Power Perspective: Baltics divide over electricity trade with Russia

Author: ICIS Editorial


This story has originally been published for ICIS Power Perspective subscribers on 11 October 2019 at 15:17 CET.

In August 2019, the Latvian ministry of economics announced it would look at re-establishing commercial flows to the Baltics with third countries via the Latvia-Russia border, once Lithuania imposes a ban on Belarusian imports in 2020. Despite Lithuanians challenging the plan, Latvian and Estonian TSOs started a consultation on the new cross-zonal capacity methodology, open until 19 October. In this analyst update, we disentangle the dispute between Lithuania on one side and Latvia and Estonia on the other side.


  • The three Baltic TSOs, Litgrid, AST and Elering signed a common capacity calculation methodology in 2013 for Baltic trade with third countries, Belarus and Russia
  • TSOs collectively decided that commercial flows to the Baltics from third countries would be limited to the Lithuania-Belarus border and Lithuania-Kaliningrad
  • Prior to this harmonisation, there were bilateral agreements for trade on each Baltic state border
  • Lithuania passed legislation in 2018 to halt commercial power trade with Russia and Belarus (third countries) when the Belarusian 2.2GW Astravets nuclear plant comes online early in 2020, due to concerns about the plant’s safety
  • A future ban on commercial imports would limit trading opportunities for participants in the Baltic markets both with Belarus and Russia via the Belarussian territory (except for the Kaliningrad entry point)
  • Estonian and Latvian governments did not pass a similar law restricting flows from Russia or Belarus after the start of Astravets
  • Astravets Unit 1 is expected to start up early in 2020 according to latest reports, but depends on whether fuel loading takes place at the end of the year

Trade point dispute

  • In August 2019, the Latvian ministry of economics announced it would look at re-establishing commercial flows with third countries via the Latvia-Russia border, once Lithuania imposes a ban on Belarusian imports
  • According to the information from the Organisation for the Nordic TSOs, in October 2019 the maximum net transmission capacity (NTC) between Russia and Estonia was 0 to both directions, maximum NTC on Latvia-Russia border is 291 MW on LV-RU and 323 MW on RU-LV directions
  • According to the same source, maximum BY-LT NTC is 1,800 MW, and LT-BY NTC is 1,350MW (please see the map below)

Source: Organisation for the Nordic TSOs

  • Estonian and Latvian TSOs Elering and AST published a draft methodology for calculating cross-zonal capacity with the Russian mainland in September 2019 after the proposed changes, without the explicit support of Litgrid
    • The methodology is supposed to take effect at the time when Lithuania will discontinue electricity trade via Belarussian-Lithuanian border
    • Trading capacity with the third countries is proposed to be allocated to Latvian-Russian border; to Estonian-Russian border no trading capacity is allocated
    • While no cross-border capacity was specified in MW, AST and Elering proposed a calculation for the future NTC and adding that it would depend on the available cross-border capacity at the Estonian-Russian border
    • The future NTC would be available for trade on the Nord Pool Spot exchange as under the current arrangements
    • The two TSO await for the comments and suggestions from interested parties by 19 October 2019
  • On the same week, the Lithuanian TSO Litgrid counter-proposed a methodology
    • Litgrid claimed that if Latvia has just one line with Russia, trade would not be possible because of the security of supply issues: if the only line gets disconnected, to ensure trade with Russia infrastructures in other countries would have to be used
    • According to a press release, trading when having just one line would have a negative impact on the reliability of other countries and would decrease the transfer (cross border capacity) which are used for the internal EU intraday trade.
    • The methodology proposed by Litgrid evaluates each cross-border transfer capacity separately
    • Litgrid also stated in a press release that taking into account the importance of the methodology, Litgrid had approached the European Commission


 More imports from the Lithuanian direction

  • Mothballing a part of the oil shale generation units in Estonia in 2019 was particularly reflected in changing trade flows of Latvia
    • From January 2019, three oil shale units in Narva have not been generating power (around 530MW), and from April two more units stopped generating (around 380MW)
    • State-owned Eesti Energia, operator of Estonia’s oil shale capacity, said that the high cost of carbon had reduced profit margins, leading to the mothball decision
    • Although the Latvian imports from Lithuania have been increasing in the last couple of years, the rise in both the Lithuanian-Latvian volumes and the correlation with Belarusian-Lithuanian flows has been especially visible in 2019
      • In January-September 2019, Latvia’s Lithuanian imports were around 1.8 times higher than over the whole of 2018 - 0.7TWh compared to 0.4TWh
      • As seen in the graph below, an increase was observed between 2017 and 2018 as well

Source: ENTSO-E, ICIS Power Horizon

  • Taken into account, that the correlation of the Lithuanian-Latvian flows with the import to Lithuania from Sweden is negative, we infer that the increase of Lithuanian exports to Latvia mostly comes via the Belarussian direction, but the imports via the Kaliningrad direction remain more important
    • Both in 2018 and 2019, the correlation between the flows from Kaliningrad to Lithuania and from Lithuania to Latvia was above 30%
    • The correlation between the Belarussian-Lithuanian and Lithuanian-Latvian flows increased from 5% in 2018 to 22% in the nine months of 2019
    • Imports from Lithuania in the first three quarters of 2019 constituted around 13% of the Latvian electricity consumption in the same period – compared to around 5% in 2018 January-September

Modelling assumptions

  • In our 2019-Q3 base case, we assume that the 2019 760 MW net transfer capacity between Belarus and Lithuania will be set to zero from 2020
  • From this point, the only interconnecting point of the Baltics with the third countries would be Kaliningrad interconnector to Lithuania (2019 net transfer capacity 475MW)

Olkiluoto 3 will change the situation

  • Our modelling suggests that the launch of Finland’s 1.6GW Olkiluoto 3 nuclear power plant in July 2020, import-export flows in the Baltic region will reshuffle, with flows mainly coming from the north
    • After a 10-year delay and huge cost over-runs, project owner TVO said fuel-loading at Olikiluoto 3 would start in January and it would deliver power from July 2020
    • As seen in the diagram below, compared to the expected trade in 2019, in 2021, directional exports from Finland to Estonia, from Estonia to Latvia and from Latvia to Lithuania are forecast to double
    • Utilisation of the 1GW Finland-Estonia cross-border interconnectors (Estlink 1 and Estlink 2) are forecast to increase from around 44% in the three quarters of 2019 to around 78% in 2021

Source: ICIS Power Horizon

  • This will increase Estonia’s net imports from the Finnish direction as well
  • Based on the Horizon forecast, Estonia’s net import will increase even further by 2030, after the additional launch of the 1.2GW Hanhikivi nuclear power plant in Finland in 2028 (please see the graph below)

Source: ICIS Power Horizon


  • Because of forecast changes in Baltic electricity trade from mid-2020, when the Finnish Olkiluoto 3 nuclear plant comes online, Baltic imports from third countries may become less important
  • In our view, taking this into account, the Lithuanian TSO Litgrid will attempt to buy time by flagging the issues to the European Commission (already happening) and submitting comments in the public consultation process of the Latvian-Estonian methodology
  • It could also attempt to instigate a discussion among the Baltic regulators and potential moving of the dispute to the Agency for the Cooperation of Energy Regulators (ACER)
  • As a part of Baltic states’ synchronisation with the Continental European network process, the Baltics may stop importing electricity from third countries from 2025 in any case

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

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