The Republic of Estonia is one of the former republics of the Soviet Union which regained its independence in 1991 after the breakup of the USSR. It is slightly smaller in area than New Hampshire and Vermont combined, with a population of 1.5 million. Estonia is bordered by Russia to the east and Latvia to the south. The remaining borders are formed by the Baltic Sea and Gulf of Riga to the west, and the Gulf of Finland to the north. Estonia has a flat topography; the average elevation above sea level is only about 50 meters, with the highest point in the country being only 318 meters above sea level. There are 15 administrative regions (called 'makonnaad') in Estonia; these are shown in Figure 1. The capital city, Tallinn, is a seaport located in the north center of the country and has a population of about 400,000. The Estonian currency the kroon, has an exchange rate (as of February 2003) of approximately 14.53 kroon per U.S. dollar (i.e., one kroon equals approximately $0.069). The kroon is a stable currency since its value is pegged to the Euro under a currency board system. The GDP for 2001 was estimated to be $14.3 billion (purchasing power parity).

In November 2002, Estonia was one of seven nations invited to join NATO in 2004, and in December 2002, Estonia was one of the ten countries invited to membership in the major expansion of the European Union. Estonia has also been approved for membership in the World Trade Organization.

Figure 1: Administrative Regions of Estonia

Source: map courtesy of and copyright by FOTW Flags of the World

The Estonian Government is giving high priority to its energy sector in its ongoing economic reform program. Government policy and objectives toward its energy sector can be summarized in two ways: to provide a reliable source of energy for the country, and to provide such energy at the lowest possible cost. The chosen means for accomplishing these include improving the efficiency in use of energy, improving the overall reliability of electricity generation and distribution, attracting investment capital where such capital can help finance needed infrastructure improvements, and allowing competition and diversity into areas where state-owned monopolies exist. The Estonian Government intends to separate its policy and regulation responsibilities from actual management of energy infrastructure by decentralizing energy activities to the local municipal level where possible and to allow privatization of all enterprises that are not considered of national strategic importance. The energy regulatory functions will be carried out by mostly autonomous agencies, especially in cases where monopolies continue to exist.

In 2001, the Estonian Government began a phased-in liberalization of its electricity sector, so as to keep on track for its expected accession into the European Union. In January 2001, new electricity tariffs were established that will allow customers to choose their electricity supplier. In 2001, only the largest consumers -- those who use annually more than 40 gigawatt-hours (GWh) -- were eligible. By the spring of 2002, all electricity users will be covered by this liberalization.

Estonia is unique among nations in its heavy use of oil shale. Estonia produces no significant amounts of coal, oil, or natural gas. Natural gas and petroleum products are imported. There is also some use of peat and wood waste as fuel at small heating plants. There is a reserve of 929 million metric tons of peat. Small hydroelectric power plants serve some villages.

An historical summary of Estonia's Total Primary Energy Production (TPEP) and Consumption (TPEC) is shown in Table 1.

Oil Shale
Oil shale (Kukersite) has been a major source of energy in Estonia for many decades, and is Estonia's primary mineral resource. Estonia accounts for about 70% of the world's oil shale production. Prior to World War II, use of oil shale allowed Estonia to become independent of foreign fuel and power supplies. After the war, Estonian oil shale reserves were developed to provide liquid fuel for the Soviet navy stationed at Leningrad. Oil shale is presently by far the largest source of energy in Estonia; in 1997 oil shale provided 76% of Estonia's TPES. Since Estonia began using oil shale they have mined about 900 million metric tons. The largest annual output was 31.3 million metric tons in 1980. 12 million metric tons was the expected production in 2001. The remaining active reserves total about 1.5 billion metric tons, as of 2000. There are presently six deep mines and three open pit mines in operation in Estonia. The approximate composition of Estonian oil shale is 33% organic, 41% inorganic carbonate, and 26% sand/clay composite. The organic portion is mostly made up of oxygenated compounds such as ketones, phenols, and ethers. Since May 1997, the average price of oil shale has been fixed by the Estonian government at 106 kroons per tonne (i.e., $6.38 per short ton). Oil shale is mined in northeast Estonia, near Kohtla-Järve, by Eesti Polevkivi, which had been a state-owned company until the year 2000. Then, the American company NRG Energy acquired 51% control.

