Modelling Study

What will be the impact of EstLink 3 in the Nordic-Baltic Region?

In 2022, Estonian and Finnish transmission system operators Elering and Fingrid began the planning process for a third submarine cable link connecting Finland and Estonia. When it goes live, this EstLink 3 interconnector is set to impact the Nordic and Baltic regions. What are the expected costs and benefits from this interconnector? How will it impact market dynamics in the power sector - and beyond?

EstLink 3 is a 700 MW undersea interconnector planned to be operational in 2035. It will complement the existing EstLink 1 (350MW) and EstLink 2 (650MW) to strengthen the interconnection between Finland and Estonia. EstLink 3 is also listed as a European Project of Common Interest (PCI), supporting climate and energy policies by fostering greater integration between the Baltic and Nordic markets.

Our experts, Ksenia Tolstrup, Balázs Riskutia, and Fei Wu, investigated the cost-benefit balance expected from EstLink 3 and its impacts on regional market dynamics as well as anticipated effects from the hydrogen sector. The study focuses on the Distributed Energy (DE) scenario of the ENTSO-E Ten-Year Network Development Plan (TYNDP) 2024 to evaluate the potential impact of EstLink 3 in a setting of high shares of distributed renewable generation as well as demand-side response and sector coupling.

Key takeaways of this study:

EstLink 3 is expected to recover its costs within five years from its commission (i.e.,2040). Its cost-benefit balance is expected to peak in 2050, with the overall benefits reaching 5 times higher than the cost. A steep consumer surplus increase is expected to be the key factor driving the cost-benefit increment, constituting almost 90% of it and tripling from 2040 to 2050. Nevertheless, these values represent a relatively optimistic estimation based on the main assumptions, such as the focus TYNDP scenario DE (a decentralised and highly renewable European energy system where EstLink 3 provides the greatest marginal benefit among all TYNDP scenarios).
With EstLink 3, Finland is expected to experience the largest yearly average spot price drop (-10%), enhancing the price convergence with Estonia, while other Baltic zones see slight increases by about 7%, translating to around 1-7 €/MWh of change on average (2040 Distributed Energy scenario).
Price convergence is shown to be driven by the improved allocation of demand-side response with the extra interconnector capacity, with Finland being the most attractive for load shifting largely thanks to the potential to decrease within-the-day spot price spreads by 40% and daily average spot price levels by 15%.
Sector coupling through increased electrification is expected to play a significant role in the studied region. For instance, the integration of electrolyser-based hydrogen production is shown to impact EstLink 3 both in terms of social-economic welfare (SEW) and its utilisation. Switching electrolyser operational mode from H2-demand-driven to market-price-driven mode is expected to boost the SEW by 27% in Finland, highlighting the need to include electrolyser planning in similar evaluations.
The profitability of EstLink 3 is highly dependent on the future scenarios assumed. For instance, it is expected to be 7 times more profitable in a decentralised energy system (Distributed Energy scenario as the focus scenario of this study) than a centralised one (Global Ambition scenario). National breakdown of SEW differences is further accessible in our online dashboard.