Estonia: sliding premium of €53.7/MWh for 12 years for energy from biogas and biomass

Estonia supports electricity from renewable sources, including biogas and biomass, with a sliding premium on top of the market price. The base is €53.7/MWh and is paid for 12 years, but it declines as market prices rise and reaches zero at €93/MWh. As a result, in the price range of €39.3–93/MWh the total revenue from 1 MWh is constant (about €93/MWh), and above €93/MWh the generator earns whatever the market pays.

The 2018 change

In June 2018 the Estonian Parliament adopted amendments to the Electricity Market Act. They introduced two elements: reverse auctions for larger projects and a sliding premium as a form of support. Projects with the lowest bids win, and the auctions are meant to be technology-neutral: wind, solar, geothermal, hydro, biogas and biomass may take part.

The auction targets included achieving the 17.6% target for renewable energy in electricity by 2020 (for projects above 1 MW), an additional 5 GWh a year in 2019–2021 for projects from 50 kW to 1 MW, and meeting obligations arising from EU cooperation mechanisms. Installations below 50 kW receive a premium under the same formula, but without an auction and without a minimum production requirement.

How the premium is calculated

According to the IEA database, the base premium is €0.0537/kWh (€53.7/MWh) and is added to the average monthly market price. When that price exceeds €0.0393/kWh (€39.3/MWh), the premium is reduced, and when the average price is above €0.093/kWh (€93/MWh), the premium is zero. The premium is guaranteed for 12 years, provided that the project generates the agreed amount of energy. In the first auction in 2019, pv magazine described the €93/MWh ceiling as a total limit, including the market price.

Conclusion: a chart "capped" at the top

The chart shows that in the price range of €39.3–93/MWh the generator receives a total of €93/MWh, i.e. exactly the upper limit. Below €39.3/MWh the premium is constant (€53.7/MWh), so revenue rises together with the market price. Above €93/MWh there is no premium and the generator earns only what the market pays. In periods of high energy prices the state does not pay a top-up, and the generator is not capped, as it would be under a two-way contract.

Numerical examples

• At an average market price of €30/MWh the premium is €53.7/MWh, so the generator receives a total of €83.7/MWh.
• At €60/MWh the total revenue is €93/MWh, so the premium is €33/MWh.
• At €93/MWh the premium is zero, and at €120/MWh the generator receives only €120/MWh from the market.

Such examples show that the system acts as insurance against low prices, not as a guarantee of a fixed profit. In years of low energy prices the premium protects profitability; in years of expensive energy the support practically vanishes. A cogeneration biogas plant, whose variable costs (substrates) are stable, should therefore assess a project under two scenarios: prices below the €39.3/MWh threshold, when its revenue rises with the market, and prices above €93/MWh, when revenue depends solely on the market.

Cost of support and financing

Support is financed by the renewable energy charge, which as a rule is paid by energy consumers. It is collected by the transmission system operator Elering; in 2019 it was €0.0104/kWh. By comparison, a premium of €53.7/MWh is €0.0537/kWh, i.e. more than five times as much per unit of supported energy, which illustrates that the charge spreads the cost of support across total consumption.

Where this design comes from

The Estonian aid scheme was originally approved by the European Commission in October 2014 (SA.36023). It was amended in December 2017 (SA.47354). A premium of a fixed €53.7/MWh was then available to all eligible generators for 12 years from commissioning. The 2018 reform kept this value as the base, but made payment dependent on the market price and introduced competition in auctions, which limits the risk of excessive support in periods of expensive energy. For an investor this means two changes: the certainty of a fixed top-up has gone, and there is now a need to offer a price in a competition.

Auctions for small installations

The first auction in Estonia was announced in November 2019 for projects from 50 kW to 1 MW. Small biogas installations, among others, could take part, and bids were submitted to Elering by 18 March 2020. According to press reports, bids were received from 17 bidders. The 50 kW–1 MW basket therefore includes the smallest agricultural biogas plants.

What this means for biogas plants

• In the price range of €39.3–93/MWh revenue is constant (about €93/MWh), so the economic calculation must be based on costs below this value; above €93/MWh only the market price counts.
• The premium is available for up to 12 years and requires maintaining the agreed production.
• The smallest installations (below 50 kW) bypass the auction, which simplifies the process.
• Heat from cogeneration remains additional revenue outside the premium system.