1.1 C
Rīga
Sunday, December 8, 2024
No menu items!

Adven Baltics – new natural gas supply chains promise cheaper district heating prices in the coming winter than last year in Estonia

Journalist’s Ain Alvela interview with Juhan Aguraiuja, the head of Adven Baltics, which provides district heating services in Estonia and also in Latvia, Finland and Sweden

The upcoming winter and the accompanying heating period are expected to go on in Estonian district heating networks without major price fluctuations; in some regions, the heating price has already decreased compared to last year. There is also no need to worry about the availability of natural gas or other fuels.

The coronavirus crisis that took over the country at the beginning of this decade did not have a large impact in terms of service provision to the customers of district heating companies, even though in this field, too, steps had to be taken urgently to protect the health of employees. However, district heating was significantly affected by the energy crisis that followed the pandemic – difficulties in the supply of natural gas and the rise in fuel prices quickly made energy prices skyrocket in the autumn of 2021. This led to some worries about both district heating and other energy markets – for consumers it meant a sharp increase in fixed costs, but for companies, especially after the start of the war in Ukraine, supply difficulties.

The situation has now normalised, district heating companies are not worried about deliveries of natural gas or wood chips, and compared to October last year, district heating prices in Estonia have fallen by a third on average.

Fuel is plentiful, prices are falling

In addition to Estonia, Juhan Aguraiuja, the head of Adven Baltics, which provides district heating services in Latvia, Finland and Sweden, confirms that for about a year and a half, it was necessary to deal with these crisis manifestations on a daily basis. According to him, district heaters count the spring of this year as the moment when the crisis ended and the situation in all fields started to stabilise, so they could already face the current heating season in relatively normal conditions and with expectations free of special tension.

“You never know what the future will bring, but right now we are in a situation where the fuel markets have undergone their corrections, prices have become more stable, and the sources of supply of natural gas and other fuels have been changed,” said Aguraiuja, characterising the current situation in the district heating sector. “From our point of view, it mainly concerns the price and supply of wood chips and natural gas. Therefore, we no longer see that we are in a crisis.”

According to Aguraiuja, the price of Adven’s district heating has fallen by about 30% compared to the same period last year, and as far as he knows, similar price reductions have also occurred in the networks of other companies.

He says that currently all the necessary natural gas comes by LNG tankers from, for example, Norway, the USA and Qatar, and it is loaded from the tankers into the Inčukalns gas storage facility in Latvia, where Estonian gas suppliers also have supply reserved to meet their needs. Therefore, not a single molecule of Russian gas reaches our gas network.

In fact, natural gas use as a whole declined drastically during those few years of crisis. Juhan Aguraiuja says that this reduction reached about 40% in Estonia and considers it a significant change, even in such a short time.

“Unfortunately, it cannot be concluded that the crises were the driving force behind the reduction of fossil fuels. Namely, a large part of the replacement of natural gas still took place with other fossil fuels, be it LPG or shale oil,” he explains. “Of course, these are short-term measures and are only used to offer customers a price reduction and ensure supply security, but it is not yet clear what will happen after these short-term measures. It can be thought that the use of natural gas may start to rise again to some extent because it still has a relatively mild environmental impact compared to other fossil fuels. In other words, the least bad among poor choices.”

A more distant future for electric boilers

This does not mean that there has been no transition to environmentally friendly fuels in recent years. In particular, pellet boilers, heat pumps, geothermal heating and other solutions are being used more and more in the heating of private houses. But what the future long-term heating solution for district heating networks will be is not yet known. Juhan Aguraiuja is inclined to think that a realistic alternative would be to introduce electric boilers.

“First of all, the implementation of new heating solutions depends on the situation of a specific district heating network. We have individual networks that only use natural gas. The transition to biofuels should start there,” he argues. “Most Estonian district heating networks use biofuels, such as wood chips. For example, Adven uses 85% biofuels. So, in essence, we are talking about 15%, and it is really difficult to find a solution there that would not increase the price for the customer.”

However, when it comes to electricity-based district heating, this possibility has also been mapped in Estonia at the national level, and it is assumed that the electrification of district heating could take place in the coming decades. This would mean the use of heat pumps at peaks of consumption, where energy can come from, for example, ground, air or sea heat or residual heat from some process, and during normal consumption, heating would be done with solid fuels at least in the near future.

Of course, such a turnaround also requires the local electricity system to be adjusted accordingly, because there must be a sufficient amount of green electricity available in the network, and in Estonian conditions, first of all, electricity produced from wind. Otherwise, what happens is that we replace natural gas with some other energy based on fossil fuels, such as electricity produced by burning oil shale.

“In the Nordic countries, where the price of electricity is lower than in the Estonian network area, oil and gas boilers have already started to be replaced with electric boilers very quickly thanks to this,” confirms Aguraiuja. “It is still too early to say what will happen to wood chips in the future. I think that it will remain a considerable base fuel for at least another ten years. Our current assumption is based on the fact that we still cover the base load with solid fuels – wood chips, wood waste, waste fuel. There is also economic justification for this because as long as the existing devices are in working order, there is no point in shutting them down. Rather, the question is whether anyone will build a new boiler house based on biofuels after 2030.”

In the next decade, wood will remain the basic fuel

So, Juhan Aguraiuja considers the use of wood waste and so-called low-value wood for heating to be a very reasonable activity in the current situation. Especially since the European Union recently established requirements for the sustainability of biofuel, which means that a heating company cannot claim that the heat they produce has sustainable value in terms of the environment if it cannot prove that the biofuel it uses is produced and sourced in accordance with the principles of sustainability.

