Problem solved
Russia & Eastern Europe
BALTICS
Problem
solved
A number of energy infrastructure
projects have been initiated in a bid to
reduce the Baltic states’ reliance on
Russian energy and to demonstrate
their membership of the EU, reports
Nic Newman.
H
The opening of the Klaipeda
LNG terminal in December
2014, provided the Baltic
states with direct access to
global imports of 2bn cm/y
of LNG
Source: Klaipedos Nafta
istorically, the economies,
politics and energy
sectors of the Baltic states
– Estonia, Latvia and Lithuania –
were highly dependent on their
powerful neighbour, Russia.
Between 1990, the year of their
independence, and 2003, when
they joined the European Union
(EU), these countries remained
very dependent on Russia for their
energy imports. Their electricity
infrastructure was still separate
and distinct from neighbouring EU
member states – a condition often
described as the Baltic ‘energy
island’.
To reduce and ultimately free
the Baltic states from their reliance
on Russian energy, and to
demonstrate their membership of
the EU, the European Commission
(EC) has initiated a number of
energy infrastructure projects
22 Petroleum Review | June 2016
designed to create new direct gas
and power links between the Baltic
countries and neighbouring EU
states – primarily Finland, Sweden
and Poland. The objective is to gain
the benefits of competition
through diversity of supply and
economies of scale from this
enlarged power market. However,
despite significant EU investment,
Russia still supplies about a third
of the Baltic states’ power needs
and, until the opening of the
Lithuanian Klaipėda LNG terminal
in December 2014, all supplies of
natural gas.
Power market integration
The EU’s Baltic Energy Market
Integration Plan of 2009 provided
for a public-private partnership
investment of €512mn in
interconnector capacity to link
the Baltic states into the power
network of neighbouring Finland,
Sweden and Poland (see Table 1).
One of the first cross-border
schemes, providing up to 1,000 MW
of non-Russian electricity, involved
the construction of the Estlink 1
and 2 high-voltage direct current
(HVDC) power cables between
Finland and Estonia, under the
Gulf of Finland. Estlink 1 started
operations in 2006 and Estlink 2 in
2010, essentially integrating the
Baltic and Nordic energy markets.
The second scheme is the new
€100mn Latvian–Estonia 330-kV
interconnector, linking the
Estonian port town of Harku with
the Latvian city of Riga. At Harku, it
joins with EstLink, the subsea
Finnish Estonian interconnector.
Once completed in 2018, both
Latvia and Lithuania will have
access to large amounts of cheap
Scandinavian hydro-electricity via
Estonia and Finland. The
subsequent increase in
competition to current Russian
electricity or power stations fuelled
by Russian gas from new supplies
is likely to push power prices
down, according to
Augstsprieguma tīkls, the Latvian
system operator.
Further south, Lithuania and
Sweden have jointly constructed
NordBalt, a 350-km long subsea
interconnector with a transmission
capacity of 700 MW. At a cost of
€580mn, of which the European
Commission provided €175mn, the
330/400-kV HVDC power cable
links Klaipeda in Lithuania with
Nybo in Sweden. It is the world’s
third longest HVDC cable. With a
converter station at each end of the
cable, power is converted from AC
to DC for transfer in the HVDC
Light cable system. Electricity
transmitted via NordBalt was first
traded in February 2016 on the
Nord Pool electricity spot market
comprising the Nordic and Baltic
countries, Germany, the
Netherlands and Belgium.
The impact of NordBalt on
prices has been impressive. As
Daivis Virbickas, CEO of Litgrid,
notes: ‘Wholesale electricity prices
in Lithuania dropped by 23% in
February [2016] and by 7% in
March compared to the respective
months of 2015.’ He adds:
‘According to market experts’
estimates, a 7% drop in retail price
may result in €90mn in savings to
consumers and business in one
year.’ This is expected to
significantly reduce power prices
between the Baltic states and their
EU neighbours, and improve the
economic competitiveness of the
Baltic states.
At the end of 2015, in central
Europe, LitPol, a 1,000-MW
interconnector, joined the Russianbased unified power system (UPS)
grid system of the Baltic states to
the synchronous grid of
continental Europe. This gave the
Baltic states direct access to the
continental grid system at a cost of
some €237mn.
These projects have ended the
Baltic states’ ‘energy island’ status
by integrating their power system
into the competitive Western
European electricity system. These
cross-border links allow the Baltic
countries for the first time to buy
their power not just from Russia
and Belarus, but also from Sweden,
Poland and Finland. As a result, ‘it
Russia & Eastern Europe
has become very difficult for
anyone to become a price-maker in
such a diverse and liquid market’,
notes Virbickas.
