Electricity and Gas Markets in Estonia 2018 Report
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ELECTRICITY AND GAS MARKETS IN ESTONIA 2018 REPORT TALLINN 2019 1 TABLE OF CONTENT FOREWORD………………………………………………………………………………….3 1. MAIN DEVELOPMENTS IN ELECTRICITY AND GAS MARKETS IN 2018 ...... 6 1.1 Developments in electricity market .................................................................................. 6 1.2 Main changes in electricity related legislation ................................................................. 8 1.3 Developments in natural gas market ................................................................................ 9 1.4. Main changes in natural gas related legislation ........................................................... 10 2. FUNCTIONING AND REGULATION OF ELECTRICITY MARKET .................. 11 2.1 Regulation of electricity networks .................................................................................. 11 2.1.1 Ownership unbundling ................................................................................................ 11 2.1.2 Technical functioning ................................................................................................ 12 2.1.3 Access to the network and network service price regulation ................................ 17 (Articles 37(1)(a, f), 37(6)(a), 37(8), 37(10), 37(3)(c, d) of Directive 2009/72/EC) ......... 17 2.1.4 Cross-border issues ................................................................................................... 23 2.1.5 Electricity market related obligations of Competition Authority ........................ 28 2.1.6 Projects of common interest .................................................................................. 32 Synchronisation of the Baltic States' electricity system with the networks of continental Europe (CEN) ..................................................................................................................... 32 2.2 Enhancement of competition in electricity market ....................................................... 34 2.2.1 Wholesale market of electricity ................................................................................ 34 2.2.2 Retail market of electricity ....................................................................................... 41 2.2.3 Enhancement of effective competition ..................................................................... 43 2.2 Security of electricity supply ................................................................................. 47 2.3.1 Monitoring of balance between demand and supply ................................................... 47 2.3.2. Security of supply of Estonia ..................................................................................... 47 2.3.3. Dependence of security of supply of Estonia on pan-European security of supply ... 59 2.3.4. Security of supply of Baltic region ............................................................................ 65 2.3.5. Conclusions on security of supply ............................................................................. 77 2.3.6. Distribution of Estonian generation portfolio by kind of fuel .................................... 81 2.3.7 Security of supply related investments in production capacity and networks .... 84 3. FUNCTIONING AND REGULATION OF NATURAL GAS MARKET ............... 88 3.1 Regulation of natural gas network ................................................................................. 88 3.1.1 Ownership unbundling ................................................................................................ 88 3.1.2 Technical functioning .................................................................................................. 88 3.1.3 Access to network and network service price regulation ............................................ 94 3.1.4 Cross-border issues ..................................................................................................... 97 3.1.5 Fulfilment of relevant legally binding decisions by regulator and market participants .............................................................................................................................................. 98 2 3.2 Enhancement of competition in natural gas market ..................................................... 99 3.2.1 Wholesale market of natural gas ................................................................................. 99 3.2.2 Retail market of natural gas ...................................................................................... 104 3.2.3 Enhancement of effective competition in natural gas market ................................... 107 3.3 Security of natural gas supply ....................................................................................... 110 3.3.1 Monitoring of balance between supply and demand ................................................. 112 3.3.2 Anticipated future demand and available free capacity together with planned additional volumes .............................................................................................................................. 114 3.3.3 Measures to cover peak demand or supply deficit .................................................... 115 4. CONSUMER PROTECTION AND RESOLUTION OF DISPUTES IN ELECTRICITY AND NATURAL GAS SECTORS ........................................................................... 118 4.1 Consumer protection...................................................................................................... 118 4.1.1 In electricity sector .................................................................................................. 118 4.1.2 In natural gas sector ................................................................................................... 123 4.2 Resolution of disputes .................................................................................................... 127 4.2.1 In electricity sector .................................................................................................... 127 4.2.2 In natural gas sector ................................................................................................... 128 3 Dear readers, In the matter of developments in the European Union (EU) both the previous year and the first half of this year have been important. The new electricity market formation package has got approval and this gives us directions for the coming decade. The EU has set an ambitious goal to continue the electricity market liberalization and following the latest technological advancements to undertake a very clear direction towards carbon neutral energy. It is good to realise that already today we are one of the most liberalised and well integrated regions in the EU. From 2013, when the market was opened to all consumers, Estonia has been regulating only the monopolies – electricity networks, where free competition is impossible. Contrary, the price of electricity has formed completely in free market conditions and no price regulation has been applied. While some ten years ago we could talk about Eesti Energia as the electricity production monopoly, today it is just an active player in the market. Herewith, an essential indicator is the merger of Eesti Energia and the largest Estonian renewable energy enterprise 4Energia that took place in 2018. It created a lot of discussions and naturally, the Competition Authority, as the authority to give permission to the merger, had to thoroughly weigh whether such a merger is allowed or not. In defining the electricity market one cannot proceed merely from the Estonian geographic space. We are so strongly integrated with the neighbours that the market region has to be viewed significantly broader. A closer look at the merger decision and detailed figures can be taken on the Authority’s website, but it can be shortly concluded that in the Finnish-Estonian market zone both undertakings had a 14% market share altogether. Looking at the region even broader, as the Nordic countries’ – Baltic common market, their market share is very small – only 2,5%. In the last 10 years Estonia together with other Baltic countries has achieved considerable success specifically in the development of market, due to the construction of cross-border connections, in the result of which the Baltic states are some of the best integrated electricity market regions in the EU. Further integration is also extremely important, first of all in the framework of the project of synchronization of the Baltic countries’ and continental Europe electricity systems. It is a material challenge for the three Baltic states and today we have a clear task of being synchronized by 2025. Connecting to the continental Europe electricity system is an important step in further integration with the EU systems. In the framework of this project it is also important to strengthen the interconnections between the Baltic states. In the electricity trade between the Baltic states a bottle-neck is still the cross-border connections between Estonia and Latvia. Together with the strengthening of domestic systems this problem will also be solved, after reconstructing the following lines: the Balti-Tartu line in 2021-2023, the Tartu-Valmiera line in 2022-2024, the Viru-Tsirguliina line in 2019-2025 and the Tsirguliina-Valmiera line in 2023-2025. As mentioned above, the movement towards carbon free economy is one of the most important ambitions of the EU and the energy sector plays an essential role in it. In several previous reports we have outlined shortcomings