Estonia: The European Court Of Justice: Estonian Electricity Market Opens To Imports Of Electricity From Neighbouring Member States As From 1 January 2009

By a recent decision of the European Court of Justice (hereinafter the ECJ)¹, Directive 2004/85², granting Estonia a temporary derogation from the common rules for the internal market in electricity and the opening of electricity market, was annulled.

Directive 96/92³ required the Member States to have opened their national electricity markets as regards large-scale consumers of electricity. Estonia was granted a derogation in respect of this obligation until 31 December 2008. The derogation was laid down in the Treaty of Accession. 

In 2003, the agreement to accelerate the opening of the Member States’ electricity markets was laid down in Directive 2003/54⁴ which wholly replaced and repealed Directive 96/92. Article 21 of Directive 2003/54 provides for the complete opening of the electricity markets for all categories of customers, both industrial and household, as from 1 July 2007.

By the adoption of Directive 2004/85, Estonia was granted a temporary derogation from the application of Article 21 (1) (b) and (c) of Directive 2003/54 until 31 December 2012.

The electricity sector in Estonia is characterised by the fact that the Estonian energy system is predominantly oil-shale-based, being one-of-a-kind in the world. 90% of the electricity produced in Estonia is from oil shale. The oil shale is the only indigenous energy source in the country and the mines are owned by Eesti Energia, a state-owned company engaged in the production, sale and transmission of electric and thermal power.⁵

It was considered, that the specific situation related to the restructuring of the oil shale sector in Estonia will require particular efforts until the end of 2012 and that the Estonian electricity market for non-household customers can only be opened gradually until that date. 

The Estonian Government and Council of the European Union argued that without the adoption of temporary derogation in respect of the new obligations laid down in Directive 2003/54, the electricity sector in Estonia would be faced with a situation of legal uncertainty, whilst there is a need for long-term planning in order to realise the huge investments needed for the modernisation of this sector and to avoid serious social and environmental problems. The Estonian Government also pointed out that the consequence of a simple annulment of the contested directive would be to immediately open the Estonian electricity market to imports of electricity from neighbouring Member States. This brings along fears, that the financial position of Estonian producers and their capability of financing the immense investments required to modernise electricity infrastructure in Estonia would be endangered.

At the moment, Eesti Energia has a monopoly in Estonian electricity market. According to the figures published in its website, Eesti Energia has over 480,000 private customers and over 22,000 corporate customers.⁶ In the light of the ECJ recent decision, this is about to change in the near future.

The contested directive was adopted on the basis of Article 57 of the 2003 Treaty of Accession and was contested mainly because of the procedural questions.

The ECJ found that the measures which can be adopted on the basis of Article 57 of the 2003 Treaty of Accession are limited, in principle, to adaptations intended to render earlier Community measures applicable in the new Member States, to the exclusion of all other amendments.

The ECJ found that, in so far as the contested directive provided such a suspension of the application of Article 21 (1) (b) and (c) of Directive 2003/54 until 31 December 2008, it could validly be adopted on the basis of Article 57 of the 2003 Act of Accession (as it was already agreed before). However, the ECJ declared that the contested directive must be annulled in so far as it grants Estonia a derogation from the application of Article 21 (1) (b) and (c) of Directive 2003/54, going beyond 31 December 2008 and imposes a corresponding obligation to ensure only partial opening of the market on 1 January 2009.

As a consequence of the ECJ decision, Estonia is obliged to open its electricity market to imports of electricity from neighbouring Member States as from 1 January 2009. Estonian Government has not yet proposed solutions to retain the stable development of the Estonian electricity market. It is possible that these issues will be decided by the new parliament that will be elected in March 2007.

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