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 SIPDIS FOR EUR/NB AND EEB/ESC COMMERCE PLEASE PASS ITA AND USTDA 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 -------------- ¶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 -------------- ¶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