA).


7. (C) MP Hannes Astok (of Prime Minister Andrus Ansip's
Reform Party) told us that "Estonia is basically ready to
build a nuclear plant here." Political will and public
opinion do not appear to be an obstacle; at this point
technical and financial questions loom larger. Even the
usual NIMBY (not in my back yard!) problem does not appear
to hold; MOE's Kisel said that at a recent meeting with
Minister Parts, fully one-third of Estonian governors said
they would be willing to locate a nuclear plant in their
county. In Kisel's reading, support in Parliament breaks
down roughly as follows: those in favor include ruling
coalition leader Reform, the opposition Center Party, and
People's Union. More on the fence are fellow coalition
members Pro Patria-Res Publica Union (IRL) and Social
Democrats, and flatly against are the opposition Green
Party. Skeptical IRL members, Social Dems and Greens
alike, observed Kisel, seem to have as their common concern
the safe disposal of nuclear waste, an issue the government
aims to take up in coming debates.


8. (SBU) There are skeptics, however, that Estonia will
see its own nuclear plant anytime soon. Director Mart Ots
of the EMI told us he simply sees talk of a plant coming
here as unrealistic, given the small size of Estonia's
market. While the EMI projects that annual final
consumption will top 7,000 gigawatt-hours (GWh) in 2009,
the entire Baltic energy market is still less than one-
tenth the size of the Finnish and Swedish markets. Other

TALLINN 00000349 003 OF 003


more renewable energy sources, such as wind, are making
slow headway. Currently, Estonia gets about 0.8 percent of
its electricity from 50 windmills operating in the country,
with another 150 under construction.

CO2 caps and EU Unbundling
--------------


9. (SBU) Without a major new source of power coming on-
line in the near future, Estonia will be able to meet its
needs and comply with EU greenhouse gas (GHG) quotas until

2013. Newer circulating fluidized bed (CFB) boilers at the
oil shale-fired Narva Power Plant have helped the country
stay within approximately 1 percent of the EU target
through the CO2 trading period that ends in 2012. Beyond
that, say Ots and Raine Pajo of Eesti Energia's Management
Board, the country will need new solutions. If the
Commission sets national quotas for the trading period
beyond 2013 at a very low level, Estonia could be forced to
buy a significant amount of CO2 credits in the market.
While MOE's Kisel said that costly cleaning equipment could
be installed on the older, non-CFB boilers in Narva in
about 18 months, they would still be less efficient, and
approaching the end of their natural service life by the
early 2020's.


10. (SBU) In terms of the EU's mandates on unbundling
national power utilities Estonia already fully complies.
According to both Pajo of Eesti Energia and Ots of the EMI,
the independent business units overseeing electricity
generation, transmission, distribution networks, and
wholesale meet all of the EU Commission's current
requirements.

PHILLIPS