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Estonian Energy Law Update

The Estonian parliament is currently discussing a bill on Amendments to the Electricity Market Act (EMA). The bill aims to implement the 3rd electricity directive (2009/72/EC) and to create a solid legal basis for full opening of the Estonian electricity market as from 1 January 2013. The bill was expected to be approved by the end of 2011, but to date, the bill is being debated in the parliament and many amendment proposals have been made to the initial text of the bill.

The full opening of the Estonian electricity market to all consumers from 2013 was agreed in Estonia’s accession treaty to the European Union. Until 2013, the Estonian electricity market is only partially open. About 65 % of the consumers can buy electricity only from the network operators to whose network they are connected (or from a seller nominated by such network operator), and the network operators have a respective selling obligation. The price of electricity sold under the selling obligation is fully regulated, subject to approval by the national energy regulator. Currently, only those consumers whose annual electricity consumption in one connection point exceeds 2 GWh are obliged to buy electricity at the market price from any seller.

As from 2013, each electricity consumer will be free to choose which seller to buy electricity from and the price of electricity will no longer be regulated. It will be possible to switch the seller each month by giving 21 days’ prior notice to the current seller.

In order to ensure smooth supplier switching process and equal treatment of electricity sellers, the amendments to the EMA envisage a legal basis for the exchange of data between market participants (data warehouse). The data warehouse shall be operated by the electricity TSO. Network operators will send the amounts of electricity measured to the data warehouse and this information will then be available to all market participants who have the right to access such data. Information about changes of supplier can also be exchanged in the data warehouse with network operators and other market participants who have the right to access such information, and the warehouse will be the place where market participants can manage their permissions and rights of access to data and make personalised offers. All consumers will be able to control how much of their data the sellers can access. The main obligation to share data in the market falls on those who are responsible for measuring the amounts of electricity (network operators and direct line owners), while the obligations concerning balance management fall on sellers, balance managers and system operators.

The bill introduces the concept of universal services as the obligation to sell electricity to those consumers who have not chosen a supplier. The universal service shall be provided by the network operator providing network services to the particular consumer, or by the seller nominated by such network operator. The price of electricity sold as a universal service will be the weighted average exchange (Nord Pool Spot) price of the previous calendar month plus reasonable costs related to the universal service and a reasonable sales margin. The first text of the bill that was brought to the parliament envisaged that the universal service would be available only to household customers. All business customers, regardless of their size or consumption should choose a seller and failure to do so would bring along the obligation to buy electricity from the local network operator at the price of balancing electricity. However, the parliament now seems to support the view that the universal services should also be available to small business consumers.

The bill also includes numerous amendments to the EMA for the purpose of implementation of Directive 2009/72/EC, including a clear separation of activities of the system operator from production and distribution activities, stronger protection of customers’ rights as well as amendments to the tasks and capacity of the national energy regulator.

It is expected that the parliament will pass the amendments to the EMA during May 2012. Active sales campaigns by electricity sellers are about to begin in September 2012.

AMENDMENTS TO THE NATURAL GAS ACT TO IMPLEMENT THE 3RD GAS DIRECTIVE

In January 2012, the government has also brought to the parliament a bill on Amendments to the Natural Gas Act (NGA). The purpose of the amendments is the implementation of Directive 2009/73/EC as well as the creation of a legal framework for handling liquefied natural gas (LNG) in Estonia.

The most intriguing amendments that the government has envisaged concern ownership unbundling of AS Eesti Gaas group which currently includes gas system operation, transmission and distribution operation as well as selling activities. AS Eesti Gaas is controlled by OAO Gazprom owning 37 % of the shares, the other major shareholders being Germany’s E.ON AG (33.7 %), Finland’s Fortum OYJ (17.7 %) and Latvian Itera Latvija (9.9 %). Pursuant to the bill, the ownership of the gas transmission unit should be separated from gas production or sales operations by 1 January 2015. The owner of the transmission network will also be the system operator and should be independent from any sales and production interests. This requires the restructuring of AS Eesti Gaas group and the estimation and sale of assets. If the system operator fails to meet the requirements set to the management of a transmission system operator, it has to transfer the transmission network. A potential acquirer of the gas transmission network seems to be state-owned AS Elering, the Estonian electricity transmission system operator.

