Estonia has, in recent years, managed to transform itself into an attractive investment destination, giving foreign investors the same incentives available to local businesspeople.
According to UNCTAD, the government in Tallinn attracted around $1.21bn in FDI inflows in 2022.
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The numbers are on the rise, but large investments require a proportionate input of energy consumption. Estonia needs a further 4-5TWh of renewables to meet future demand, and, while several green energy projects are either being developed or in the pipeline, the mandate for more energy will likely continue to rise.
Joonas Vänto, director of the Estonian Investment Agency, otherwise known as Invest in Estonia, says renewable energy is a prerequisite for attracting FDI in other industries.
According to Vänto, the energy mix and the extent to which green energy could be supplemented by the untapped potential of nuclear is something country officials are discussing.
Q: In 2023, Invest in Estonia attracted a total of €336m in foreign investments. Which sectors have benefitted the most from the FDI inflows?
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By GlobalDataVänto: The Estonian Investment Agency has clear strategic focuses that are in line with state-level priorities. We promote smart economy and growth in areas that help Estonia overcome challenges, leverage value chains and have highest economic impact and business potential.
We keep in mind three underlying transitions that we try to support – digital, green and innovation transition. We do that by supporting investments in five principal areas: ICT, healthtech, energy, smart industry, and anything to do with valorisation of resources and the circular economy.
In 2023, the Estonian Investment Agency helped land 33 FDI projects; 88% of the investments were related to industry development in our focus areas, and 10% were related to ICT.
Of course, it is also important to acknowledge that the investments facilitated by the Estonian Investment Agency only make up a part of all foreign investments reaching the country. Although interest and performance indicators are at record levels in our areas, there are sectors that are in a significantly more challenging situation today.
Q: Who are the main foreign investors in Estonia’s renewables sector?
Vänto: When it comes to renewable energy investments in Estonia, it is incredibly positive that the environment here is so favourable that local companies and local equity have a strong predominance.
Not only that, but some consortia have also been formed. For example, Estonian company Evecon and French Corsica Solle have announced plans to build two battery energy storage systems with a total capacity of 400MWh here by 2025, making it the most powerful battery park in Europe.
Q: Invest in Estonia analysed 12 industrial projects with a combined annual electricity demand of 5.8TWh, equivalent to 73% of the country’s current consumption. How can Estonia meet the energy consumption needs of such high-energy projects?
Vänto: Estonia is on a good track regarding new investment into renewables. Counting projects that are already being developed or planned, we can already see additional up to 10TWh being planned and added, with the help of government subsidies.
Additionally, Estonia has strong connectivity through cross-border power cables and can always rely on a licence trade framework as well – in the wider region of Estonia, there is an abundance of green energy available. There is also a lively discussion about nuclear power in Estonian society, and a national decision is expected in this regard this year.
It is fair to say that Estonia is on the verge of an energy transition. As traditionally the country has relied on fossil fuels, namely oil shale, a large shift towards renewables is inevitable. But of course, this transition is happening step-by-step, not overnight.
Based on our extensive experience with foreign investors, I can say with some confidence that the availability and price of energy are key to attracting foreign investment to Estonia. Some would argue that until large industrial projects are ready to launch, there is no reason to invest heavily in the energy sector.
However, investors base their decisions on the current reality and clear development plans at a national level. Being too conservative, therefore, in our approach to developing renewable energy capacity could mean missing considerable investments.
Analysing 12 large projects, we calculated the abovementioned major additional need for renewables. These numbers are largely theoretical, and surely these investments would not likely happen all at once, but the numbers don’t lie, and the need for green energy is apparent in every project we land. If all plans of the 12 industrial projects we analysed were to come to fruition, it would mean a €1.4bn investment for Estonia, a 4% increase in GDP and almost 3,000 new jobs. But a good amount of renewable electricity is a prerequisite for all of this.
One thing is for sure — there will be no surplus electricity. As much green energy as Estonia can produce, we can keep bringing in smart industry to use it. So, power generation capacity and industrial projects must be planned hand in hand, driven by the bold vision that Estonia’s future could be characterised not only by the image of a strong digital nation but also by a highly developed, smart industry.