In June 2000, Estonia concluded a four-year negotiation process by agreeing to sell a 49% share of the two large oil shale-fired Narva Power Plants to NRG of Minneapolis. These two power plants supply over 90% of Estonia's electricity. The sale also included a controlling interest in the Eesti Polevkivi oil shale mines that supply fuel to the power plants.

In February 2001, Narva Power Plants and Eesti Polevkivi signed a contract to supply oil shale to the power plants. Under this deal, the power plants buy 9.4 million tons of oil shale for $73 million. In 1999, Narva Power Plants had used 85% of the output of Eesti Polevkivi. According to the terms of NRG's June 2000 purchase of 49% of Narva Power Plants, Eesti Polevkivi has become a subsidiary of Narva Power Plants and NRG now has a 51% controlling share of Eesti Polevkivi. The deal also includes NRG's commitment to invest $80 million in Eesti Polevkivi to modernize the company's technology and renovate their infrastructure.

Eesti Polevkivi plans to increase efficiency in its operations. Oil shale mining will continue in the Viru and Estonia mines. The Narva and Sirgala quarries will be under one firm, AS Narva Karjaar (Narva Quarry Ltd.). The Kohtla mine and Aidu quarry will be under another firm. Eesti Polevkivi also plans to merge the Ahtme mine with either the Viru or Estonia mine and to stop extraction at Ahtme at the start of 2002. This will continue a pattern of shale oil mine closings, since the Tammiku mine closed in 1999.

Eesti Polevkivi estimates that oil shale production for 2001 was approximately 12 million metric tons, and that annual production will remain at that level through 2006. After 2006, annual production will most likely drop to about 10.5 million tons.

The EU has been pressuring Estonia to reduce shale oil use. Suncor Energy of Canada had been negotiating with the Estonian government to build a $147 million shale oil plant in northern Estonia. However, negotiations were suspended in September 2000 because of environment-related problems with Suncor's pilot plant in Australia.

Presently, there are three primary customers for Estonian oil shale:

• Eesti Energia electric power company
• Viru Ölitööstus AS (formerly Kiviter AS and now a division of Viru Chemical Group) oil shale-to-oil processing company
• Kunda-Nordic Tsement AS cement manufacturing company

Viru Ölitööstus AS processes the oil shale in a retorting operation to produce distillate liquid fuels. Shale oil distillates have a moderate sulfur content, a low pour point, low vanadium content, and good pumpability. The retorting processes conducted by Viru Ölitööstus AS produce approximately 4,400 barrels per day (b/d) of distillate liquid fuels.

The EU has been concerned about pollution from Estonia's oil shale operations. Estonia requested that the EU consider oil shale the same way it does coal, and the request was granted in July 2002. This enabled Estonia to close out the energy chapter in its accession negotiations with the EU.

An historical summary of oil shale and shale oil production in Estonia is shown in Table 2.

Esoil is the Estonian company which handles the import and distribution of oil products. AS Reola Gaas is the leading LPG company; 65% of it was acquired by Fortium Oy of Finland in 1999.

Natural Gas
In 1998 Estonia imported 36.37 billion cubic feet of natural gas from Russia. Natural gas is the primary fuel of the 190 megawatts (MWe) Iru Power Station east of Tallinn which produces both heat and power. An historical summary of natural gas production and consumption in Estonia is shown in Table 4.

The gas utility, Eesti Gaas, was fully privatized in 1997, and is now owned by Gazprom of Russia (31%), Ruhrgas of Germany (32%), Fortium of Finland (10%), and some smaller investors. In November 1999, Eesti Gaas signed a long-term contract with Gazprom to supply gas from 2000 to 2005.

The sales of Eesti Gaas in 2000 were 825 million cubic meters (29.1 Bcf). This represents a substantial increase from the 718 cubic meters (25.3 Bcf) sold in 1999. Over 90% of the heat for Estonia's district heating stations comes from natural gas.

An historical summary of coal production and consumption in Estonia is shown in Table 5.

