Estonia Cabinet Approves Reduced Green Energy Subsidies in 2013

Estonia’s government approved reducing subsidies to renewable-energy producers from next year to cushion the effect on consumers of higher electricity prices.

The subsidies, paid for by consumers through their energy bills, will decline 15 to 20 percent, the Economy Ministry said today in an e-mailed statement. The plan also includes linking subsidies to the market price of electricity and setting lower limits to annual green energy output.

The reduction was first revealed by Economy Minister Juhan Parts in 2010. An increase in subsidies in 2007 led to new investment by companies including Fortum Oyj (FUM1V), the second-largest Nordic utility, and Nelja Energia OU, majority owned by Norway’s Vardar AS.

The Baltic country will liberalize the remaining two thirds of its power market from January, with electricity prices for consumers seen rising by about 20 percent as Estonia must start buying carbon emission permits for its power production, according to state-owned Eesti Energia AS. This may boost average inflation next year by as much as 0.9 percentage points to 3.2 percent, the central bank said last week.

Estonia will drop an initial plan to lower subsidies to renewable-energy producers retroactively as it would affect the “fragile” investment climate, Environment Minister Keit Pentus said in May. The European Renewable Energies Federation lobby group said in February such a retroactive move would violate European Union law.

Electricity from renewables made up 20 percent of Estonia’s consumption in the second quarter, compared with 14 percent for all of 2011, grid operator Elering AS said in July. Three quarters of renewables output came from waste, biomass and biogas, while wind and hydroenergy made up 21 percent and 3 percent, respectively, it said.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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