1. Estonian energy scenarios 2030 2050 The first Balmorel model runs

2. Purpose of this… It is the first model runs – not final results! – 30 time steps per year Will be increased to 72 Can be used to find errors An exercise to help understand the model First attempt to present condensed results – “Millions of numbers => Important key numbers” 2

3. Scenarios – Two scenarios included: Reference Liberal market (= reference without 110% requirement) – Focus on the electricity and district heating sector

4. 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

5. 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.

6. Updated assumptions Investments in new generation capacity from 2015 Data on existing Estonian power plants Estonian electricity consumption updated according to BAU forecast Estonian biomass and wind resources according ENMAK resource report Investment possible in new nuclear power plants in Lithuania, Poland and Finland after 2030. Costs based on IEA and actual costs: 4.1 mio. EUR/MW CCS not possible in Estonia, Finland and Sweden due to geological conditions NREAP requirements considered as a minimum RE target beyond 2020 Model invests in new transmission capacity from 2030 Opportunity costs of oil shale based on short term marginal costs (more about this in next slides)

7. 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.

8. 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 %.

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

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 10

11. “Optimal dispatch” 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 4015090100 150+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_STP RU_PSK RU_KOL RU_KAL PL_W PL_NW 2011

14. CO 2 emission – model area 14 Endogenous investments from 2015 Note: Different step of X-axis, corresponding to simulated years

15. CO 2 emission – Estonia 15 110% requirements results in new investments from 2024 Results are equal in the two scenarios from 2011 to 2022

16. Electricity generation – model area 16 Natural gas Hydro Wind Nuclear Coal CCS Coal & lignite

17. Electricity generation – Estonia 17 Note: higher coal and natural gas generation in reference scenario due to 110 % capacity requirement

18. Electricity from renewables - Estonia 18 Note: Liberal market scenario practical the same

19. Investment in elec. generation – model area 19 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 in Germany due to NREAP

20. Investment in elec. generation - Estonia 20 Note: Additional coal and gas investments to meet 110 % requirement in reference scenario

21. Elec. capacity in Estonia 21 110 % requirement

22. District heating generation – Estonia 22 Note: increased coal generation in reference scenario

23. Total fuel consumption – Estonia 23 Note: higher wood chips consumption in liberal market scenario

24. Electricity prices - Estonia 24 Note: Investments from 2015 results in decrease in electricity price and less oil shale generation

25. Electricity prices – region 25

26. Import balance 26 (TWh/year)201220152020203020402050 Estonia-2.4-4.3-3.4-3.0-3.6-7.3 Latvia0.84.09.07.6-6.2-1.7 Lithuania-2.0-5.2-5.6-8.2-6.7-6.2 Finland-0.9 -9.1-8.1-15.6-17.0 NW Russia2.68.517.913.913.812.2 Belarus0.0 Poland12.66.7-9.1-16.1-5.0-13.3 Sweden-5.1-1.5-4.44.716.026.4 Denmark7.35.016.615.2-7.2-13.4 Norway2.64.711.027.639.855.6 Germany-15.6-17.1-22.9-33.6-25.5-35.3 (TWh/year)201220152020203020402050 Estonia-2.4-4.3-3.4-5.3-6.5-9.9 Latvia0.84.09.08.0-6.0-1.9 Lithuania-2.0-5.2-5.6-8.1-4.3-2.5 Finland-0.9 -9.1-8.1-15.6-17.1 NW Russia2.68.517.914.314.113.3 Belarus0.0 Poland12.66.7-9.1-14.6-4.4-14.1 Sweden-5.1-1.5-4.44.816.026.1 Denmark7.35.016.615.6-7.2-13.6 Norway2.64.711.027.639.855.6 Germany-15.6-17.1-22.9-34.3-25.9-35.8 Note: Estonia (and Lithuania and Latvia) as significant importers of electricity – large import from Russia etc. Reference Liberal

27. Transmission 2011 27

28. Investments in transmission - MW 28 (MW)ReferenceLiberal market Year2030203520402045205020302035204020452050 FromFinland ToEstonia175205 FromNorwat N ToFinland291294 FromNorway S ToDenmark W22066978213691473 ToNorway M406535865288406525865410 FromSweden M ToDenmark W990670 ToLithuania44 FromSweden N ToNorway N330208379293893 330208389293770 FromSweden S ToDenmark E38655344129 ToPoland1000 FromPoland NW ToGermany S187606102037310651110 FromPoland W ToGermany S99 Total330614159628194616 330614170532584899

29. Welfare economics Net present value of savings in liberal market scenario is 73 mio. Euros (compared to reference) Increased consumer costs due to higher electricity price (Mio. euro)ESTONIALATVIALITHUANIARUSSIANORDICGERMANY & POLANDTOTAL Generator profits:103291641796336 Consumer surplus:-22-21-27-34-182-5-292 TSO profit:55-4194-227 Public profit:0000101 Socio economic benefit:8512-14-10273

30. Generator profits Generator surplus of 103 mio. Euro (NPV) in Estonia Significant decrease in Estonian capital costs ESTONIALATVIALITHUANIARUSSIANORDICGERMANY & POLANDTOTAL - revenue from electricity sales -578 75 212 128 321 102 259 - fuel costs -161 18 39 51 24 11 -18 - variable costs -16 1 12 4 6 13 21 - fixed costs -69 3 11 15 20 14 -6 - capital costs (new units) -285 13 128 54 85 46 40 - CO2-price -150 11 5 - 6 12 -117 Total 103 29 16 4 180 6 337

31. Observations - Estonia The model invests in new coal power when it starts investing in 2015 because this has less costs than oil shale. The 110 % target results in investments in coal power capacity when the majority of the Narva oil shale plants are decommissioned by the end of 2023 From 2026 the capacity requirement is met by investing in natural gas power plants Investments in renewables in Estonia limited to NREAP and biogas only

32. Observations – surrounding system The model only to some extent invests in additional nuclear capacity in Poland and Lithuania (and not in Russia and Finland) from 2030 Coal CCS deployment in Poland, Germany and Lithuania from 2040 to 2050.

33. Important questions Should we use a historic oil shale price for 2011 and 12 and when is there enough oil shale refinery capacity to use a pure opportunity costs oil shale price? Is investments in new coal power plants acceptable in Estonia in the short and long term? Should we apply a CO2 price in Russia?

34. Next steps Update Latvian and Lithuanian data when we receive feedback from TSOs Oil shale power plants as an investment option Forecast for district heating demand Simulation of all scenarios (change in oil shale opportunity costs due to different CO2 price) Update of technology catalogue Increase time resolution