Amendments to the Electricity Market Act, which passed by parliament in June 2018, mandate a reverse auction process in which the government issues tenders for a certain amount of renewable generation. Project developers then compete in a reverse auction where the lowest cost renewable energy projects that meet qualifying standards are selected to receive a feed-in premium subsidy (Government of Estonia, 2018b). The 2018 Electricity Market Act amendments define the process for the government to organise public tenders with the following objectives:
- tenders to increase renewable generation to meet the 2020 target of 17.6% renewable electricity, limited to projects of over 1 MW
- tenders to increase renewable generation by 5 GWh per year from 2019 to 2021, limited to projects of 50 kW to 1 MW
- tenders for renewable generation to meet obligations stemming from any statistical transfers of renewable energy established under the EU flexible collaboration mechanism
- tenders for renewable generation to meet to any targets established by the government beyond 2020.
The government is planning for technology-neutral auctions that allow bids from wind, solar, geothermal, hydropower, biogas and biomass projects. 3 Qualifying projects selected through the auction process receive monthly payments for generating electricity from renewable sources, which are calculated as a sliding premium on top of the market price for electricity.
The premium is equal to EUR 0.0537 per kWh, which is paid on top of the average electricity market price of the last month. The premium is reduced if the average price rises above EUR 0.0393/kWh and reaches zero once the average price is above EUR 0.093/kWh. The sliding premium is guaranteed for 12 years if the project generates the agreed amount of renewable electricity (Government of Estonia, 2018b).
This subsidy scheme encourages project developers to bid by guaranteeing auction winners a minimum payment of EUR 0.0537 per kWh even if the average market price for electricity is very low, or even zero. But it also exposes producers to some market signals as the premium decreases when market prices go up, and the risk of overpayment is eliminated as the premium is gradually reduced to zero if electricity prices increase.
The renewable support scheme established under the 2018 Electricity Market Act amendments maintains a non-competitive feed-in premium for wind, solar, geothermal, hydropower, biogas or biomass projects with a capacity of less than 50 kW. Qualifying projects do not have to participate in auctions, but automatically receive a payment calculated as a sliding premium on top of the market price for electricity delivered to the grid. Payments are calculated using the same floating market premium formula described above, but projects qualifying for the non-competitive feed-in premium are not required to generate any set amount of electricity.
Funding for the renewable support scheme continues to come from a renewable energy charge that supported the previous feed-in premium system. Every electricity customer in Estonia pays this charge, which is collected by Elering, the transmission system operator. There are no exemptions or reductions. In 2019, the charge was EUR 0.0104/kWh.