Annual Report Management Report – Elering Statement by the Chairman of the Management Board 5 Overview of Elering 9 Key indicators of the Estonian Energy System 13 Summary of the Financial Year 19 Development of the Energy Networks 23 Development of Energy Markets 29 Operation of the Estonian Energy System 37 Research and Development 43 Social Responsibility 51 Corporate Governance Report 57 Balance with the Natural and Living Environments 65 Organisation and People 71 4 Statement by the Chairman of the Management Board The digitalisation of energy networks will give rise to a vision for the development of the energy sector in the Baltic Sea region. 5 TAAVI VESKIMÄGI Chairman of the Management Board energy sector, starting from large-scale integration of renewable energy into the network, developing storage technologies and implementing consumer flexibility up to remote control of home automatics on the basis of price signals. All this requires availability of data as close to real time as possible, the capability of moving massive data volumes, high requirements of cyber security and the protection of personal data. Considering these trends, Elering is developing the smart grid platform Estfeed, which enables to obtain energy consumption data efficiently and securely, understanding the needs related to the location of consumption, and altering actions accordingly. Estfeed will integrate different data sources and applications that use the data. The data may include information like production and consumption of electricity, gas, heat or market prices of energy, and weather forecasts. The creators of the applications can use databases interfaced to the platform of the smart grid to offer useful information technology solutions for the smart usage of energy both in business and production pro- Elering’s smart grid creates cesses and also for private households. value for the customer Estfeed is integrated to the Estonian state data Philosopher Eric Hoffer has written that in times of exchange layer X-tee, which ensures high security of change learners inherit the earth; while the learned the processes. Elering’s position as the system oper- find themselves beautifully equipped to deal with a ator ensures the reliability and independence of the world that no longer exists. data exchange service. In the energy industry, learning is now more important Elering’s vision is that the digitalisation of energy than it has ever been in order to do the right thing in networks will give rise to a vision for the development the right way. In times of great change, it is easy to of the energy sector in the Baltic Sea region, a global make errors in principle, to continue as before without leader across companies and governments in the digi- recognising the existence of new needs and challenges. talisation of the energy sector. At Elering we have tried to constantly learn, learn more and relearn to organise the Estonian electricity and gas market in a way that creates the most value for the Global energy trends market participants. In addition to the massive digitalisation of energy In the energy industry, a digital revolution is taking systems, energy is moving from being local towards place. The importance of information and commu- it being global. The liberalisation of markets, new nication technology for the functioning of energy technologies and fuels used have freed energy sector’s systems is growing on a large scale. At Elering, we development from the restriction of state borders. And constantly ask ourselves what jobs can/should we this is something working in our favour. In the new hand over to digitalisation when it comes to energy. circumstances, energy can grow much larger than the If we can answer that, we can create platforms and Baltic Sea region. For example in electricity trading, applications that can be scaled globally for large there is no longer a Nordic-Baltic electricity market, but scale energy systems. This can be the basis for truly a common, better connected and more closely inte- attractive value offers that solve many issues in the grated market from Gibraltar to the North Cape. 6 Our common level of ambition has to be to move Estonian-Latvian connection costs 172 million euros, from regional towards global, not viewing the energy of which a co-funding from the European Union covers sector in the Baltic Sea region as a secondary, only local 112 million euros. In the upcoming four years we will energy supplier, but as an export sector that is capable invest, together with our Finnish and Latvian partners, of providing all the services and goods created here to approximately half a billion euros into a cross-border much larger markets. The energy sector has to break energy infrastructure. out of the limits of the Baltic Sea region. Where to next? Synchronising the As always, the world is antagonistic and asymmetrical. Baltic electricity systems with those Simultaneously with moving from local, state-based of the Nordic countries energy organisation towards the global market, a weak- ening of central systems and a rise of local solutions The Estonian and Baltic energy system is irrevocably can be noticed. Local small production is stepping on moving towards separation from the sphere of influ- the heels of central networks and production more and ence of the Russian energy system. In order to ensure more. While the earlier model of thought was figura- energy security of the region, it is necessary to turn our tively based on central power stations, such as Olkiluoto, energy system from east to west and exit isolation— Forsmark or Narva, and the total consumption of states, be free from Russia and join Europe. Integrating the now it is necessary to view each household and com- electricity system of the Baltic states with those of the pany separately to find an unique solution that satisfies Nordic countries is the next step in a row of steps that the needs of the specific consumer in the best way. includes the Baltic states joining the European Union, NATO, OECD, Eurozone and other networks ensuring that the interests of the region are considered in the Cross-border energy infrastructure best possible way. In 2014, the second electricity connection between The meaning of also this step is much wider, in the Estonia and Finland, EstLink 2, was completed. It same way as joining the Eurozone was, which was not increased the electricity connection between the only related to economic and financial politics, but has countries to 1000 megawatts and made a combined a wider meaning in security politics, participating in Estonian-Finnish electricity market possible. In the European politics, and sharing common values. Desyn- coming years we will make efforts to be able to discuss chronisation from the Russian electricity network is a similar success story in the gas economy. We have not a unique step. In 1995, this was done by Hungary, begun building a gas connection between Estonia and Czech Republic, Slovakia, and Poland. In 2002, Roma- Finland—Balticconnector—to fully open and operate nia and Bulgaria left the Russian synchronous area. the gas market and so it has become a reality. Without Balticconnector it would not be possible to create a At the moment, the Baltic electricity system is opera- Baltic-Finnish gas market. ting in a common synchronous area with the electrical systems of Latvia, Lithuania, Belarus, and Russia. Two years of cooperation has been fruitful. In 2016, This constitutes to a single circulation, one organic Elering signed a cooperation agreement with the Finn- whole. For the past seven years we have worked very ish Balticconnector developer to build an underwater intensely to disconnect the Estonian energy system tube and a financing contract of more than 200 million from the east and to connect it to the west. This is euros with the European Commission with the purpose necessary in order to reduce systemic risks to the of completing the Estonian-Finnish gas connection region’s energy security. costing more than 300 million euros by 2020. Baltic- connector will join the natural gas networks of Estonia We have worked with different options to make this and Finland with a 150 km gas transmission pipeline, idea happen. The first option is to synchronise the Baltic 80 of which are located at the bottom of the sea, with electricity system with that of Central Europe, but compressor stations enabling gas flow on both sides of Poland is dragging its feet here. Now we have begun to the Gulf of Finland. look towards the Nordic countries with whom we have a common electricity market and common electricity In electricity economy, the project developing the third cables. And, what is most important, a common under- electrical connection between Estonia and Latvia is as standing of the development of the electricity market important. There is a public procurement to build the and network. Synchronised operation with the Nordic first section from Harku to Sindi going through Lihula, countries is technically possible, but certainly not usual after which a new line will be built from Kilingi-Nõmme as it presents a great technical challenge. But we are to the Estonian-Latvian border. Building the new capable of accepting this challenge. 7 8 Overview of Elering 9 Major projects in 885 36 3 2016 km of gas distribution gas metering Merger of natural gas gas pipelines stations stations transmission system operator (Elering Gaas) with Elering AS Approval of EU funding in the amount of EUR 206 million for construction