ICIS Power Horizon Scenario: 3.5GW of offshore wind in Lithuania shows strong effects of price cannibalisation

Author: ICIS Editorial


The amount of capacity in the second paragraph of the final section has been corrected

This story has originally been published for ICIS Power Perspective subscribers on 08 August 2019 at 16:43 CET.

Lithuania could install up to 3.5GW of offshore wind in the Baltic Sea, according to a  recent report commissioned by the country’s energy ministry. Lithuania is considering adopting a “Dutch” or “Danish” offshore wind support model, where the state selects the site and takes over a part of site preparation and connection expenses. Our modelling shows that the small Lithuanian and Baltic electricity market would not be able to absorb additional electricity supply without putting a strong downwards pressure on offshore wind capture prices if all 3.5GW capacity came online by 2030. This downward pressure on capture prices would likely increase the level of subsidy required for projects.


  • Lithuania currently has made the most concrete steps regarding offshore wind development among the Baltic States
    • The country aims to reach a 45% RES share in electricity consumption by 2030, with at least 53% coming from wind, according to a national energy strategy published last year, and offshore wind would play a significant role in reaching the share
    • Latvia’s national energy plan states that offshore wind farms could be developed from 2023 at the earliest but research is still needed. The country aims to have at least 55MW of capacity in operation by 2030
    • Estonia mentions a possibility of 4GW for onshore and offshore wind farms in their national energy and climate plan (NECP) but studies need to be made
  • A Klaipėda University study commissioned by the Lithuanian energy ministry has concluded that the country could install up to 3.5GW of capacity in the Lithuanian zone of the Baltic Sea
    • The report identified five potential zones for offshore wind farms in the Baltic Sea, but zones I and II were excluded because of military radars, air defence paths and other national security restrictions
      • Please see the full map of Lithuania adopted by the Commanding General of the Lithuanian Army, which includes restrictions for both offshore and onshore wind
    • If the remaining zones in the Baltic Sea, namely, III, IV and V, are fully utilised, they could hold up to 3.5 (3.35 GW with energy losses) of capacity using 350 wind turbines sized 10MW

Source: Klaipėda University

Next steps

  • By November 2020 the Lithuanian state has to carry out the necessary environmental and engineering studies to assess the possibilities for the transmission network, offshore wind farm capacity needs and identify suitable sites for development
  • As the suggested zones lie near Latvian territory, the environmental assessments may have to be completed jointly with Latvia
  • Once this is completed, the Lithuanian government will take a decision regarding an offshore wind tender
  • The process may be held up because of the general election scheduled for October 2020, which may redirect the focus of Lithuanian policy makers during the election campaign and government formation period
  • The first offshore wind projects are not expected to come online until 2025-2026
  • Lithuanian policy makers may seek to cooperate with more experienced partner countries in offshore wind, such as Denmark, or cooperate with Poland, which also has ambitious offshore wind plans
    • From 2021 onwards, a share of the Connecting Europe Facility (CEF) €8.7 billion budget can be used to support cross-border renewable energy projects, either between Member States or with a third country


