ICIS Power Perspective: Lithuania turns to feed-in premium, 250MW technology-neutral RES auctions

Three years after organising the last RES electricity tender, Lithuania is planning to auction 250MW of additional capacity in H2 2019. The auctions, currently being discussed with the European Commission, would for the first time be technology-neutral, with the winners receiving a Feed-in Premium (FiP) instead of Feed-in Tariff (FiT).

Background

• Lithuania has not held a RES support auction since the last one for onshore wind in summer 2015
  • The Parliament changed the admission process for RES support to an auction system from 2012, when the Law on Energy from Renewable Sources came into force. However, the support type remained FiT (link to the law summary on the Power Perspective Portal)
  • At that time, the majority of the support quotas for each RES technology, predetermined in previous laws, had already been given away (please see the Table below)
  • Therefore, because of a lack of free quota, some solar PV and the majority of biogas and biomass auctions were cancelled immediately after announcement. Having reached the 500MW quota for onshore wind in 2015, no further auctions for wind have been organised since

• As a result of reaching the internally determined RES support quotas, Lithuania has been successful in bringing online new renewable capacity in recent years
  • In 2016, the share of renewable energy in gross final electricity (RES-E [%]) reached 16.8%
  • The renewable share in final energy consumption (RES [%]) reached 25.6% in 2016, already exceeding the country’s binding 2020 target of 23% (link)
  • The overall RES [%] share is determined by the contributions in the electricity (RES-E), heating & cooling (RES-H&C) and transport (RES-T)
  • As a result of this progress, the government now foresees the share reaching 30% in 2020, outlined in its draft National Energy Strategy
  • The government foresees an even more ambitious target of 45% renewables by 2030
  • Lithuania, together with Estonia, have already signed the first statistical transfer contracts with Luxemburg (analysis)
• The draft National Energy Strategy, currently being discussed in Parliament, is about to open the way for new RES auctions
  • The government submitted to Parliament the draft National Energy Strategy at the end of November 2017 (link to the draft in Lithuanian)
  • The draft strategy was discussed last week in the parliamentary Energy Commission; Parliament plans to adopt the strategy in the current spring session, by 30 June 2018
  • The initial strategy draft foresaw additional projects involving wind turbines totalling an installed capacity of about 250 MW, to be launched by 2020
  • Before this, tendering of 250MW onshore wind capacity was planned in the draft renewable energy resources development programme 2016-2020 – the previous government worked on such a document, but after delays, it was never finalised
  • However, currently the Lithuanian government is discussing with the European Commission technology-neutral auctions, and no longer just wind auctions, the Energy Ministry confirmed to us
  • The support type would also change from Feed-in Tariff to Feed-in Premium, that is, instead of receiving fixed income as do RES producers currently in the support system, winning RES producers will receive an addition to the market price
  • The premiums would be distributed based on the uniform pricing principle: the cheapest proposal would win, and up to two more cheapest producers on the bidding list would be proposed to accept the price should some quota remain
  • The Ministry expects to launch the auctions in H2 2019

Analysis

• For our analysis, we assume that onshore wind is very likely to win all 250MW capacity in the coming technology-neutral auctions
  • We took into account the historical results in RES auctions in Lithuania, where the latest onshore wind auctions in 2015 resulted in €52.1 /MWh and €56/MWh
  • This was on average twice cheaper than successful bids in the latest auctions in 2012-2013 for biogas (€136.12/MWh) and biomass (€97.02/MWh) Feed-in Tariff
  • Solar PV auctions in Lithuania were cancelled before yielding results, but the current developments in auctions in Germany and the Netherlands show that despite becoming cheaper, solar PV on average is still a more expensive technology than onshore wind
  • The current regulatory environment does not enable the construction of offshore wind farms, so we assumed that offshore wind could not win in the 2019 auction
  • Please see the historical results of all RES auctions implemented in Lithuania on the Power Perspective Portal
• Assuming no growth in non-renewable electricity production and keeping the import-export of electricity constant, this may result in 18.6% RES-E in 2020 and 26.8% in 2025, compared to 16.8% in 2016 (please see Figure 1 below)
  • We estimated the impact of the new 250MW capacities until 2025, when new offshore wind tenders may be expected that could change the energy mix considerably (please see the mid-term vision of Lithuania on the Power Perspective Portal)
  • Taking into account historical load factor of 0.25% of onshore wind in Lithuania, when coming fully online, 250MW of onshore wind could produce annually 547.5GWh of electricity
  • Until now, the lead time of onshore wind in Lithuania from announcing the auction results was on average 2.4 years, with the first capacities coming online within the same year of the auction, and the last after 4 years
  • Therefore, we assumed that the 250MW onshore wind capacities will start coming online as early as 2020, and will be fully built by 2023; in all other years besides we assumed a general 2% growth in RES capacities as RES capacities come online outside of the support system as well

• Assuming no major policy changes in other spheres of the energy and transport sectorin Lithuania, general RES [%] share will increase to from 25.6% in 2016 to 27.4% in 2020; by 2025 it may reach 29.2% (please see Figure 2 below)
  • When estimating the impact on new capacities on the overall RES target, we assumed linear growth for RES-T and RES-H&C since 2004 (earliest Eurostat data), and linear growth of gross final consumption of energy since 2010 (in 2009 Lithuania suffered a severe economic crisis, which resulted in a deep drop in consumption)
  • These new capacities may increase the possibilities for Lithuania to engage more with statistical transfers in 2020
  • Please note that in case of closure of any existing gas power capacities (calculated in the denominator), the overall share would increase further

Vija Pakalkaite is Analyst – EU Carbon & Power Markets at ICIS. She can be reached at Vija.Pakalkaite@icis.com

Laura Raus is Senior Market Reporter at ICIS. She can be reached at Laura.Raus@icis.com

This story has originally been published for ICIS Power Perspective subscribers on 05 April 2018 12:21 CET.

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