Renewable Energy
Hydroelectric Power
Although Estonia has numerous rivers, it is a relatively flat country and does not have significant hydroelectric potential. The three longest rivers in the country are the Vohandu which flows eastward through southeastern Estonia, the Parnu, which flows southwest through western Estonia, and the Poltsamaa, which flows southward through central Estonia. The Narva River, which forms part of Estonia's eastern border with Russia, has the greatest discharge rate, more than all the other river systems in the country combined. A map showing Estonia's rivers is shown in Figure 2.

Figure 2: Rivers of Estonia

Source: UNEP GRID-Arendel

Some very small hydroelectric power plants (all much less than 1 MWe in capacity) exist in Estonia; total hydroelectric generating capacity is slightly over 1 MWe and annual hydroelectric power production is only about 4 million  kilowatt-hours (kwh). Several of these small hydroelectric power plants have been refurbished by individuals or small companies, and Eesti Energia, which operates the national power grid, has been buying the electricity at a rate of 13% below the average consumer price.

Studies have shown that Estonia is exploiting only about 1-2% of its overall hydroelectric potential; even though larger hydroelectric projects are not possible, there are many places where smaller environmentally-friendly projects might be feasible.

Other Renewable Energy
Wind power is being utilized on small scale for isolated power needs in Estonia. Windmills have been in operation on Hiiumaa makonnaad in the Baltic Sea for more than a decade, with a total capacity of about 150 kilowatts. Wind power is also in use on Saaremaa makonnaad.

Estonia's impending entry into the European Union is influencing its priorities concerning renewable energy. There is now a goal to increase the use of renewable energy by 67% by the year 2010.

Energy Transmission Infrastructure
Electricity Transmission
To achieve compatibility, Estonia, Latvia, and Lithuania formed BALTREL to undertake the "Baltic Ring" project in 1998. The other countries in the Baltic Sea region are cooperating to link the Baltic countries to Western Europe. It is anticipated that when the Baltic Ring is completed, the Baltic countries will be able to supply electricity to Sweden and Finland. This involves the "Estlink" project that will build a cable under the Baltic Sea to connect Estonia and Finland by 2003. It is expected to take three months to lay the undersea cable along this 51-mile stretch at a cost of $100 million. Electricity transmission could start by 2004. The state-owned utility Eesti Energia will have a 20% share of the project, with other shareholders being Helsinki Energy, Pohjolan Voima Oy, Graningeverkens AB of Sweden, and the Swiss-Swedish company Asea Brown Boveri Ltd.

The Estonian electricity grid consists of about 5,000 kilometers of transmission lines at voltages of 110 kilovolts (kV), 220 kV, and 330 kV. National Grid, a subsidiary of Eesti Energia, has responsibility for the power balance and real-time control of the grid. The electricity distribution network to customers is actually a more encompassing lower voltage grid (of up to 35 kV), consisting of more than 52,000 kilometers of overhead lines and about 6,200 kilometers of buried cables (as of mid 2001). A diagram of Estonia's electricity grid is shown in Figure 3.

Figure 3: Electricity Grid of Estonia


(Click on Image to View a Much Larger Version)
Source: Eesti Energia

Oil Transit
Estonia has two ports, Tallinn and Muuga, which are major transshipment centers for Russian oil exports. These ports compete with Ventspils in Latvia, Butinge in Lithuania, and Primorsk in Russia. In 2001, the port of Tallinn handled 421,300 b/d of petroleum products, which increased to 456,000 b/d in 2002. In July 1999, the Silmet Group of Estonia proposed the construction of a new oil terminal at Sillamjae, which they envisioned as a joint venture with two Russian oil companies, Lukoil and Yukos.

One advantage of these Estonian ports is that they are configured for the use of trains to move oil from Russia. This is good for some products such as heavy fuel oil. The Estonian transit companies such as Eurodek Tallinn and Pakterminal expect continuing business, despite pipelines being built into competing ports.

Pakterminal is Estonia's largest oil transit company. The company has experienced load growth for the past two years. It handled 8.5 million tons (171,000 b/d) of oil products in 2000, and had an estimated load for 2001 of 174,700 b/d.