  • Future support system
  • The future shape of the offshore wind support system in Lithuania is yet to be decided, but ICIS understands that the government seeks to develop a system similar to the “Danish” or the “Dutch” ones
    • The support system for offshore wind in Denmark is Contracts for Difference (CfDs) and in the Netherlands until the recent move to subsidy free was floating Feed-in Premium (FiP)
    • In both countries, the state (mainly the TSO) is responsible for taking care of designating sites and preparing them for offshore wind, for example, by surveying the geological conditions, environmental impact assessments, technical background reports, timely establishment of the substations and cables to shore and then the auction is organised for one site for multiple bidders to bid
    • This differs from countries like Germany or the United Kingdom where the projects already have owners and the auction is for those projects to bid against each other
    • The Danish/Dutch model has also been adopted by France for their most recent Dunkirk offshore wind tender and all future offshore auctions
  • With the government taking over offshore site related expenses (which can make up around 15% of the project cost), a country may reach zero operational payments for offshore wind support either by fully excluding the price from the auction criteria or the strike price settling below market prices for the duration of the project
    • In both cases, the offshore project owners rely on the market (capture) prices to get their revenue and their income
    • Capture prices reflect the actual price by a given technology that can be obtained by renewable producers from selling their power to the market when the energy is produced
  • Modelled changes
  • Using the ICIS Power Horizon model we modelled a scenario where Lithuania reaches a maximum 3.5GW of offshore wind capacity by 2030, starting with 300MW in 2025 (scenario max wind)
  • In our base case, offshore wind capacity also starts in 2025, but rises to 500MW by 2030
    • In our opinion the base case is a much more realistic scenario in terms of the 2030 timeline than the max wind scenario
  • We kept the base case assumptions for the cross-border net transfer capacity of Lithuania
    • There are no changes in capacities foreseen in Lithuania-Latvia and Lithuania-Sweden, but the Lithuania-Belarus interconnector is set to 0MW from 2020, and Lithuanian-Polish interconnector capacity grows from 500MW of Litpollink to 700MW of the future interconnector Harmony Link from 2025, leaving the Litpollink capacity for synchronisation purposes only
  • Price impact
  • By 2030, the additional 3.5GW of offshore wind would double Lithuania’s total installed electricity capacity and weigh on prices
    • From 2025-2028, the impact is mildly bearish for Lithuania, with prices falling by €0.5-3/MWh from the base case
    • A significantly bearish impact is seen from 2029-2030, with prices dropping €8.5-14/MWh, compared with the base case
    • The price impact is similar across the Baltic states as our model assumes close price coupling and convergence between Lithuania, Latvia and Estonia
  • Swedish prices similarly fall due to the electricity trade through the Nord Balt interconnector and a stronger impact is seen between 2029-2030 with yearly prices falling by €11/MWh below the base case
  • Polish prices don’t fall as much, despite the increase in net imports from Lithuania

  • Power flows
  • The maximum modelled 3.5GW of offshore wind would turn Lithuania into a net electricity exporter for the first time since the closure of Ignalina nuclear power plant in 2009
    • Gradual offshore wind capacity additions would lead to a rapid decline in net imports from 2025 and enable the country to become a net exporter from 2030
  • Net imports from Latvia fall over the period and are around 3TWh lower than in the base case by 2030
  • Net exports to Poland would also increase marginally over the period, and would be 1TWh higher than in the base case
  • Swedish imports along the NordBalt interconnector would similarly fall and Lithuania would become a net exporter to Sweden by 2029
  • Sweden also exports less to Finland and Poland, as both countries receive more flows through the EstLink and LitPol links respectively
  • As exports to Lithuania decline, Sweden is able to net export more to Germany, Denmark and Norway over the period
  • Subsidy size 
  • Our modelling suggests that due to the small size of the Baltic economies and demand, the Baltics will not absorb the 3.5GW capacity to keep capture prices at the levels of projected Levelised cost of energy (LCOEs) in 2030
    • 3.5GW offshore wind will more than double projected power generation capacity in Lithuania, which minus the offshore wind is forecast to reach 2.99GW
    • We assume in the base case, that the current 500MW LitPollink overland interconnector between Poland and Lithuania will be replaced by 700MW Harmony link on the Baltic seabed by 2025, and the overland lines will be used for Baltic system synchronisation purposes with the Continental Europe Network only
    • With only 700MW line to a higher electricity price zone (Poland), 2030 capture prices for 3.5GW of offshore wind fall to €27.5/MWh on average – around €4.7/MWh lower that the forecast wholesale price (please see the graph below)
    • Based on Wind Europe 2017 study, offshore wind LCOEs in Europe may range from roughly €46/MWh to €67/MWh in 2030, that is, significantly above forecast capture prices, besides offshore wind LCOEs in Lithuania will have a new market premium
    • We additionally modelled 3.5GW offshore wind with increasing Poland-Lithuania interconnectivity to 2.6GW from 2025 as high interconnectivity scenario (700MW Harmony link and 1.9GW Litpollink), but it increases the offshore wind capture prices insignificantly

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

Tasmin Chowdhary is Market Reporter at ICIS. She can be reached at Tasmin.Chowdhary@icis.com

Our ICIS Power Perspective customers have access to extensive modelling of different options and proposals. If you have not yet subscribed to our products, please get in contact with Justin Banrey (Justin.Banrey@icis.com).