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Elering As Annual Report for the Financial Year 1.01.2013

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Elering As Annual Report for the Financial Year 1.01.2013 Kadaka tee 42 / 12915 Tallinn ESTONIA phone: +372 715 1222 Annual Report fax: +372 715 1200 e-mail: [email protected] www.elering.ee 2013 Annual Report 2013 Estonia was captured by sky photographer Andres Tarto Annual Report 2013 Management Report of Elering's Annual Report Statement by the Chairman of the Management Board 4 Brief overview of Elering 10 Key indicators of the Estonian electricity system 12 Summary of the financial year 15 Development of the electricity network 19 Developments of the electricity market 23 Operation of the Estonian electricity system 29 Elering and the environment 34 Research and Development 40 Elering and social responsibility 46 Good corporate governance 50 Statement by the Chairman of the Management Board 4 5 TAAVI VESKIMÄGI The Chairman of the Management Board A year of achieving targets Elering also fulfils the requirements that oblige the transmission system operator to ensure equal treat- In four years of independent operations, Elering has ment of market participants, to have sufficient means grown from the unit of Eesti Energia to one of the best to operate and develop the electricity system, to give state enterprises in the Baltic counties. Elering has sufficient information to other network operators, and become the cornerstone of security of supply of the to cooperate with transmission system operators of Baltic electricity with a sufficient number of connec- other countries. tions. The borders of EU member states are no longer important as the electricity supply of consumers in The independence of the system operator is a key Tallinn would be secured equally by the power sta- precondition in creating a competitive electricity tion in Olkiluoto in Finland and by the power station market. Only the equal treatment of all market in Narva. This is the direct benefit of connections for participants, based on the common electricity market consumers. European Union’s vision with regard to the of Nordic and Baltic countries, ensures greater public energy sector – common network, single market – is in benefit in the long run. The most recent important the interest of Estonia. steps in achieving this objective were the acquisition of the EstLink 1 interconnection and the implementation of the transmission capacity distribution mechanism Independent system operator on the Estonian-Latvian border that maximises the public benefit. In 2013, the Estonian Competition Authority, in coope- ration with the European Commission, confirmed that In addition to the Estonian Competition Authority Elering complies with the requirements resulting from and the European Commission, in 2013 the activities EU regulations and gave the company the right to ope- of Elering were directly or indirectly assessed also by rate in Estonia as the transmission system operator others. For instance, the State Audit Office said in its for electricity. In the opinion of the European Commis- report on the governance of commercial enterprises sion, the Ministry of Economic Affairs and Communica- that out of nine audited commercial enterprises, the tions as the holder of sole shareholder rights of Elering Supervisory Board of only one, i.e. Elering, compre- and the Ministry of Finance as the holder of share- hensively assesses the fulfilment of the strategy with holder rights of Eesti Energia, are separate enough its resolution once a year. In a pan-European compa- to ensure that Elering is sufficiently independent in rison of efficiency of main network operators, Elering exercising state rights. achieved the maximum possible result in efficiency, 6 i.e. 100%. Whereas due to network fees the public and financed by network fees. Elering's obligation is is under a misconception that network operation is to eliminate physical restrictions on electricity trade becoming more expensive, the study confirms that between Estonia and Latvia. At the same time con- Elering has clearly decreased unit costs of operating gestion income is not something that can be taken the electricity network in recent years. Among others, for granted in the future. It is not clear what will be the study showed that, considering the actual size the auction revenue in 2014 and therefore we cannot of the network, Elering has very few employees as a assume that the transmission service would become transmission system operator. On the basis of average cheaper on the basis of this revenue source in the indicators of transmission networks covered in the coming years. study and considering the size of the network, Elering could have a third more staff than at present. Major projects nearing completion The best financial result of all times Since December 2013, EstLink 2 has been at the market’s disposal. EstLink 2 has a significant impact For Elering, the concluded financial year was the most on the transmission capacity between Estonia and Fin- succesful of all times. We earned 49 million euros in land, improving the functioning