1. Energy sector regulation in Estonia Märt Ots Director General, Estonian Competition Authority 15th Anniversary Conference Tallinn 11.11.2008

2. Energy market regulator 10, history Energy Market Inspectorate established on January 1,1998 Since January 1, 2008 – energy market regulator part of competition authority.

3. History before 1998 August 20,1991. Re-independence of Estonia. Creation of state-owned companies - Eesti Energia (power company), Eesti Põlevkivi (oil-shale mining company), Eesti Gaas (gas company) Eesti Kütus (liquid fuels company). Creation of AS Eesti Gaas in 1993. Privatization from 1993 until 1995. 1993 until 1998 giving thermal energy undertakings to municipal ownership. 1991 until 1998 energy prices are approved by state government or local self-government. Price Commission by the state government.

4. History before 1998 Price fixing is emotional –political issue. National regulation of energy sector is rather weak. In 1996 NRG story begins (privatisation of power company).

5. History before 1998 On January 1, 1998 new Energy Act enters into force. Energy Market Inspectorate founded. Keywords of the law of that time:  Direction towards free market in electricity, gas, district heating;  Price regulation for the sale of gas to eligible customers only;  Special attention at liquid fuels; etc.

6. History from 1998 April 1, 1998. Eesti Energia AS is founded. In 1998 the privatization of district heating undertakings begins. Today only few undertakings are in municipal ownership. 1990s –an era of cheap oil. 1998 record-shattering cheap price for oil- below 10 $/barrel.

7. Glance at history since 1998 Price of electricity generation lower in Finland than the price by Narva Power Stations in Estonia. 1998 - 2001. Estonia applies for exemption in EU accession negotiations regarding opening of electricity market. In June 2000 the government decides to start a joint project with NRG to reconstruct Narva Power Stations. Autumn 2000. An era of cheap oil ending.

8. Glance at history since 1998 December 2001. NRG deals fails. Eesti Energia decides to renovate 2 blocks of Narva Power Plants. July 1, 2003 new energy laws enter into force. 2004 Eesti Energia starts extensive reconstruction of electrical networks. May 1, 2004. Estonia joins EU. An exemption regarding opening of electricity market takes effect, environmental claims for oil-shale power plants, etc.

9. Glance at history since 1998 2005 – trade of EU CO 2 emission allowances begins. Autumn 2005 – the price for heavy fuel oil (domestic product) rises more than two times. In 2006 the price of natural gas is indexed with oil price. An era of cheap oil and gas in Estonia ends. December 2006 - Estonian-Finnish sea cable. 2008 - new energy market regulator starts its work.

10. Price Regulation Price regulation has a history of more than 100 years. In Europe history of 20 years. In European context Estonia has rather long tradition. Ex-ante and ex-post type of price fixing are used. In Estonia ex-ante type of price fixing is used. Common experiences and traditions are used. Direction towards strong regulation. England, the Netherland and Norway as examples.

11. Energy market regulator 10 years 1998 - 2002 starting. 2001 fixing of Eesti Energia´s (largest power utility) electricity price. First time time of using of incentive type of price regulation. 2002 first methodology of price regulation.

12. Energy market regulator 10 years 2003 entry into force of new energy acts:  Extra-judicial proceedings.  Approvement of standard terms for the energy sale.  Balance responsibility.  Territories of distribution networks Electricity Market Act – the best infrastructure regulating act in Estonia.

13. Energy market regulator 10 years 2004 - territories of distribution networks determined. Indexation of network tariffs for Eesti Energia. Incentive type of RPI-x price regulation. 2005 – all undertakings have cost reflecting prices. 2008 energy market regulator as part of competition authority

14. Energy today Strategically goals  Security of supply  Environment  Price

15. Achieving the goal both by state and private sector Large number of energy undertakings are in private ownership.  Liquid fuel and natural gas: 100%  District heating: majority.  Electricity: share of Eesti Energia 80% of the market.

16. Security of supply Electricity generation mainly from oil-shale - 94%. The share of natural gas in the energy balance moderate 13%. The share of natural gas in heat supply 45%. Necessary investments in new production capacities.

17. Environment Load on the environment is heavy in Estonia.

18. Price Extremely high market concentration:  Wholesale of electricity and gas, in both sectors almost 100%. Strong price regulation. Regulating undertakings in dominant position based on Competition Act.

19. Price Are we back in the era of cheap energy? In short term yes. In longer perspective probably not.

20. Price of Crude Oil

21. Price Will electricity become cheaper in Estonia compared to close markets? Probably until 2013.

22. Price of Energy in Estonia and Finland

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