Leo Rummel: The planning of Estonian power generation investments with Balmorel open electricity market model, Master's thesis, Tallinn University of Technology, 2010.


The aim of this thesis is to predict electricity prices in the Baltic power market after 2016 and help to plan long term investments into new generation capacities in Estonia. Eesti Energia, Estonia’s national power company must refurbish 70% of its generation capacities by 2016 and has to heavily invest today. However, in the conditions of open electricity market it is very hard to make prognosis of feasibility of the investments. In this thesis, Baltic Sea power market is modelled with Balmorel open electricity market model and based on the results of modelling, feasibility of different possible projects is evaluated and a proposal for a solid strategy is made. Additional information on the Balmorel model can be acquired from Balmorel web page www.balmorel.com.

The countries included in the open market model used are Estonia, Latvia, Lithuania, Finland, Sweden, Norway, Denmark, Germany, Poland. Imports from Russia are included as an annual constant of about 10% of total consumption for each Baltic country and Finland. The data set used for modelling is greatly based on the data set prepared for the Harku-Sindi-Riga new line study ordered by the Estonian TSO in 2008 and carried through by Ea Energianalyse. New power plants on nuclear fuel, natural gas and wind parks are presumed to be constructed in the Baltic and Finland. New interconnections between the Baltic and other European countries are presumed in accordance with BEMIP (Baltic Energy Market Interconnection Plant) signed by heads of the region’s EU member states in 2009. Each year in the model has been divided into 260 time periods to reflect the variation in electricity and heat consumption, wind / CHP (Combined Heat and Power) / hydro energy production.

Based on electricity sales and market prices modelled for the period of 2016-2025 annual electricity sales revenues for 4 different technologies of power plants which have larger electricity production potential in Estonia are found. Based on the revenues (including from heat sales for CHP), costs and existing support schemes for the power plants in Estonia main financial parameters of the projects are calculated. The 4 projects to be evaluated are 273 MW oil shale power plant, 22 MW wood-fired CHP, 600 MW of wind parks (strategic plan of Eesti Energia AS) and 600 MW nuclear power plant. In addition to the base scenario (CO2 25 EUR/t, oil shale cost-based fuel price) alternative scenarios of low carbon quota price (CO2 9 EUR/t), high carbon quota price (CO2 40 EUR/t) and oil shale value based price (dependent on global crude oil price as alternatively oil can be produced from the fuel) were analysed. Suggestions for an energy portfolio development strategy are made.

As a result of the modelling, comprehensive data on the region’s possible energy sector development in accordance with the open electricity market is produced. The demand in the model is set to be inelastic, meaning that electricity consumption each hour has to be covered, for which purpose model invested in additional capacity based on lowest production cost among available fuels. The model invests in CHP plants based on coal and peat, even with the high carbon scenario, taking into account low coal price and high natural gas price given.

Market price modelling shows that annual average market prices in 2016-2025 in Estonia will stay between 47-49 EUR/MWh. Historically average annual prices in the Nord Pool Finland area have greatly varied between 30-51 EUR/MWh. With high CO2 price, modelled average market price is 11% higher and with low CO2 price it is 15% lower. The analyses show that the new oil shale power plant only operates 3000 hours per year in the 2 alternative scenarios (with CO2 price of 40 EUR/t and value based fuel price) and 6500 in base scenario, other plants operate irrespectively of the market price (base load).

The financial models show that only wind parks and biomass CHP together with subsidies are economically viable in all scenarios (base case IRR – Internal Rate of Return above 10%), while the oil shale power plant is not in alternative scenarios (8% IRR) irrespective of the existing support measure. Nuclear power plant is least economically feasible (IRR 8%) in the difficult market conditions. Oil shale power plant is least feasible in the low CO2 Price scenario, as no support is received with CO2 price below 10 EUR/t.

Economically most reasonable Estonian electricity production strategy in the context of existing support measures is to invest as much as possible into renewable and cogeneration technologies. In case lower investment cost and higher efficiency of the new oil shale power plant is revealed (during the writing of this report tender offers had not yet been received), investment into the plant could prove feasible. In regards of the nuclear power plant additional studies on the investment and operation costs are necessary.

The completion of this report does not conclude modelling of the power market of Estonia with the Balmorel model, the feasibility calculations will be updated as additional information is revealed during the course of time. Development of the work where Eesti Energia’s alternative fuel price scenarios are used is already considered.

The full work is not available due to confidentiality reasons.