of the electricity mar- profit for the owner. At the same time we invested the ket and also increasing the security of supply. After the profit that we earned and much more, totalling 203 takeover of EstLink 2, it is possible to transmit 1,000 million euros, back to the development of the Estonian MW of electricity between the two countries instead electricity system. of the earlier 350 MW. In the direction from Finland to Estonia, the transmission capacity is limited to 860 In addition to normal revenue, Elering earned 14.2 mil- MW until the second stage of the Kiisa reserve power lion euros from the auction of transmission capacities. station is completed in 2014. The total cost of the Est- The auction revenue was aimed mainly at increasing Link 2 project is approximately 320 million euros that the cross-border transmission capacity, but since the is shared between Fingrid and Elering. The European construction of the third interconnection between Union supports the project with an investment subsidy Estonia and Latvia is at present being prepared, we of 100 million euros. will re-distribute the revenue back to consumers through lower network fees so that the third Estonian- In the autumn 2013, Elering, Fingrid and Nordic Energy Latvian line can be developed at the end of the decade Link completed negotiations over the ownership of the 7 first Estonian-Finnish electricity interconnection Est- system operators (TSOs) signed an agreement on the Link 1. According to the signed contract, the ownership operation of the Baltic electricity market after Latvia of EstLink 1 was transferred to system operators on joins Nord Pool Spot (NPS) in order to make maximum 30 December. The total amount of the transaction was commercial use of interconnections between EU mem- 77.6 million euros. ber states and to develop a regional electricity market that is transparent and operates on the basis of com- At the end of the year, Wärtsilä delivered to Elering mon rules. The agreement covers the calculation and the first stage of the Kiisa emergency reserve power distribution of cross-border transmission capacities on plant with the capacity of 110 MW. Now Elering has the borders between the Baltic countries and on the the necessary emergency capacity at the best price in border with Russia and Belarus. Estonia. For Estonia, the key was to reach an agreement to pro- vide maximum transmission capacities between Esto- Development of a regional nia and Latvia as the capacity shortfall is restricting electricity market trade, especially in the summer. In accordance with the methods agreed between Baltic transmission ope- 2013 was the first year of open electricity market in rators, NPS directs all electricity imported from third Estonia. By the end of the year, almost 80% of con- countries to the NPS price area on the Lithuanian- sumption points had an electricity consumption cont- Belarusian border. No commercial capacity will be ract. Only low-consumption customers (rural homes, allocated to the Estonian and Latvian border with summer cottages, etc.) are yet without a contract. In Russia. terms of the volume of consumed electricity, contrac- tual customers accounted for more than 90% of the total consumption volume. During the year, approxi- Reducing the impact of the integrated mately 6% of consumption points changed the supp- Russian electricity system lier. This is definitely not a bad indicator, considering that the market opened only recently and the choice In accordance with the joint communiqué of the three of the electricity supplier occurred for the first time. In Baltic Prime Ministers dated summer 2007 in which the second half of the year, the activity in changing the the three parties confirmed the strategic objective of supplier increased. connecting their networks to the electricity network of Continental Europe, the TSOs of the three Baltic It is clear that the Estonian market has plenty of room countries carried out a feasibility study on the possible for new participants and needs more electricity sellers. cost and timeframe of desynchronisation. The most For a competitive market with several market partici- important finding of the study was that synchronisa- pants, the market share of Eesti Energia among end- tion to the electricity system of Continental Europe is consumers is still too high. Starting from 2014, the technically possible. The list of necessary investments commissioning of EstLink 2 brought about a principle included various expenses that must be made also for change, creating the Estonian-Finnish electricity mar- other purposes than the specific objective of desynch- ket with unified market regulation and prices. Already ronisation. Moreover, the study confirmed the earlier at the end of 2013 and at the beginning of 2014, during assessment that the possible construction of a nuclear trial commissioning of the new connection, it was evi- power plant with high unit capacity in Lithuania or dent that power flows from Nordic countries through Kaliningrad and connection to the synchronous grid of Estonia into other Baltic states are increasing.
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