Estonia SA. 104827 Support scheme for electricity produced from renewable

Dear Mr. Ritter, Thank you very much for the detailed and thorough letter! We’re hereby sending our reply to the questions and observations concerning amendments to Estonia SA.104827 support scheme for electricity produced from renewable sources. Estonia is giving the Commission further clarifications on the proposals. Estonia’s observations in the case of a compatibility assessment under the TCF and compatibility with the conditions of Section 2.5 TCF, entitled ‘Aid for accelerating the rollout of renewable energy […] relevant for RePowerEU’: 1) Point 70 (g) states, that: "At least 70% in the total selection criteria used for ranking bids must be defined in terms of aid per unit of environmental protection or aid per unit of energy output or capacity". Estonia has evaluated that the criteria is met, because at renewable energy auctions, the bids are ranked as aid per unit of energy output. The maximum aid rate is up to 20 euros per megawatt-hour of electricity produced from a renewable energy source, and the bids are ranked according to which producer is willing to produce energy with the lowest subsidy. 2) Point 70 (j) states, that: „The aid must be designed in a way that allows to addressing windfall profits, including in times of extremely high electricity or gas prices, such as, by putting in place a claw-back mechanism defined ex-ante or by granting the aid in the form of two-way contracts for differences." Estonia has evaluated that the criteria is met, because the subsidy paid to the winners of the renewable energy auction is limited on an hourly basis. The subsidy paid to the winners of the auction is limited so that the producer's income together with the subsidy, i.e. the sum of the market prices on the day-ahead exchange of the electricity market in the Estonian price area and the subsidy, does not exceed 45 euros per megawatt-hour nor the price rate specified in the bid. For example, if the price rate specified in the winner's bid is 35 euros per megawatt hour and the market price of energy is 30 euros, then the subsidy will be 5 euros per megawatt hour (30 + 5 = 35 euros) for the energy produced in the corresponding hour. If the price rate specified in the winner's bid is 35 euros per megawatt-hour and the price of electricity is 35 euros or higher, no subsidy is paid for the electricity produced in the corresponding period. To participate in the auction, the producer cannot make a higher bid that 45 euros per megawatt-hour. 3) Unfortunately, point 70 (e) states that the installations must be completed and be in operationwithin 30 months after the date of granting the aid. The mentioned point is unfortunately too restrictive to move forward with, because based on the previous reverse auctions in Estonia, the auction participants would need at least 4 years (48 months) to complete and start operating the installations. Estonian’s observation on compatibility assessment basis under the CEEAG, in particular point 96 (e) Point 96 (f) and the compliance with Section 4.1 CEAAG requirements: 1) Estonia agrees with the Commission’s position that the limitation of technology neutrality is necessary in this case, as the measure is required to achieve diversification necessary to avoid exacerbating issues related to network stability and to lead to lower costs of achieving environmental protection, in particular through reduced system integration costs as a result of diversification, including between renewables, in the sense of point 96 (e) and (f) of the CEEAG. Currently installed and planned renewable energy capacities in Estonia already exceed summer consumption by 2-3 times. Almost 100% of the renewable energy capacities that have entered the market in recent years are aimed at the summer consumption period, i.e. solar PVs. At the same time, the consumption in Estonia in the winter period is approximately twice as high as in the summer period. The additional limit at the auction (50% of production in the I and IV quarter) would therefore help to ensure the stability of the network during the winter period and also reduce the costs of system integration as a result of diversification. 2) Estonia evaluates that our renewable energy auction scheme meets the requirements of Section 4.1 of CEEAG. In conclusion, Estonia sees that TCF and CEAAG are both suitable to impose a production obligation for the producers (at least 50%) in the first and fourth quarters at the next renewable energy auction. The key to solving this question is how quickly Estonia can announce the next renewable energy reverse auction, because market participants are eagerly waiting for the auction. Keeping that in mind, Estonia prefers the TCF, but we see a point of concern regarding in the date of aid (30 months) when the installations must be completed. Estonia asks if it is possible to make an exception in this regard, so that the installations must be completed and start operating within 48 months after the date of granting the aid. If an exception cannot be made regarding the installation completion time, then we see that it is not possible to announce a reverse auction under the TCF. Regarding the CEAAG, Estonia sees that, due to the length of the procedural process, the support provided under the CEAAG may become an obstacle to the launch of the renewable energy auction. Estonia prefers the fastest progress because the criteria is necessary in order for Estonia to bring generating equipment to the market that would produce electricity in the period of the highest consumption. Estonia has estimated that the additional requirement will bring affordable renewable energy production capacity to the market in the period when consumption is higher than average due to the heating season, and will support diversification of production, grid stability and control of system integration costs.  härra Kajak Rahandusministeerium [email protected] Meie 20.01.2023 nr 17-9/2022/397-1 Suur-Ameerika 1 10122, Tallinn Estonia SA. 104827 Support scheme for electricity produced from renewable Austatud härra Kajak Edastame Majandus- ja Kommunikatsiooniministeeriumi vastused Euroopa Komisjoni konkurentsi peadirektoraadi küsimustele (vt lisas) seoses riigiabi teatisega SA.104827. Palume, et Rahandusministeerium edastaks Majandus-ja Kommunikatsiooniministeeriumi vastused Euroopa Komisjonile Eesti esinduse EL juures kaudu. Lugupidamisega (allkirjastatud digitaalselt) Timo Tatar energeetika ja maavarade asekantsler Kristo Kaasik Suur-Ameerika 1 / 10122 Tallinn / 625 6342 / [email protected] / www.mkm.ee Registrikood 70003158 6256465 [email protected] 2 (2)