Broadly explained, this means that, for example, logs, which could have been used to build a house or produce furniture, cannot be put into the furnace – the supply chain of all wood, including wood used for heating, must be controlled and monitored.

From the point of view of district heating, it does not matter whether the electricity that drives the electric boilers comes from a wind farm, a solar farm or a nuclear plant; the main criterion is that its use has as low a CO2 footprint as possible. In theory, the use of biomethane could also offer some alternative, but at least in the current circumstances, the resource for its production in Estonia is relatively limited, so all the produced biomethane is used up in the transport sector.

In addition, the efficiency of an electric boiler depends a lot on the price of electricity and its fluctuations – if the price is low, the electric boiler could also cover the base load, as is done in Finland and Sweden. But if it starts to depend mainly on the availability of wind electricity, then it can already be assumed that its price will start to fluctuate within quite large limits.

Wider use of electric boilers requires quite large electrical capacities, which the transmission network must be able to move. Aguraiuja calls this fact the biggest bottleneck in the transition to them because the electrification of district heating requires large investments in electricity transmission infrastructure.

“Excluding Tallinn, the major Estonian cities are currently in basically the same situation – 80–90% of district heating uses biomass, wood chips as base fuel, and peaks of consumption are covered with gas. In Tallinn, it is about 67%,” explains Juhan Aguraiuja. “If we now decide to abandon natural gas, it means replacing part of the current gas with electricity. For example, in the city of Rakvere, we produce 7 MW from wood chips, and during the coldest time, about the same amount needs to be produced for heating with gas. The share of gas is about 10% per year. To replace it, we would have to install an electric boiler with a capacity of 7–10 MW, which would mean that the system would run on electricity for a few hours a year, for which we would have to pay a higher price than wood chip heating, but the difference would be that the carbon emission tax would be zero. In addition, the installation of an electric boiler is many times cheaper than the installation of any other fuel-based boiler.”

Wood chips provide a lower heating price

If we look ten or more years into the future, many district heating companies will face the fact that the current production equipment has depreciated and needs to be renewed. Then Aguraiuja considers it reasonable to introduce heat pumps, for example. But electricity is used even then – if you make, for example, a heat pump with a heat capacity of 6 MW, two megawatts of electrical power is still needed. But for these ideas to start taking a more realistic shape, i.e., for them to be implemented economically, one of the prerequisites is that the life of the current heating devices should reach their end, or natural gas and CO2 emissions should become much more expensive than they are now.

“These investments will probably not be made until the technical life of the existing equipment is coming to an end. And if this happens, it seems very questionable to me whether it is worth investing in the installation of a gas boiler for the next thirty years,” says Aguraiuja. “Until we have specific steps set by the State to achieve climate goals, there are only some general guidelines; district heating companies currently have no justification in the eyes of the Competition Authority to start making these investments.”

Thus, the entire district heating sector hopes that the climate law will also develop specific goals and describe step-by-step actions to reach climate neutrality. Aguraiuja confirms that the technological solutions actually already exist, it’s just not in anyone’s interest to spend money on their introduction until it is clear that this is an expedient investment of money and that these solutions also make sense to the consumer.

Juhan Aguraiuja believes that the winners when facing the winter now are those customers who are located in the district heating area, where the heat producer has invested in the benefit of the use of biofuels.

“We see that where the share of fossil fuels is higher, heating prices are also higher,” he notes. “Those who have already done it before have an advantage because the logic of district heating pricing is such that the price drops after the investment is made – its effect is greatest immediately after the investment is made, and then it starts to drop gradually.”

According to Aguraiuja, the pursuit of climate goals should actually start with making apartment buildings that retain more heat and use thermal energy more efficiently. Once this is done, only then does it make sense to deal with energy sources more deeply. Broadly explained, this means that if all the buildings in the network have a good energy class, the boiler house would be able to issue heat carriers at a much lower temperature than the current one. And this, in turn, would create a prerequisite for the introduction of other heating sources.

“Chip wood and wood waste will remain a significant base fuel for at least the next ten years,” Juhan Aguraiuja.

WORTH KNOWING: District heating price in major cities in Estonia

(Maximum production price as of 20.11.2023, €/MWh, excluding VAT)

  • Pärnu – 61.5–85.2
  • Põlva – 79.4
  • Maardu – 79.04
  • Haapsalu – 78.7
  • Jõgeva – 73.2
  • Tartu – 37.3 (thermal energy produced from biogas), 48.6–72.6
  • Rakvere – 67.5–70.8
  • Võru – 66.2
  • Tallinn – 7.98 (cogeneration of heat and electricity in the waste incineration of the Iru power plant), 41.5 (thermal energy produced from natural gas in the Iru boiler house), 43.2 (Mustamäe cogeneration plant), 55.2–63.1 (Väo cogeneration plants)
  • Kohtla-Järve – 32.4–62.8
  • Jõhvi – 61.7
  • Narva – 60.4
  • Valga – 58.1
  • Paide – 53.3
  • Viljandi – 51.8
  • Sillamäe – 51.1
  • Kiviõli – 48.1
  • Kuressaare – 45.04

Source: Estonian Competition Authority

LEAVE A REPLY

Please enter your comment!
Please enter your name here

RELATED ARTICLES

Most Popular

Recent Comments