By Marko Tooming

Even if the system operators in Estonia and Sweden are not interested in establishing an electricity connection between the two countries, market participants could exceptionally undertake this task themselves. Although the idea is considered good, electricity producers and sellers who have spoken with ERR are still doubtful, as the project would be very expensive and the future of Estonia’s electricity market seems too uncertain for such an endeavor at the moment.

A member of Eesti Energia’s supervisory board, Einari Kisel suggested in February that it would be more sensible to construct the Estlink 3 connection between Sweden and Estonia rather than between Finland and Estonia, as this would enable Estonian consumers to access cheaper electricity. TSO Elering, at the time, told ERR that this idea was not feasible because prices in the region would equalize over the years, altering the project would take too long, and the Swedes are currently not interested in this connection as they are focusing on establishing domestic connections.

Kisel then asked in an article published on the TalTech website whether market participants, such as electricity producers, sellers, and major consumers, could build the connection if the state or states are not ready to do so.

“But what to do when those expected to build the undersea cable say they have no plans to build it? Then, those market participants who consider the venture sensible could undertake the construction,” he wrote, citing the example that Estlink 1 was built with their own funds by Finnish and the three Baltic countries’ electricity producers and sellers.

Although Estlink 1 was constructed as an exception, due to European Union regulations, Elering and Fingrid, the system operators of Estonia and Finland respectively, had to purchase it from the market participants in 2013.

Kisel noted that regulations still allow for an exception to the establishment of international connections if system operators do not wish to build a connection: under certain conditions, electricity companies and consumers may construct such connections.

“Therefore, we do not need to ask Elering or Svenska Kraftnät whether they would build us an undersea cable from Sweden to Estonia. This could also be built by electricity producers, sellers and major consumers (for example, Vattenfall, Eesti Energia, Utilitas, Alexela, Sunly, Estonian Cell) if they see economic benefit in the venture,” Kisel remarked.

“Given the current differences in electricity prices, this could be quite an interesting project for investors, certainly more profitable than an Estonian nuclear power plant,” he added.

The CEO of Eesti Energia, Andrus Durejko told ERR that strategically, building an electricity connection with Sweden’s third price area would be a wise decision, as currently, the Baltic States only have Estonia’s connection with Finland and Lithuania’s connection with Sweden’s fourth region, where electricity is typically the most expensive.

“Additionally, a cable towards Sweden, for example, across the western Estonian islands, would strengthen the West Estonian power grid, which is necessary from the perspective of potential additional wind energy developments. Furthermore, the Swedish cable could provide an indirect connection for the West Estonian offshore wind farms with Central Europe,” he said.

Durejko noted that despite all the advantages, it must be considered that undersea electrical cables are very expensive.

“For example, the estimated cost of Estlink 3 is about one billion euros(US$1.09billion). The cost of the Swedish cable could turn out to be significantly more expensive. Also, the feasibility of the cable depends on the current situation and needs of the Swedish grid. Therefore, a socioeconomic analysis must answer the question of whether it is reasonable to build the cable or not,” he stated.

Elering told ERR that it is currently impossible to state the cost of a possible connection with Sweden, but it can be estimated that just building the cable costs two million euros per kilometer. The Finland-Estonia cable is about 100 kilometers long, which would cost €200 million; a Sweden-Estonia cable would be 700 kilometers long, thus costing €1.4 billion euros.

Entrepreneur: No, because there is too much uncertainty

A board member of energy company Alexela, Marti Hääl responded negatively to Kisel’s proposal when speaking to ERR, stating that a connection established by entrepreneurs would further complicate the already complex situation in the electricity market.

“The system is built so that external connections are the responsibility of the system operator. Currently, the system being built in this region is one where the main network belongs to a monopolistic company in the countries. Is our goal then to change this principle? There are already many new questions that would bring so much new confusion to the already complex landscape of the energy sector that I think no private investor would currently make such an investment decision. Except, of course, if some sort of state ‘guarantees’ are distributed again,” Hääl said.

According to Hääl, the idea of a Swedish connection is still good, and the issue for entrepreneurs is not about money but the uncertainty of what the Estonian electricity market will look like over the next 10-20 years.

“Earning back the money is not the question. The question is not that the private sector does not have the money to do it, but that the investment environment is unstable. It is not possible to understand and calculate whether this project will be profitable or what the risk of the project is,” he noted.

Hääl suggested that the first step should be to establish a strategy on whether Estonia intends to rely more on external connections for supply security and what the domestic production capacities will be.

“The greater the role of external connections in ensuring supply security, the greater the need for external connections. Take, for example, the Estlink 2, which has been down for seven months. Let’s just say that if there were 20 degrees of frost or more in Finland-Estonia right now, I wouldn’t want to think about what the situation would be,” Hääl said.

He also stated that it needs to be decided what the compensation volume will be in the future when there are many uncontrollable capacities in electricity production, i.e., what ensures stability in the electricity grid and fills the so-called gaps in production. If this cannot be guaranteed, the price of electricity will remain very volatile, Hääl noted.

“For Estonia to have a competitive average annual electricity price in the region, a lot of effort is needed, and certainly, the most difficult part is not the construction of wind parks, but the rest of it,” he said.

Third undersea cable would be useful

The need for a third submarine cable has also been highlighted by recent events, where a technical malfunction caused the Estlink 2 to cease operation in January, with the earliest restoration expected in September. The transmission capacity of Estlink 2 is 650 megawatts.

Last weekend, the operation of Estlink 1 was temporarily interrupted, meaning there was no electricity transmission between Estonia and Finland during that time. The capacity of Estlink 1 is 350 megawatts.

For the construction of Estlink 3 between Finland and Estonia, Elering and Fingrid signed a memorandum of understanding in June last year. The transmission capacity of the third electrical connection between the two countries is planned to be 700 megawatts.

Estonia also has three electrical connections with Latvia and is currently planning a fourth. Operational connections exist with Russia as well, where, however, electricity trade no longer occurs; these are reserve connections necessary for maintaining the stability of the electrical system. Next year, Estonia, along with the other Baltic States, will disconnect from the Russian and Belarusian electrical systems.

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