ICIS Power Perspective: Lithuanian government will discuss new RES support model

24 August 2018 11:52 Source:ICIS

This story has originally been published for ICIS Power Perspective subscribers on 16 August 2018 at 10:52 CET.

Having completed the consultations on the draft Law on Energy from Renewable Sources, the Lithuanian Energy Ministry this week submitted the proposal of the new RES support model to be considered in the government and then submitted to parliament. The ministry expects the first 0.3TWh annual volume auction to be held in July 2019.

Background

  • The draft law amendments mark a new RES aim of Lithuania – to reach a 38% RES share in final energy consumption and to increase RES electricity volumes up to 5TWh by 2025
  • As with the currently existing Feed-in Tariff support scheme, the new one will be financed through a public obligation levy (PSO)
  • In contrast to the current system, the support will be paid as a premium and auctions will be technology neutral instead of technology specific
  • Unlike currently, support will be paid per volume in MWh and not capacity in MW
  • Producers that win in auctions would need to deliver the required volumes per year for 12 years; they would sell the production exceeding the required amount to the market without premium
  • Besides, RES producers with >0.5MW capacity will have to take on balancing responsibilities

Pricing

  • According to the current draft, the auction in principle will be a Floating Feed-in Premium, but the selection process will resemble that of the Fixed Feed-in Premium
    • The national regulatory authority VKEKK will define the maximum price for 12 years
      • calculated taking into account capital investment costs, useful lifetime of the power plant, predicted production and operational costs, discount rates, weighted average cost of capital and overall support length
      • determined for each particular auction
    • RES producers will bid for a premium (not a strike price as in a usual floating FiP system)
    • The lowest bid(s) are accepted as a uniform price
      • If the sum of the winning premium and intraday price is below the maximum price defined by VKEKK, the whole premium will be paid
      • If the sum is above the maximum price, the difference between the maximum price and the intraday price is paid
      • If the intraday price is above the maximum price, no premium is paid
      • In cases of negative intraday prices, no premium is paid

Changes since May

  • Compared to previous drafts of the law, the latest version relates the premium payments to intraday “Nord Pool” prices in the Lithuanian zone, and no longer to day-ahead prices
  • The regulator will no longer be obliged to analyse the payback of investment plans and projects

Next steps

  • The government is expected to discuss the draft within several weeks
  • The law is planned to enter into force on 1 May 2019
  • Government would define the auctions schedule by 1 July 2019
  • VKEKK is expected to organise the first auction in July 2019 for 0.3 TWh to be delivered per year
  • This volume would roughly correspond with 118MW onshore wind using historical average capacity factor in Lithuania of 0.29, 85MW using capacity factor of 0.4 observed in the latest projects built in the country or 311MW solar using historical capacity factor of 0.11

Analysis

Day-ahead and intraday trading  

  • The new proposal means that although Lithuanian RES producers may be selling larger shares of their electricity on day-ahead markets, their premium will depend on intraday prices
    • As the intraday market is usually less liquid than the day-ahead, bigger price volatilities can be observed there
    • However, with the planned development of RES power, the intraday market will become more liquid as RES producers adjust to forecast changes in intraday markets
    • A stark planned growth in RES share may increase the need for shorter-term day-ahead and intraday products, such as half-hour and quarter-hour trading
    • Such trading possibilities close to delivery, as well as shorter product length, could decrease demand for balancing power, for which the need will increase with the planned rapid growth of RES power in Lithuania

RES share

  • We estimate that ambitious objectives defined in the national energy strategy and draft law will result in ample auctions in early 2020s (see the graph below)
    • Based on the latest data by Eurostat, in 2016 Lithuania reached 25.6% RES share in final energy consumption
    • Out of around 12TWh gross electricity consumption, 2TWh was generated by RES sources
    • The planned 5TWh of RES electricity would more than double the 2016 share of RES

Planned RES electricity generation in 2025 compared to 2016 statistics

Planned RES electricity generation in 2025 compared to 2016 statistics

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

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By Staff Reporter