Cookies on the ICIS website


Our website uses cookies, which are small text files that are widely used in order to make websites work more effectively. To continue using our website and consent to the use of cookies, click away from this box or click 'Close'

Find out about our cookies and how to change them

New plants or interconnectors? –Electricity demand debate rages in Baltics

19 Nov 2012 16:59:57 | edem


Discussion is picking up over whether the Baltic region should meet its electricity demand with newbuild generation capacity or more imported volumes.

Lithuania decided to suspend its 1.3GW Visaginas nuclear electricity project this week (see EDEM 14 November 2012), and with the region looking to tighten links with the EU and distance itself from Russian energy, some argue that importing from the Nordics would be the most economically viable option.

"Last year, the Baltics produced 85% of the power it needed, while this year, it produced 80%," Gatis Junghans, of Latvia's Elektrum Eesti, told a conference in Tallinn last week. "This is because Nordic prices are decreasing so imports have increased, while cost of production in the Baltics has increased."

Extra import capacity

The region's transmission system operators (TSOs) are engaging in an infrastructure overhaul that will forge closer links to the EU, rather than Russia. At present, the Baltics have 3GW of interconnector capacity with non-EU countries, with a 700MW interconnector with Kaliningrad. This capacity is in addition to the 350MW EstLink 1 connector that joins Estonia with Finland.

Upgrades include the Estonian-Finnish interconnector EstLink 2, which is due to be completed by 2014. The NordBalt connector is planned for completion in 2016. There are two LitPol interconnectors under construction: the first, a 500MW line that will flow from Lithuania to Poland, is expected to be completed in 2015; and a bi-directional 1GW connector is hoped to be operational by 2020. A third connection, between Estonia and Latvia, is also expected to be launched in 2020 (see EDEM 15 November 2012).

"When EstLink 2 and the Baltic Connector are finished, the Nordic region will be more important to the Baltic grid than Russia," Junghans said.

He added that 60% of the Baltic energy is produced regardless of the market price, for security reasons. This high share of non-competing generation is the main reason why the market price is mostly derived from the Finnish price. Consequently, because of the limited capacity across the EstLink 1 interconnector, any price spikes from Finland are filtered. But after 2014, when the EstLink 2 connector is running, these spikes will transcend the Estonian market.


"Politicians say that we need to build extra [generation] capacity; they are talking rubbish," said Eesti Energia strategy manager Jaanus Arukaevu. "More capacity would destroy the market."

"The region is [in] deficit because of commercial issues - importing is cheaper. We are not commercially competitive," he said. "Because of the interconnectors under construction, we will be able to import 71% of our peak demand by 2014, and 98% of our peak demand by 2015e_SLps providing Lithuania keeps its promise to build the Lithuania-to-Sweden and LitPol connectors. Why should we be building power plants? This is a fundamental political question."

However, Elering CEO Taavi Veskimagi disagreed, saying that the region would need to become more self-sufficient if it is to move away from Russia. "If there is no new energy generation built in the Baltic countries, the excess capacity from the Nordic countries when the networks are fully integrated in 2020 will not cover the region's deficit."

Capacity costs

According to data from Eesti Energia, there is enough installed capacity from gas-fired plants to meet 60% of the power demand.

"The gas prices in the Baltics are already above the EU average; they are running it out of the market," said Arukaevu. "Building more gas plants is not a good option. Estonia has a limited exposure towards gas. A new LNG terminal may change the game because it would create a price arbitrage."

Notably, many market participants wonder whether the region can finance the construction of additional power plants, considering the shaky macroeconomic outlook and weakening power prices, making a good return on any investment more challenging.

"The non-EU border is an issue," said Arukaevu. "There is a constant difference between the Baltic and Russian market due to different regulatory regimes."

"However, power plants in the Baltics are dead on the current market conditions," said Arukaevu. "We cannot build power plants without state support." KM

Other Options