No. 25




How Expensive Is Subsidising Renewable Energy in Estonia

  • Rünno Lumiste

    Associate Professor, School of Economics and Business, Tallinn University of Technology

Climate change makes the states look for new solutions in energy sector to replace burning of fossil fuels. The European Commission and the European Parliament have made several legislative initiatives. A target has been set for 2020 to produce in the European Union at least 20 per cent of energy from renewable sources.

In the EU and the whole world, the changes in national legislative acts and increased energy prices have since the middle of the first decade of the 21st century directed an important part of energy sector investments to renewable energy. Both public and private sector started to intensively finance renewable energy enterprises and research projects.

Germany is the pioneer in using cheap rates and implementing several technologies. Early implementation of subsidies gave Germany a strong competitive advantage, and a large part of subsidies returns to the producers of equipment in Germany. Other European countries have followed Germany’s example and established cheap rates for renewable energy on their territories. In some cases this has been accompanied by unexpected rise of electricity price.

Estonia adopted renewable energy subsidies in 2008. Remarkable investments have been made in wind farms and combined heat and power plants. The main objective of the state is to keep the price of electricity low through economy of scale (Ministry of Economic Affairs and Communications). Renewable energy is also a means of increasing energy security in Estonia. Renewable energy subsidies are an object of political will and thus require political consensus. Wider participation of communities and economic and social groups in the development of renewable energy helps to increase public approval. Comprehensive development of society requires closer connections between different economic subjects.

Separate rates of subsidies could be established for local small producers and the technologies that suit them, like small wind turbines, solar batteries, fermented biomass, etc. Connections between cheap rates and creation of new jobs are indirect. In recent years, employment in Estonia has increased in the production of renewable energy equipment (like wind turbine parts, solar energy equipment). But the enterprises active in this field are oriented towards global market and local cheap rates have an indirect impact on their activities. In spite of the EU single market and legislation (2001/77/EC and 2009/28/EC), the states have their own priorities. German electricity consumers pay a high price, but most of the equipment is produced locally, and this supports local employment and the export competitiveness of enterprises. The main aim of the UK legislators is establishing a working and transparent business environment and ensuring the welfare of consumers. The main aims of Estonian legislators and state authorities are to observe the requirements of the European Union and keep the optimal electricity price level.

Full article in Estonian