Eurodek Tallinn handled 6.2 million tons (124,500 b/d) of oil products in 2000, and had an estimated load for 2001 of 148,600 b/d. Eurodek began operating its new 60,000 b/d terminal at Muuga in August 2001. Another small oil terminal, being constructed by Alexal Oil in Padiski, is expected to handle 16,000 b/d.

Natural Gas Pipelines
Estonian gas, imported from Russia, is distributed through a network of pipelines that has a total length of more than 2,000 kilometers. A map of the major high pressure gas pipelines is shown in Figure 4.

Figure 4: Estonia's High Pressure Gas Pipelines

Source: Eesti Gaas

Electricity
Generation and Consumption
Estonian production of electricity is predominantly from its oil-shale-fired power plants. Estonia has an electric power plant capacity of 2,722 MWe. The great bulk of the electricity is currently produced by Eesti Energia, the state-owned electric company. In 1996 Eesti Energia produced 8,967 GWh of electricity, of which 5,528 GWh was used domestically and 1,100 GWh was exported. Eesti Energia's emissions in 1996 were 80,000 metric tons of sulfur dioxide and 10,000 metric tons of nitrogen oxides. They produced 70,000 tons of fly ash.

An historical summary of electricity generation and consumption in Estonia is shown in Table 6.

Installed Capacity
An historical summary of installed electricity generating capacity in Estonia, according to the U.S. Department of Energy's Energy Information Administration, is shown in Table 7.

Industry Overview
There are two large oil-shale fired electric power plants -- the Estonian Power Station (Eesti Elekrijaam) and the Baltic Power Station (Balti Elektrijaam). Estonia has now privatized these two power plants. There had been negotiations since 1996 with NRG Energy Inc., a subsidiary of Minnesota-based Northern States Power, and Estonia concluded the deal with NRG Energy in June 2000. NRG bought 49% of the Narva Power Plants for $70.5 million, which breaks down to $65.5 million as the price of the power plants and a $5 million payment into a social fund to help Ida-Virumaa county where the Narva power plant is located. The deal includes a renovation by NRG of the Narva Power Plants. In June 2001, NRG agreed to pay an additional $27.6 million for its share in Eesti Polevkivi to complete the deal, but in January 2002, Estonia canceled the deal, claiming that NRG had missed an end-of-2001 deadline for obtaining financing. NRG then filed a lawsuit, seeking $100 million from Eesti Energia as compensation for the reversal in privatization for the Narva facility.

In 1997, the electrical networks of Laanemaa and Narva left Eesti Energia to become independent enterprises. In November 1998, Laanemaa was sold to AS Sunergia LEV which is owned jointly by IVO Energia, an Estonian subsidiary of the Finnish energy company Imatran Voima, and Uhispank, an Estonian firm. Also in November 1998, Narva was privatized and now 49% is owned by Startekor, a joint venture of Cinergy Corporation, an Ohio firm, and the Sthenos Group, an Estonian investment firm.

As part of the deal to acquire 49% of the Narva Power Plants, NRG agreed to make the Estonian energy market part of the European energy market. Estonia's transmission network was originally configured for compatibility with the old Soviet power system, and a transition toward the Western Europe power grid will be necessary.

There have been discussions between Eesti Energia and the Latvian state utility on a possible merger to form a "Baltic Power Group." This would allow Estonia to export excess power from its oil shale-fired plants to Latvia. In return, Latvia would be able to export excess hydropower to Estonia from March through May.

There are two main oil-shale-fired power stations in Estonia that produce the great bulk of Estonia's power, as well as export to Russia and Latvia:

• Estonian Power Station (Eesti Elekrijaam)
• Baltic Power Station (Balti Elektrijaam)

They are located on the northeast border of Estonia. Together they account for about 95% of Estonia's electricity production. Both use pulverized oil shale for fuel.

Iru SEJ is a natural gas-fueled combined heat and power (CHP) plant which provides district heating and electricity for the city of Tallinn. During the fiscal year of April 2000-March 2001, the Iru power plant produced 424 GWh of electricity and 1,195 GWh of heat.

Located in northeastern Estonia, AS Kohtla-Järve Soojus has the country's second-largest district heating network and is the third-largest electricity producer and heat seller. The company owns the CHP facilities at Kohtla-Järve and Ahtme and also the district heating networks in those two cities. The Kohtla-Järve power plant was originally part of Eesti Energia but left their purview when Kohtla-Järve Soojus was formed in 1996. Both the Kohtla-Järve and Ahtme CHP facilities burn oil shale for fuel.

