Renewable energy support – Estonian government’s stumbling stone


Amending the renewable energy support scheme has caused much ruckus and opinion differences in Estonia. Government’s plans to retroactively amend the support scheme while not respecting previous agreements would command attention in any case. Currently however amendments to the support scheme are halted, waiting for European Commission’s opinion.

European Union has set itself a target of 20% of the Community’s summary end consumption of energy to be produced from renewable sources by the year 2020. Estonia has set its bar higher than that – 25%. Certain measures are planned in order to achieve that target, inter alia granting support for producers using renewable energy sources for electricity production or producing electricity in an efficient cogeneration process.

But in addition to achieving 20% share of renewable energy, the support also has the goal of ensuring further reduction of renewable energy production costs and a stable investment environment; this is inter alia important for developing new technologies, as Günther Oettinger, the Energy Commissioner of European Commission has remarked. That goal is also expressed by the European Union directive of renewable energy, pursuant to which the main goal of compulsory national targets is to ensure a sense of security for investors and to encourage them to continue developing new technologies for producing energy from all types of renewable sources.

The government and the renewable energy producers came to an agreement

The obligation to pay renewable energy support was established in Estonia with the amendments to the Electricity Market Act that entered into force in the year 2007; those amendments state that support can be paid for 12 years from starting the support payments. The currently valid renewable energy support scheme entered into force in February 2010.

As the share of energy produced from renewable sources in Estonia started to grow with unexpected speed (it was 1.5% in 2007, but as much as 14.9% already in 2012), this unavoidably caused an increase of renewable energy charges via renewable energy support payments; some producers achieved higher profitability as well. Due to this, the government decided to change the currently valid support scheme for both new and existing renewable energy producers.

The existing renewable energy producers were justifiably dissatisfied with the situation, as they had planned their activities for a long period and had made the relevant investments as well, relying on the principle of legal certainty, incl. legitimate expectation. The planned amendments also affected new producers who had plans to invest into green energy production but who now lost their certainty about the future.

In order to transcend the opinion differences, the Ministry of Economic Affairs and Communications and the Estonian Renewable Energy Association entered into a memorandum of understanding in summer 2012; that memorandum was to be used as a basis for preparing draft legislation for amending the renewable energy support scheme. This agreement amended the support scheme for both existing and new renewable energy production plants, incl. cancelling the upper limit of wind energy production volume, but it also limited the growth of new production capacities financed at consumers’ expense.

Draft legislation conflicting with the agreement

Alas, the draft Act to amend the Electricity Market Act initiated by the Government of the Republic in November 2012 has by now deviated from several clauses agreed in the memorandum of understanding, e.g. retaining the upper limit of support-eligible wind energy production volume at 600 GWh per calendar year.

After the draft Act was accepted into proceedings, several persons and organisations starting from renewable energy producers and Estonian Competition Board and ending with the Estonian Banking Association and the Grand Embassy of Sweden expressed their opinion about the planned amendments. The main points of reproach have been that the planned amendments violate the principle of legal certainty, incl. legitimate expectation, they harm competition, place under question the achieving of lower tax burden for consumers, and harm Estonian investment climate. Both European Commission and its Energy Commissioner Günther Oettinger have disapproved the idea of making retroactive cuts in renewable energy sector, as such amendments have negative effect on investors’ sense of trust.

Today, the second reading of the draft Act in the Estonian Parliament has been suspended in order to apply for state aid permission from European Commission.

Amending the renewable energy support scheme is an important matter that directly or indirectly affects widely different fields from environment protection to investment climate of the entire country. Therefore the government’s actions related to the renewable energy support scheme must account for various interests on the one hand, but on the other hand it must also ensure that investors’ sense of security when investing in Estonia will not decrease. Thus far, the government has not done a sufficiently good job there.

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