Baltic countries weigh renewable energy future
Concerns over security of supply have emerged in Baltic countries as the region attempts to integrate its energy markets with Nordic countries and distance itself from Russia.
At the same time, cuts to renewable subsidies and flailing carbon prices have dampened investor appetite, leading market participants to question the future viability of renewable energy generation in the Baltics.
Opinion is divided over whether investment in new power plants is needed. Some market participants have stated that there is no need to build new power plants (see EDEM 19 November 2012), while others argue that extra, and more efficient capacity generation is vital to the region.
According to IEA estimates, the EU will retire 544GW of installed capacity by 2035, and will require 938GW of new capacity to meet demand.
"Current average power prices in the region average at about €40.00/MWh - this price will not support the building of new power plants," Jaako Vaha-Piikkio, Fortum vice president of the Baltic region, told the Baltic Energy Summit last week.
"A new gas or coal plant requires power prices of around €60.00/MWh. Nuclear would require prices ranging from €55-€60.00/MWh, a new hydro plant would require €55.00/MWh and for wind to be a viable option, the prices would need to be around €88.00/MWh."
At the summit, the general consensus among the attendees was that without government subsidies, the potential for installing new capacity generation, in any form, would be unattainable.
"The public debt of Estonia is 10-12% of GDP and the public sector is not raising money for new energy projects," said Eero Saava, consultant at the Estonian Wind Power Association. "The government would have to get the money from somewhere to build new plants. Estonia will not borrow - it is keeping a low credit profile."
Raine Pajo, electricity and heat production division manager at Estonian incumbent Eesti Energia, said the economics for new projects did not stack up: "At today's electricity prices, nobody is willing to finance large projects,"
Echoing recent events in Poland, Latvia has had to stop awarding licences for renewable energy for new producers because too many have already been given out (see EDEM 10 October 2012).
"We have temporarily stopped giving licences," Latvian Public Utilities Commission commissioner Inese Ikstena said. "If everybody that currently holds a licence starts a project, there would be too much extra capacity on the grid. The situation would be drastic."
"To me, the most attractive investment opportunities lie in converting existing power plants into more efficient power plants, and utilising the excess heat," Balmoral Capital Partners CEO and MD Rodney Kincaid told the summit.
Heating systems are integral to the Baltic countries. In the winter, heating costs represent 10-25% of the monthly income of most families, which makes combined heating and power plants a potential growth area.
However, CHPs in Latvia are no longer entitled to feed-in tariffs. Estonian Wind Power Association's Saava said this raises a question over whether new CHP plants are still viable. "With CHPs, you don't profit from the heat generation, and electricity prices are too low right now to make any money," said Saava.
Fortum has two CHP plants under construction in the region. Klaipeda in Lithuania is a 20MW waste CHP plant and is expected to come online in the first quarter of 2013. Jelgava, a 23MW biomass CHP in Latvia, is due to be operational by Q3 2013.
"We have been awarded temporary subsidies and we fully trust the governments to keep this promise," Vaha-Piikkio confirmed. "Nobody will invest in the heat sector based on current market conditions."
According to the Estonian Wind Power Association, the high price of wind turbines is inhibiting the construction of new wind farms. "There are people that have bought space on the grid, that could only build wind farms if turbine prices come down," Saava said.
"In Estonia, land and project proposals worth thousands of megawatts are waiting for review. If the efficiency of wind technology improves and costs come down, hopefully there would be no need for subsidies."
In Germany, several communities have established energy cooperatives, building small-scale solar and wind farms. Some consider this a feasible move for the Baltics.
"We are looking into how to do it. The type of investment mechanism is good and local companies as well as power companies can look to be operators of investment," Eesti Energia's Pajo said. "There is room for both large and small units in the Baltics."
Plummeting carbon emission prices, the result of bleak macroeconomic conditions, have also proved pivotal in decisions over building new power plants.
The average price of the benchmark EUA in Q3 2012 was €7.45/tCO2e, according to ICIS data, representing a 45% drop from the average price of the same contract during the third quarter of last year.
"In 10 years, assuming that EUAs are double the present value, the cheapest large-scale investment would be onshore wind," said Pajo. "But this is entirely CO2 dependent."
Paulis Barons, president of the Latvian Wind Energy Association, agreed: "I have seen big wind parks that have been very expensive to build. But the energy they produce is so big that the pay-back time is relatively short." KM
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