A summary of Estonia's thermal-electric power stations is shown in Table 8.

In 1996, Eesti Power Station produced 5.46 billion kWh of electricity, Balti Power Station produced 3.32 billion kWh, and all other power stations combined produced 0.31 billion kWh.

Cogeneration
An historical summary of commercial heat production by Estonian power plants is shown in Table 9.

In addition to the power plants listed in Table 9, the Tallinn District Heating Enterprise operates a power plant that supplies about 640 million kWh of heat per year to the city of Tallinn for district heating. Other major combustion facilities in Estonia which produce industrial process heat are the following:

• Kunda-Nordic Tsement AS is a cement factory which is interested in also producing electricity.
• Viru Ölitööstus AS is a factory which processes oil shale feedstock into shale oil and various chemical products. It is fueled by oil shale by-products.
• Silmet RAS is a factory in northeast Estonia for the production of rare metals.

A summary of the capacities and fuels of heat-generating boilers in Estonia is shown in Table 10.

Estonia will bring its environmental regulations into compliance with European Union standards by the year 2005. Long term environmental targets for stationary sources (such as power plants) include stabilizing nitrogen oxide (NOx) emissions at the 1987 level by the year 2000, reduction of sulfur oxide (SOx) emissions to 80% of the 1980 level by the year 2005, reduction of particulate (i.e., dust and ash) emissions to 75% of the 1995 level by the year 2005, and stabilization of carbon dioxide (CO2) emissions at the 1990 level by the year 2000. Outside of the energy sector, Estonia also has a goal of reducing pollution by mobile (transportation) sources, but has not yet promulgated any targets.

Historical and projected anthropogenic sulfur dioxide (SO2), NOx, carbon monoxide (CO), and non-methane volatile organic carbon compounds (NMVOCs) emissions in Estonia are shown in Table 11.

Estonia has signed a number of international agreements and accords on the environment, including the United Nation's Framework Convention on Climate Change, which was signed and ratified; as well as EU and other agreement to control transboundary emissions. An historical summary of carbon dioxide (CO2) emissions from fossil fuel use in Estonia is shown in Table 12.

Oil shale may be responsible for as much as 80% of the total harmful emissions in Estonia, when taking into account both its mining and utilization. When oil shale is combusted in a power plant, CO2 is generated not only from the organic carbon, but also from decomposition of the carbonate component of the oil shale as well. The overall carbon emission factor (CEF) for oil shale is about 29 metric tons of carbon per terajoule; without decomposition of the carbonate, the CEF would be about 22 metric tons per terajoule.

The privatization program has been run by the Estonian Privatization Agency, which was established in 1992. Small and middle-scale privatization has been completed in Estonia. Privatization of large scale enterprises, such as energy, is in progress. The 1998 privatization plan announced by Estonia includes commercial undertakings for the production, transmission, and distribution of energy. This includes the State Enterprise Estonian Energy and the Joint Stock Company Estonian Oil Shale (which had been created in 1996).

The economy of Estonia is among the strongest of the countries that gained independence after the breakup of the former Soviet Union. This is due to the Estonian Government's commitment to reforms and openness via market-oriented investment and encouragement of privatization.

The revival of the Estonian economy started in April 1993. After many consecutive quarters of sharp decline, the Gross Domestic Product (GDP) finally showed an improvement during the third quarter of 1993, though it was not until 1995 that the entire year showed an improvement. Inflation in Estonia has declined dramatically since the country regained independence in 1992, down to 4.1% in 1999. An historical summary of Estonia's economic indicators is shown in Table 13.

Estonia's exports in 2001 were $3.4 billion and its imports were $4.1 billion. The main exports were textiles, machinery, and wood products. The main imports are machinery, food products, and transport vehicles. Estonia's major trading partner is Finland, which accounts for about 27% of Estonia's imports and about 28% of its exports.

There are no restrictions in opening foreign bank accounts either in Estonia or abroad. There are also no restrictions on exchanging kroons for hard currency and repatriating funds from Estonia.

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