Estonia’s Energy Transition: Expanding Domestic Generation and Electricity Market Integration

Estonia's energy transition, driven by the rapid decline of oil shale generation, faces a trilemma between security, affordability, and decarbonization. Using a structural general-equilibrium framework, this paper evaluates the macroeconomic effects of Estonia's new energy plan, combined with deeper European electricity market integration, EU mitigation policies, the impact of AI-related datacenters and broader electrification pressures. Results show that expanding domestic supply and market integration lowers long-term prices by one-third, increases GDP, reduces import dependence, and supports emissions reduction. Realizing these gains requires phasing out aging oil shale plants, removing barriers to wind power development, expanding battery storage capacity, and strengthening regional coordination.