The largest industries in Estonia, which also happen to be the country’s largest energy consumers, are seeking to reduce costs in the face of record high energy prices, realizing that the power market does not support consumers during energy shortages.
Even before the energy crisis, Estonian Cell, one of the country’s largest energy consumers and a manufacturer of asbestos wood pulp, which was forced to suspend operations for a day in December 2021 owing to unusually high electricity rates, switched to energy-saving alternatives, with good results, the company said.
“We saved annually more than ten gigawatt-hours (GWh) of energy in 2020 and in 2021, but our only efficient production method mode is 24/7 and it is impossible to operate the mill without energy. We now process almost five times as much low-quality timber for the needs of the Estonian economy and our company employs about 500 people in its value chain,” Siiri Lahe, a member of the management board of Estonian Cell, said.
In the event of energy shortages as happened at the end of 2021, the exchange mechanism does not serve the best interests of consumers, said Lahe. “In the case of electricity and gas, unlike other products, consumers cannot decide that they do not want the product at this price. The only option is to find the most efficient use of energy, but with today’s global living standards, both domestic and industrial consumers are still responsible for the majority of electricity consumption, even with efficient consumption.”
“As a result, in a situation of energy shortages, all users with market-based contracts pay an unreasonably high price, based on the bids of the highest-priced providers that enter the market last. Likewise, practically all energy producers benefit, as their production costs are usually much lower than the market price,” she went on.
Meelis Einstein, a member of the board of directors of AS Kunda Nordic Tsement (“cement”), says that the pan-European Nord Pool electricity exchange will not function when there is a power outage.
He said: “The profits of power generators are very high, while the customers are suffering and the final consumers of the product and service must pay the price. This means that pricing is not based on cost. We cannot change this system ourselves, but we can recommend changes to the EU.”
Kunda will not stop operating due to high electricity costs, but consumer prices may rise, the company says.
“We are committed to provide our clients with goods and services, and even given the cost of electricity, we should not fail to do so. We will have to adjust and increase the price of our product following the introduction of all optimization measures,” Einstein went on.
In 2018, Kunda Nordic Cement’s total electricity consumption exceeded EUR 3.6 million, nearly doubling from the previous year; in 2020 it was significantly lower.
Orkla, an Estonian food production company, which includes the Kalev and Poltsamaa brands and product divisions, has investigated the impacts of the energy crisis and explored in this regard natural gas, power and fuel-related solutions.
“These issues require continuous attention and prompt decision-making. The relaxation of import restrictions this year provided temporary relief to the retail and hospitality industries; however, Russia’s invasion of Ukraine has increased the fluctuation of the supply chain, pricing, and forecasts. Growing market prices for raw materials and packaging, energy and gas-dependent manufacturing costs, in addition to labor costs have all put a significant strain on our business,” chairman of Orkla Estonia Kaido Kaare said.
Kaare said, the price of electricity climbed by 120% in two years, the price of gas by 200%, packaging by 20%, vegetables by 8%, plastics by 16% and cereal-based raw materials by 8%. “Fortunately, we had already made a few significant moves prior to the energy crisis, such as converting the entire Kalev complex from natural gas to wood-chips last year. That’s why we haven’t had to hike prices much. We are still using a small amount of gas to make steam, but this will be reduced in the near future. We are evaluating liquefied petroleum gas solutions in order to become independent of Russian gas.”
Kaare said that the company put considerable effort in identifying cost- and time-saving measures. “This summer, we will deploy a new portion pack line in Poltsamaa that will minimize output losses by 90% and steam and cooling water use by one-third. Poltsamaa’s vegetable waste will be transferred to the Oisu biogas plant for biogas production, and the biogas produced there will be used by Tartu buses.” (ERR/Business World Magazine)