Estonia will keep an annual cap on the volume of wind energy eligible for subsidies, retracting a pledge to a renewable energy lobby last year, to lower power costs and limit the amount of subsidized output, Economy Minister Juhan Parts said.

Wind energy subsidies will be capped at the current total output of 600 gigawatts per year in the amended electricity market legislation under consideration in Parliament, Parts said in an interview in Tallinn yesterday. In July, it agreed with the Estonian Renewable Energy Association to remove the ceiling in exchange for cutting the size of the support.

The renewable energy subsidies, paid for by consumers through their energy bills, will be linked to the market price of electricity and decline 15 percent to 20 percent once the new system is adopted and gets clearance for state aid from the European Commission. Total savings for consumers will be as much as 300 million euros until 2020, the Cabinet said last October.

“There is an alternative view in the market that the annual cap makes sense, but that the existing and planned investments should be treated more equally than the solution offered by the renewable energy association,” Parts said. “We’re certainly not worsening the investment environment. This bill has to be viewed in the context of market opening, while the 2007 law was based on closed market ideology.”

An increase in subsidies in 2007 led to new investment by companies including Fortum Oyj, the second-largest Nordic utility, and Nelja Energia OU, majority owned by Norway’s Vardar AS.

Power Output

Estonian wind parks produced an estimated 450 gigawatts of electricity last year, the Estonian Wind Power Association said on its website last month. Output will probably exceed the 600- gigawatt ceiling already this year after two new windparks were completed, it said. Changes to subsidies for existing plants will force investors to seek legal action, it added.

The European Renewable Energies Federation lobby group said last February any retroactive move would violate European Union law.

The Baltic country liberalized the remaining two-thirds of its power market this month, with electricity prices for consumers seen rising by about 20 percent as Estonia must start buying carbon emission permits for its power production, according to state-owned Eesti Energia AS.

That may boost average inflation this year by as much as 0.9 percentage points, the central bank said last month.

Renewables Consumption

Electricity from renewables made up 13.5 percent of Estonia’s consumption in the third quarter of 2012, compared with 13 percent a year earlier, grid operator Elering AS said Oct. 31. Sixty-one percent of output from renewables came from biomass and biogas, while wind and hydroenergy made up 37 percent and 2 percent, respectively, it said.

“We can’t accept that the electricity price will exceed the level proposed by the government’s draft, this is a red line for us,” Parts said. “Also, the government has to keep the control over the overall level of subsidized renewables, this is another red line.”

Copyright 2013 Bloomberg

Lead image: Canceled stamp via Shutterstock