1. Estonian energy scenarios 2030 2050 Reference and single track scenarios in Balmorel

2. INTRODUCTION

3. Process 4 December 2012: Kick-off meeting 7+8 January 2013: Scenarios defined 26 February: Test results for two scenarios 8 April: Test results for all scenarios 9 April: Defining combination scenario 23 April: Skype 7 May: Draft final report 14 May: Meeting 31 May: Final report

4. Purpose of this presentation It is draft model runs – not final results – 30 time steps per year Will be increased to 72 Can be used to discuss assumptions Input to discussion of combination scenario 4

5. Scenarios – Reference and single track scenarios has been simulated. Focus on electricity and district heating. Liberal market CO 2 concern (100€) Renewable energy focus CO 2 market collapse (0€) 110% Carbon leakage (0€ in Russia) Reference EE Medium CO2 price

6. Input driven scenarios 1.Define input – Demand, fuel costs, CO 2 price, technology costs, existing plants and transmissions lines 2.Use “fundamental model” – Optimal dispatch – Optimal investments (simplifyed) 3.Study results – Prices, costs – Emissions

7. Scenario table of key assumptions Estonian Demand Estonian Capacity constraint Estonian Inland generation CO 2 price (2030 and 2050) EUR/ton ReferenceBAU110 %-3047 CO 2 market collapseBAU110 %-00 Carbon leakageBAU110 %-30/0 *47/0 * CO 2 concernEE110 %-73100 Renewable energyEE-100 %3047 Liberal marketBAU--3047 * Zero in Russia

8. Status Model runs are successful – Socio-economic evaluation will be included before meeting! Renewable energy focus-scenario needs to be reformulated! – Now: Only investment in new capacity in Estonia in the form of RE 100% national generation of electricity – Should be: Only investment in new capacity in Estonia in the form of RE Increasing requirement for RE generation in Estonia Work with Stream model is in progress – Result send to demand group for comments

9. BALMOREL

10. Introduction: Balmorel Optimal dispatch (a given year, with given technology) – Input: Electricity and heat demand Fuel prices Capacities (generators, transmission) and efficiencies – Output: Generation per unit, flow between areas Costs, emissions Optimal investments – Input: Cost of technologies Interest rate, time horizon – Output: New MW generation and transmission – Interpretation: New capacity is build based on expected development (if profitable in year X) Construction time = Horizon for expectation No strategic behaviour 10

11. “Optimal dispatch and marginal price” 11 Area 2 Generation: 0-100 MW Marginal price: 150 X/MWh Area 1: Generation: 0-100 MW Marginal price: 100 X/MWh 50 MW DemandGenerationPriceTransmission Area 1Area 2Area 1Area 2Area 1Area 2 10 200100 +10 1040500100 +40 40609010100150+50 506010010100150+50 75 10050150 +25 4014090 100150+50 MW X/MWh MW

12. Model set-up Model area – Baltic states, Nordic countries, Poland, Germany, NW Russia and Belarus Belarus modelled as transit country (No demand, no power plants) – 23 price areas 12

13. LV LT FI EE DK_E DK_W DE_NWDE_NE DE_CSBLR SE_S SE_N SE_M NO_S NO_O NO_N NO_M RU RU_KAL PL 2011

14. ASSUMPTIONS

15. Updated assumptions Base year set to 2012 and investments in new generation capacity from 2020 Possibility for rebuilding selected oil shale plants to coal or biomass (Narva 8, 11 and Auvere ) Updated Estonian electricity demand forecast and grid loss Oil shale price: set to mining costs in 2012 and short term opportunity costs from 2020 and onwards (function of oil and CO 2 price) Estonian biogas price and resource Investment option for oil shale power plants Estonian wood chips price reduced by 1.75 EUR/GJ per year Nuclear in Poland postponed to 2025 CO 2 leakage to Russia – Same CO 2 price in Russia as within the EU (in most scenarios): Assuming no leakage – New Carbon leakage scenario Data feedback from Lithuanian TSO