Going nuclear
Meanwhile, Russia’s state-owned
Rosatom is building a 1,200-MW
nuclear power station in the
Russian enclave of Kaliningrad
that is due to be commissioned
in the 2020s. Designed to replace
an existing gas power plant,
much of the output is aimed for
neighbouring EU states. However,
the independent Baltic states are
not keen to increase their reliance
on Russian energy supplies.
Lithuania’s Foreign Minister Linas
Linkevičius has stated that his
country would refuse to buy any
electricity from the Kaliningrad
nuclear power plant, as reported by
Bellona in January 2016.
Furthermore, the Baltic states
are switching their Russian-based
UPS system to the continental
European net for synchronous
operations in the 2020s. This will
leave the Kaliningrad power
network isolated unless, it too,
converts.
Gas developments
Moving to the gas sector, two
recent developments are set to
significantly improve Baltic states’
Project
Interconnector
capacity
Countries
linked
Cost
Date of
completion
EST Link 1 & 2
1,000 MW
Finland, Estonia
N/A
2013
Latvian-Estonia
3rd interconnection
330 kV
Latvian, Estonia
€100mn
2018
NordBalt
330/400kV HVDC Sweden, Lithuania
€175mn
2016
LitPol Link
1,000 MW
€237mn
2015
Lithuania, Poland
Table 1: EU’s Baltic Energy Market Integration Plan
access to global gas supplies.
The first was the opening of
the Klaipeda LNG terminal in
December 2014, implemented by
state-controlled Klaipedos Nafta,
enabling direct access to global
imports of 2bn cm/y of LNG.
Lithuanian state-owned Litgas
signed a five-year agreement with
Statoil for the supply of some
540mn cm/y of gas to the terminal.
Imports of Norwegian gas broke
the monopoly of Russian pipeline
gas supplies and resulted in
Gazprom’s prices falling 24%, from
$488/1,000 cm to $370, according
to Natural Gas Europe in May 2015.
The second major development
was the start of construction of the
Gas Interconnector PolandLithuania (GIPL) pipeline in 2015,
which, once completed, will
directly connect the previously
isolated Baltic gas grids to the rest
Source: Lithuania Tribune 2014, Augstsprieguma tīkls 2014, Elering 2014
of the EU. The EU-sponsored,
€558mn, 332-mile-long pipeline
project is being undertaken by
Polish gas transmission system
operator Gaz-System and AB
Amber Grid, Lithuania’s gas grid
operator. It will create an
integrated European gas market
and ensure multiple supplies of
energy. Scheduled for completion
by December 2019, GIPL will
eventually connect to Finland
through a feeder line from Estonia.
The starting annual capacity will
be 2.4bn cm from Poland to
Lithuania and 1bn cm from
Lithuania to Poland. Eventually,
capacity should increase to 4bn
cm/y, virtually eliminating the
Baltic states’ reliance on Russian
gas. ●
EI evening lectures 2016
Sponsored by:
The role for nuclear in a UK low carbon economy;
large reactors and SMRs
21 June 2016
Speaker: Mike Middleton, Strategy Manager, Energy Technologies Institute
Chair: Mike Parker CBE FEI, Trustee, Energy Institute
Supported by:
New nuclear power stations could form an important part of UK’s transition to low carbon economy
but a range of constraints may impact on their rate of deployment and their ultimate capacity limit.
The ETI has completed two projects intended to better understand the constraints and opportunities for
new nuclear which will be discussed at the lecture:
• Power Plant Siting Study – to identify the UK stock of sites suitable for large nuclear
power stations as well as further site capacity suitable for Small Modular Reactors (SMRs)
• System Requirements For Alternative Nuclear Technologies – to identify necessary technical
and business case requirements for SMRs to be attractive within a UK low carbon energy system
An update of ETI’s further project work will be provided to:
• Suggest potential operational capabilities required of a UK deployed SMR to
maximise exploitation of the “economies of multiples”
• Identify desirable characteristics for a “first of a kind” SMR deployment site
in the UK
• Identify potential enabling activities to deliver first operations of a UK SMR
by 2030
Forthcoming evening lecture:
6 July – Floating wind solutions
Venue:
Ashurst LLP, Broadwalk House,
5 Appold Street, London EC2A 2DA
Timings:
16:30 – 18:00
Event concludes with a drinks reception
EI evening lectures are free to attend but
prior registration is necessary.
To register, contact Francesca Ferrari:
e:-t: + 44 -