Q: Around 44.8% of Estonia’s power generation came from renewables in 2022, according to the IEA. The country plans to switch completely to green energy by 2030. What will it take to achieve that target?
Vänto: There are serious discussions ongoing on the governmental level as Estonia is trying to decide on the best renewables mix. This year, Estonia is to decide on potentially going down the path of nuclear energy, but of course more conventional sources such as wind (both on- and offshore) and solar energy provide ample growth opportunities regardless.
We see that Estonia need another 4-5TWh of renewables, and already projects that are currently being planned or developed should cover that nicely, but as the industry may grow in leaps and bounds, so could the energy demand.
Q: What market conditions are needed to attract FDI projects in the renewables sector?
Vänto: The focus of Estonian Investment Agency is not so much on bringing foreign investment into the construction of new production plants, but on the ways in which the industry uses energy.
However, I would say great market conditions have already been created as the energy sector is in the focus these past few years and attracting investments even without the Agency’s involvement. The most important prerequisite is governmental will and vision and I would say this is well represented in the face of the ambitious 2030 objective.
Q: How has Russia’s war in Ukraine impacted investors’ appetite for energy projects in the country?
Vänto: If anything, the regional security situation has only engraved the need for maximum energy independence, and renewables play a central role here.
I strongly believe the business environment has never been more ready for such investments. Overall Estonian Investment Agency continues to witness very high levels of interest from FDI perspective as Estonia continues to be a very stable country that is also under the protective wing of NATO.
Even though investors took a slightly more conservative stance when the war began in 2022, after a bit of explaining, trust was restored quickly, and the past few years have been record-breaking for the Estonian Investment Agency.
Q: The latest FDI focus worldwide has been on high-value investments that bring in jobs and pay taxes into a state’s coffers. Do renewable projects abide by the same expectations?
Vänto: Absolutely. We focus on high-value investments and job creation throughout sectors, and renewables are no exception. A green transition is a particularly crucial step in moving towards a smarter, higher-value industry and increasing the number of jobs with higher added value. Renewables play a significant role in our strategy as they make all other smart investments possible.
Q: In addition, stepping up investment in the renewables sector requires not just funds but human resources as well to fill the vacancies created. That means helping people in the energy sector retrain and requalify to work in the green energy industry. Does the Estonian government have a framework to facilitate job transition?
Vänto: As a small nation, human resources are always a critical topic for us. That is why Estonia is known for being the most digitally advanced country in the world—we are always seeking ways to work smarter and implement the latest technologies. Surely, the energy sector is no different, but of course, no transition can happen without reprofiling human resources in parallel to technological changes.
That is also one of the core issues addressed in the newly published governmental economic strategy paper.
Across sectors, Estonia’s need for human capital is larger in the next ten years than our aftergrowth can cover. We would need approximately 50% more top specialist workforce than our current educational system is able to provide and furthermore our universities are only able to provide approximately one-third of the engineers our industries would need.
That, combined with aging workforce and declining population, faces us with major challenges. It is essential we retrain our workforce and do not shy away from foreign workers in the high-value-added sectors.
Work in Estonia programme is also doing incredibly good work in attracting foreign talent here, especially those with ICT and engineering backgrounds. It is a national priority. The good news is that Estonia has a great education system. Our students rank #1 in OECD’s PISA tests in Europe (and among the top seven countries globally) and our universities are providing an internationally acknowledged level of education too. That means our workforce is really good already; we just have too little of it.
Q: What further challenges do you anticipate in attracting FDI in the renewables sector?
Vänto: I believe the most important challenges have been concluded above, but on a positive note, I see significant motivation and will to work towards resolving them on a national level. Clarity in the preferred national energy mix, initiatives to support such investments, and efforts to resolve the issues related to a lack of qualified specialists are among the most important ones. When renewables are discussed, the topics of hydrogen and energy storage cannot be missed either. Thankfully, Estonia has great projects in these value chains that are already planned (Evecon, Enefit, Zero Terrain Paldiski project).
