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DE RUEHTL #0060/01 0331414
ZNR UUUUU ZZH
R 021413Z FEB 10
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 0386
INFO EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 TALLINN 000060 
 
SIPDIS 
DEPARTMENT FOR EEB/CBA 
DEPARTMENT FOR EUR/ERA 
DEPARTMENT FOR EUR/NB 
COMMERCE FOR ITA 
 
E.O. 12958: N/A 
TAGS: ENRG PGOV EFIN ECON EINV PREL EN
SUBJECT: ESTONIA PAVES THE WAY FOR SECOND MAJOR ELECTRICITY LINK TO 
FINLAND BY OPENING ITS ELECTRICITY MARKET 
 
¶1. (SBU) SUMMARY:  On January 28 the Riigikogu (Estonian 
parliament) passed amendments to the Electricity Market Act which 
will open 35 percent of the electricity market on April 1 and fully 
open the market on January 1, 2013.  Finnish transmission grid 
company Fingrid has been waiting for this development before making 
its investment decision about the proposed 650 megawatt (MW) 
Estlink 2 cable between Estonia and Finland.  The Finnish Embassy 
lobbied hard for the passage of the bill and does not foresee any 
more obstacles for the Estlink 2 project.  The Russian government 
was also apparently waiting for this bill, and opened a branch of 
its state energy trader (Inter RAO UES) in Tallinn in late January. 
The course of this bill, from inception to approval, had been 
bogged down by  parliamentary demands to reduce generous renewable 
energy subsidies and concerns that major electricity consumers 
would see sharp price increases.  With the passage of this bill, 
however, Estonia and Finland will be helping to improve the EU's 
diversity of energy supplies.  Both Estonian and Finnish officials 
are confident the EU will confirm this year its EUR 100 million 
contribution to the construction of Estlink 2.  END SUMMARY. 
 
 
 
OPENING THE MARKET 
 
-------------------- 
 
 
 
¶2. (SBU) According to Estonia's new Electricity Market Act, as of 
April 1, about 300 large consumers (35 percent of Estonia's 
electricity market) will have to buy electricity on the Nord Pool 
Spot electricity exchange (which currently trades electricity 
between Norway, Sweden, Finland and Denmark).  The market would 
open for the rest of the consumers on January 1, 2013.  At present, 
all of Eesti Energia's (Estonian Energy) major clients buy 
electricity at a price set by the Competition Authority rather than 
the free market.  Major electricity consumers lobbied heavily to 
postpone the opening of the electricity market since they believed 
this would increase the price they pay for electricity (Note: Nord 
Pool Spot prices are usually higher than current Estonian prices. 
End Note.) 
 
 
 
¶3. (U) On January 28 Russian state electricity provider Inter RAO 
UES announced it had opened a branch in Estonia, Inter RAO Eesti. 
The Estonian office is a subsidiary of Inter RAO Lietuva, the 
Lithuanian branch of the company, and was set-up expressly to 
facilitate the sale of Russian electricity in Estonia when the 
market opens. 
 
 
 
¶4. (U) Responding to an EU directive, the bill also codified the 
separation of the main grid company, Elering, from the production 
and sales activity of Eesti Energia.  Despite becoming a separate 
company, Elering will also remain state-owned.  The bill further 
confirmed state support for the proposed construction of two new 
oil shale-burning power generating units expected to be completed 
between January 2013 and January 2016.  (Note: The U.S. company 
Foster-Wheeler sold the last two oil shale boilers purchased by 
Eesti Energia and is considered to be the front-runner for the next 
two units.  END NOTE.) 
 
 
 
IMPACT ON ESTLINK 2 
 
------------------ 
 
 
 
¶5. (SBU) The opening of the electricity market from April 1 has 
been one of the preconditions for the Finnish transmission grid 
company Fingrid to make its investment decision about the 
construction of Estlink 2, the proposed 650 MW undersea cable 
between Estonia and Finland.  (NOTE: The 350 MW Estlink became 
operational in January 2007.  END NOTE.)  Fingrid must make its 
decision by October for the project to be eligible to receive EUR 
100 million in EU Recovery Funds. 
 
TALLINN 00000060  002 OF 002 
 
 
¶6. (SBU) Nina Nordstrom, Counselor at the Finnish Embassy in 
Tallinn, told EconOff the Finnish Embassy lobbied hard for the 
passage of the bill and that she was certain the Estlink 2 project 
would receive backing by Fingrid and the EU.  The Finnish DCM added 
that the GOF's energy czar was visiting Tallinn February 2.  The 
trip had been planned to lobby for opening the electricity market, 
but after passage of the bill has turned into "a friendly visit." 
 
 
 
¶7. (SBU) COMMENT:  The opening of the electricity market and 
construction of Estlink 2, like accession to the euro zone, 
demonstrate the GOE's commitment to make sacrifices to achieve 
long-term economic and energy security objectives.  Although it is 
far from certain, most experts predict the opening of the market 
and joining Nord Pool Spot will cause Estonian electricity prices 
to rise.  However, the GOE is willing to pay this price in order to 
further integrate with its northern and western neighbors and 
increase its diversity of supply for energy. 
POLT