16. Levelised cost of energy 2030 and 2050 Text will be added

17. RESULTS: GENERATION

18. Electricity generation – model area 18 Natural gas Hydro Wind Nuclear Coal CCS Coal & lignite Note: Different step of X-axis, corresponding to simulated years

19. Electriricy generaton by country Map will be added

20. Electricity generation – Estonia Reference and Liberal market 20 Note: higher coal and natural gas generation in reference scenario due to 110 % capacity requirement

21. Electricity generation – Estonia CO2 concern and CO2 market collapse 21 Note: CO 2 market collapse leads to heavy coal generation

22. Electricity generation – Estonia RE focus and No CO2 price in Russia 22 Note: RE scenario method leads to increased oil shale generation. Consider RE % methods instead of investment constraint.

23. Rebuilding of oil shale plants Detailed results about rebuilding of plants Text will be added

24. RESULTS: CO 2 EMISSIONS

25. CO 2 emission – model area 25 Endogenous investments from 2020

26. CO 2 emission – Estonia 26

27. RESULTS: DISTRICT HEATING

28. District heating generation – Estonia 28

29. RESULTS: INVESTMENTS

30. Investment in elec. generation – model area 30 Note 2: Remember 5 years time step in the last part: More investments per time step Note 1: Large investments in first year with endogenous investments indicate an unbalance in earlier years Note 3: Wind and solar investments in 2040 and beyond are primarily reinvestments in Germany due to NREAP

31. Investment in elec. generation - Estonia 31 Note:

32. RESULTS: PRICES

33. Electricity prices - Estonia 33 Note: Investments from 2020 results in changes electricity price Fuel prices are the same in all scenarios

34. Electricity prices – region Reference 34

35. Import balance 35 Reference CO2 market collapse (TWh/year)2012202020302050 Estonia4.31.61.4-6.9 Latvia0.46.66.03.4 Lithuania-4.9-5.1-8.2-5.9 Finland-0.1-5.0-7.7-17.7 NW Russia-1.94.25.42.7 Belarus0.0 Poland12.6-3.8-13.0-28.7 Sweden-6.8-5.14.422.2 Denmark10.523.713.2-13.5 Norway1.810.331.055.7 Germany-15.7-27.5-32.5-11.1 (TWh/year)2012202020302050 Estonia4.31.53.7-1.6 Latvia0.45.64.8-2.1 Lithuania-4.9-6.5-10.1-8.6 Finland-0.1-4.8-2.5-16.5 NW Russia-1.95.04.93.4 Belarus0.0 Poland12.6-1.4-9.3-10.7 Sweden-6.8-5.64.717.4 Denmark10.59.5-4.5-35.8 Norway1.87.725.455.4 Germany-15.7-11.0-17.2-0.9 (TWh/year)2012202020302050 Estonia4.31.1-2.4-5.4 Latvia0.45.82.7-1.3 Lithuania-4.9-1.75.64.2 Finland-0.1-8.9-15.9-18.4 NW Russia-1.94.51.40.4 Belarus0.0 Poland12.6-9.0-18.6-45.5 Sweden-6.8-3.914.013.0 Denmark10.526.010.10.4 Norway1.817.443.855.6 Germany-15.7-31.3-40.7-3.1 CO2 concern (TWh/year)2012202020302050 Estonia4.30.5 -6.8 Latvia0.45.04.4-1.6 Lithuania-4.9-6.5-9.2-8.2 Finland-0.1-7.2-7.8-17.8 NW Russia-1.917.715.211.9 Belarus0.0 Poland12.6-6.5-16.2-28.4 Sweden-6.8-5.24.421.2 Denmark10.522.513.3-13.8 Norway1.810.126.755.7 Germany-15.7-30.5-31.2-12.2 No CO2 price in Russia Note: Postive values are export – negative import.

