IEA to enroll Estonia

Photo: Toomas Huik / Postimees

Estonia’s weaknesses are dependency on Russian gas and electricity market’s poor integration with Western Europe.

International Energy Agency’s executive director Maria van der Hoeven (Holland), visiting Estonia this Friday to present analysis of our energy policy, hopes Estonia will be accepted into the agency as soon as in November.  

International Energy Agency (IEA) has put together a thorough report on Estonia’s energy policy. What are our strengths and weaknesses?

You have lots of strengths, starting that since the time you joined the European Union, you have accomplished very much. Estonia has taken remarkable steps in the direction the entire EU has been moving, previously. Secondly, since 1990, Estonia has reduced emissions of greenhouse gases by a half. This is excellent. You have liberalised the electricity sector, you have come completely to the free market.

Naturally, there are the challenges. One being diversification of natural gas sources (risk distribution – edit). You are dependent on one market player only – Russia. The other problem is what to do with the electricity market. 

Joining Nord Pool is one thing; I think, however, that for you, it would be important to more closely integrate with the EU energy market. And here, I think, you will have to find a regional solution, as Estonia alone would be too little to accomplish that. 

Estonia is an oil shale country. Global oil shale resources are vast. At the same time, oil shale use has quite a negative effect on the environment. What, do you think, is the future of oil shale as a source of energy?

Generally speaking, what is problematic with oil shale is the emissions. We think this situation needs to be changed. Here, Estonia has done a lot and is engaging new technologies. I consider Eesti Energia’s oil production device Enefit-280 to be a world leading technology.

On the other hand, in hindsight, Estonia has been quite independent when it comes to energy supply. Of course there are the negative sides to that, as emissions are rather abundant. Development of the technology is the key: finding other ways to use oil shale; turning it into liquids used in internal combustion engines; and doing that in a more environmental-friendly manner.

As you said, oil shale is to be found in very many locations, over the world. I was surprised, however, to discover that Estonians are in Jordan, in Utah... And that could be to your benefit, nationally.

Surely, using oil shale has its effect on greenhouse gases and climate; but, what is absolutely most important is that the technology should advance, and again: here, Estonia is the leader, and may keep the position in times to come. 

In America, the so-called shale gas revolution has considerably lowered the local natural gas prices, enhancing their energy independence. Could a revolution like this ever come to Europe?

Europe differs from USA. In USA, is you own land, you own all resources that land holds. In Europe, that is not the case and that is a very very big difference.

On the other hand, natural gas price – which once was very high – made shale gas very attractive. Now, due to low natural gas process we see heat producers returning. Natural gas has become a competitive commodity.

As we also see, USA, once a net importer of natural gas, has now become a bet exporter. They are altering their gas liquefying terminals, local companies have been granted export licences. By this, global gas market has been dramatically altered.

In USA, gas price is indeed very low; however, adding the transport, liquefying, re-gasification costs, these prices are not that low any more in other parts of the globe. 

Europe has two kings of gas pricing mechanisms. One is based on long-term agreements based on oil prices; the other being the spot prices. Asia only uses the oil price based pricing model. Cheap American gas has caused interesting changes in global gas market structure.

Coming back to your question: could this also happen in Europe? I think it will be very complicated. We do have shale gas, but the geological conditions are very different. The regulations are different, as well as the  ownership relations.

The US has a highly developed gas industry and infrastructure; it Europe it is altogether different. There is shale gas in Europe, and I know that in Poland they want to start producing it as soon as possible – to diversify sources of gas.

I can well imagine that states are considering their options and are trying to do it. However, it is another thing to do it as sustainably as possible.

Definitely the public at large needs to be involved. If not – if activities will not be transparent – it can become impossible as we are seeing in France.

Europe is heavily dependent on imported fuels. Are there any hopes the dependency would be reduced?

Europe has always depended on imports. The issue is: will Europe be dependent on a single country or not? The first thing that needs to be done is diversification. For instance: Europe has always gotten a lot of gas from Russia. In a way, this is a stabilising factor.

At the same time, the importance of liquefied natural gas is on the increase, this amounting to another source. And liquefied natural gas can be imported from various countries.

Another factor I would like to underline is the effectiveness in using energy. If you desire to reduce your dependency on imported fuel, use the fuels more effectively. This is an area where a lot can be done, even in Estonia.

Let me bring you an example: heating can be done more effectively. A sure way to cut import-dependency is renewable energy. Renewable energy needs to be developed so it becomes more cost-effective; at the same time, there needs to be a market for it. Subsidies are playing an increasing role on the market; even so, renewable energies ought to be selected with profits in mind.

In Germany, for instance, increasing amounts of wind farms are erected in the North Sea. This is great. At the same time, lines are needed, leading to the areas where this electricity is needed. This, however, is a problem for Germany, as the greater need for electricity is in the southern part of the country. However, there are no lines with sufficient capacity to take the electricity south.

Often, people desire to use solar panels in regions with not too much sunshine.

Like here, in winter time...

Just recently, I was in Northern India, where they have installed quite a lot of solar panels. I asked them: what will you do in the winter, when it is cold all the time? They said: yes, the panels will freeze...

It needs to be understood that, should solar panels be developed, it cannot only be limited to the part directly converting solar energy into electricity. The technology must be developed so as to reduce the costs.

Looking at state finances, in Europe, the issue of reducing subsidies may surface...

Surely it will. It has already surfaced in Germany, Italy, Spain, and UK. Subsidies have been caused by price differences; and the smaller the differences [between prices of electricity produced from renewable energy and fossil fuels], the smaller the need for subsidies.

Another problem, as it has happened in Italy and Spain, is that with large quantities of renewable energy produced, but transmission networks not updated, there will be an abundance of energy – but no place to use it.

So, quit looking at subsidies only; think of the transmission networks, and also of the technology, as these make the complete picture. We cannot stick to status quo, the systems need to be developed. Otherwise, the producers become lazy and will think: «Hurray, money is coming!»

When will Estonia become an IEA member?

Soon, I hope. The energy report just completed was a part of the process. There are other parts, they are okay. For instance: a member state must hold strategic liquid fuels reserves for 90 days. You have got them for 189 days.

Estonia must pass the law, and that’s all. I hope that at the minister’s meeting, in November, I can tell your minister: «Dear colleague – we are colleagues, as I have been economy minister [of Holland] – welcome to the club!»