The idea of full ownership unbundling has met strong opposition from AS Eesti Gaas and many other stakeholders. Article 49 of Directive 2009/73/EC allows Estonia, Latvia and Finland no to unbundle their gas industry until the gas systems of these countries are not directly connected to the natural gas grids of the other EU member states. It is argued that no proper analysis of the influence of full ownership unbundling has been conducted and that other options should also be thoroughly considered. Debates over this issue can be expected in the parliament this spring.

Apart from implementation of the 3rd gas directive, the bill also introduces regulation on LNG, including the rights and obligations of LNG terminal operators and storage system operators. Currently, there are no LNG terminals or storage facilities in Estonia, which makes Estonian consumers highly vulnerable and dependent on Gazprom´s activities. Several developers have started feasibility studies as well as planning activities for the purpose of creation of a regional LNG terminal in Estonia and therefore, the need for respective regulation has become evident.

REDUCTION OF SUPPORT TO RENEWABLE ELECTRICITY CONTEMPLATED

The Estonian Ministry of Economy and Communications has brought out a bill to amend the Electricity Market Act for the purpose of substantial reduction of support to production of electricity from renewable sources. The ministry is of the opinion that the current renewable energy support system is in contradiction with the EU state aid rules and that subsidies granted to producers are unreasonably generous.

Pursuant to the current regime, the producers are entitled to a subsidy of 0.0537 euros/kWh if electricity is produced from renewable energy sources and to a subsidy 0.032 euros/kWh if electricity is produced in efficient CHP mode. The amount of the subsidy does not depend on the actual market price of electricity. The subsidies are paid out by the electricity transmission system operator, but the cost of financing the subsidy is passed on to consumers in proportion to their consumption of network services.

The ministry’s plan would make the size of support dependent on the free market price of electricity (i.e. price at the power exchange). For example, it is contemplated that the subsidy to wind power plants would be 0.086 euros/kWh minus the market price and the subsidy to hydroelectric power plants 0.074 euros/kWh minus the market price. If the market price exceeds certain limits, no subsidy would be paid at all.

Any changes to the renewable energy support system require approval by the parliament. The bill of the Ministry of Economy and Communications has been strongly criticized by the producers of renewable energy as well as by the Ministry of the Environment. The Government of the Republic has discussed the bill repeatedly (last time in April 2012), but no approval has been given yet to send the bill to the parliament. The main issue under dispute is whether the reduction of renewable energy support should affect only new projects or also those which are already in operation. The debate is ongoing, but a solution is about to be found this year.

BALTIC ELECTRICITY TSOS TO BECOME NORD POOL SPOT SHAREHOLDERS

At the beginning of April 2012, Estonian, Latvian and Lithuanian electricity transmission system operators (TSOs) Elering, Augstsprieguma Tīkls and Litgrid have signed a Memorandum of Understanding on the purchase of the shares of Nord Pool Spot (NPS), Europe’s largest power exchange. This is a crucial milestone in the implementation of the Baltic Energy Market Interconnection Plan (BEMIP).

NPS runs the leading power market in Europe and offers both day-ahead and intraday markets to its members. 350 companies from 20 countries trade on the market. The NPS group has offices in Oslo, Stockholm, Helsinki, Copenhagen, Tallinn and London. The current owners of NPS are Energinet.dk, Fingrid, Statnett and Svenska Kraftnät. For the Baltic TSOs, the ownership of NPS is a strategic investment. It will enable participation in the decision-making process where the market interests of the respective Baltic countries are discussed.

A well-functioning common power market in the Baltic area is one of the highest priorities of BEMIP. Estonia has already been functioning as NPS bidding area, with a day-ahead market (Elspot) and an intraday market (Elbas) established. After adoption of the new Law on Electricity in Lithuania in January, the legal background for the establishment of the NPS Lithuanian bidding area is in place. An Agreement on Power Exchange Operation in the Republic of Lithuania between Litgrid and NPS has also been signed. The launch of the Lithuanian bidding area is scheduled for 18 June 2012. In Latvia, the certification procedure of AST as an Independent System Operator is to be completed this year. A project with NPS has been initiated towards launching a Latvian bidding area.

 

For more information please contact:

Imbi Jürgen
senior associate
imbi.jurgen@tgslegal.com

PDF of Estonian Energy Law Update.


This legislative review is for information purposes only and does not reflect all aspects of legal regulation. Please note that the overview of the case law given in this newsletter is for information purposes only. Please be informed that the rules formulated by courts can be not applicable if the factual circumstances of a dispute were different from factual circumstances in those cases where such rules were formulated. For full legal advice please contact our law firm by phones or e-mails indicated in our webpage.