36. Transmission 2011 36

37. Investments in transmission - MW 37 Text will be added

38. RESULTS: ECONOMY

39. Socio-economics Text will be added

40. DISCUSSION

41. Observations - Estonia Text will be added

42. Observations – surrounding system Text will be added

43. NEXT STEPS

44. Next steps Reformulate RE scenario Increasing requirement for RE generation in Estonia: x% by 2030, X% by 2050 Forecast for district heating demand and check of district heating areas Update Latvian data (if we receive feedback) Increase time resolution

45. Revised time schedule? PhaseDateTasks Scenario calculations 8+9 April 2013 Meeting with expert groups: Discussion of results; Revision of “single track” scenarios; Agreement on relevant "combination scenario”. 23 Apr 2013Project status via Skype Conclusions 7 May 2013Draft final report 14 May 2013 Meeting with expert groups: Discussion of main conclusions; Identification of recommendations for important actions in the short-term in order to achieve long-term goals and identification of important barriers. 31 May 2012Final report

46. EXTRA SLIDES

47. Reference scenario Reference scenario – Business as usual i.e. with a requirement of having inland production capacity equal to 110 % of the hourly peak demand, current trend in energy efficiency, an oil shale price is a function of the international oil price, and WEO 2012 forecast of CO 2 prices in their new policy scenario i.e. 23-31-34 €/ton CO 2 in 2020-2030-2035, respectively. The price in 2050 set to 45 €/ton CO 2. The 110 % requirement is calculated as follows: 110 % of peak demand – 150 MW

48. Liberal market scenario Liberal market scenario – A scenario with reduced requirements for inland Estonian electricity capacity. In this scenario the impact of setting a lower capacity requirement is analysed. This scenario have no specific requirement for Estonian capacity.

49. Oil shale opportunity costs Method The opportunity costs of oil shale seen from the existing power plants at Narva from 2011 to 2050. The model will then consider the efficiencies at existing Narva power plants and electricity prices etc. This substitution price could be estimated as either the short or long term marginal costs: -Short term costs: -fuel oil price x refinery efficiency - oil shale refinery OPEX – refinery CO2-costs -Long term costs: -fuel oil price x refinery efficiency - oil shale refinery CAPEX - oil shale refinery OPEX – refinery CO2-costs. We assume the refineries are already in operation and base our cost estimate on short term marginal costs.

50. Oil shale opportunity costs Assumptions 1.Reference oil price set to fuel oil based on price forecast from IEA World Energy Outlook 2012. 2.Mining fee (royalty) 2011-2014: 1,1 euro/tonnes. 2014-2050: 2,4 euro/tonnes 3.Mining costs (ex transport and royalty): 2011: 10,5 euro/tonnes, 2030: (10,5+16)/2= 13,25 euro/tonnes. 2050: 16 euro/tonnes. For the years between these points I have made a linear projection. 4.Transport costs to Narva: 3 euro/tonnes in all years 5.OPEX of refinery: 21 euro/tonnes in all years. 6.CAPEX of refinery: Average of Enefit and Petroter: 10 euro/tonnes per year with an interest rate of 10 % and 20 years pay back time. 7.1 tonnes of oil shale rock set to contain 2,33 MWh or 8,33 GJ energy - based on the report of the resource group. 8.Refinery efficiency set to 70 % based on the report of the resource group. This is in line with the efficiency of the existing Petroter refinery. 9.CO2 price forecast based on IEA World Energy Outlook New Policies scenario with an adjustment to the historic 2011 and 2012 CO2 price level. 10.CO2 emission based on Enefit 280 data: 0,36 tonnes CO2/bbl shale oil. I have estimated the calorific value of 1 bbl oil shale to 5,52 GJ and used an refinery efficiency of 70 %.

51. Oil shale short term opportunity costs Note: We have used the short term opportunity costs of oil shale in the following scenarios