Baltic States and Belarus: more energy independence through a stronger development of renewable energies

In a nutshell:

A widening division is becoming apparent between electricity transmission grids of the Baltic states and those of Belarus, which have been closely connected for historical reasons. While the Baltic states strive for increased integration into the internal EU electricity market, Belarus has set itself the goal of developing new power generation capacities at home. But despite all the differences, both regions have two things in common: they pursue the objective of reducing their dependence on Russian gas and in order to meet the objective, besides undertaking the above measures, they also attach great importance to expanding production capacities by including renewable energy sources into their energy mix.

​In addition to the reduction of CO₂ emission, which Western European countries expect to achieve through the use of renewable energies, there is another aspect on which energy policy makers in the Baltic states put particular focus. In view of the current cold political relations between Russia and the EU and of the applied sanctions and counter –sanctions there is a considerable concern that Russia will use its gas supplies as a political weapon against the Baltic states – just as it did against Ukraine already in 2009. Until recently, Lithuania was the Baltic state most exposed to this risk because of its almost complete dependence on Russian gas imports. For example, in 2013, Russia's monopoly position was reflected in the fact that Gazprom sold gas to Lithuania for a price that was 30% higher than that offered to Germany. In this context, Lithuania arranged for wide publicity in the media about the official commissioning of its LNG terminal “Independence” in 2014.

With a storage capacity of 170,000m³ LNG, the terminal will provide enough gas to cover up to 90 percent of gas demand of the Baltic States in case of emergency. But LNG costs a lot. The effort connected with the production is high and regasification is expensive. The costs of LNG are by approximately one-fifth higher than the costs of conventional natural gas. At the same time, with the LNG terminal, Lithuania remains dependent on fossil fuels. This is also why 80% of Lithuania’s gas imports and a big share, i.e. 70%, of electricity imports are from Russia. The currently low gas price and the related non-profitability of the LNG terminal are another reason why Lithuania has currently intensified its search for alternative energy supply options.

Figure 1: Share of renewable energies in the EU member states, 2014 (% of the gross final energy consumption) ¹
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Have the Baltic states already reached their goal of expanding renewable energies?

Apart from the broadening of the internal EU energy market, the problem can be remedied by a stronger integration of renewable energies. The Baltic states are excellently placed to achieve this goal.

A new Eurostat report on the share of renewable energies in the gross final energy consumption in the EU shows that the Baltic states occupy top positions in this area. The statistics were based on the share of renewable energies in the total energy consumption in 2014, with the EE share being measured with reference to the 2020 targets set individually for each country. The Baltic states are in the top 10. Estonia and Lithuania already achieved their expansion targets in 2014. Latvia, which with a share of 40 percent in the total energy consumption has set itself the most ambitious goal, is just about reaching it. For comparison: Germany ranks only 17th in the statistics. The final energy consumption does not reflect only the electricity consumption but also the transport and heating sector. The key to success in Lithuania should be more and more the production of electricity and heat in environmentally friendly CHP power plants. An example of this development are the tendering procedures held in 2015 for two plants of this type in the two largest cities Vilnius and Kaunas. The plant in the capital city of Vilnius is planned to have a capacity of 227 MWth and 88 MWe. It should consist of two combined heat and power plants (one using waste and another using biomass) and produce 1.627 TWh of heat and 0.817 TWh of electricity per year. With an investment volume of about EUR 190 million, it was the largest tendering procedure held since Lithuania gained independence. 

Future of renewable energies in Lithuania

In addition, wind power is becoming more and more important in Lithuania. Although the tendering procedure for onshore wind energy projects in Lithuania already reached the maximum eligible total capacity of 500 MW in 2015, which led to a temporary freeze on investment, the market should start to move again when the total capacities put out for tender are increased by one third to 750 MW. This is urgently needed. Due to the closure and decommissioning of the Ignalina nuclear power plant in 2009, Lithuania quickly turned from an energy exporter into an energy importer. More and more old power plants, e.g. the heating station Vilniaus elektrinė-3 with a capacity of 603 MWth and 360 MWe (closure scheduled for 2016), no longer comply with the current environmental standards and are therefore disconnected from the network. The construction of a new nuclear power plant is not on the agenda anymore and would not be politically enforceable once it was rejected in a referendum. 

After launching the Nordbalt high voltage interconnection between Sweden and Lithuania on the one hand and the Litpol power bridge between Poland and Lithuania on the other hand, such an investment would be hardly justified anyway. However, the total energy independence of Russia can hardly be achieved by imports from the EU alone, particularly, when you look at the heating sector. It is therefore essential for Lithuania to increase the use of decentralised energy sources. The solution is using wind power plants to generate power and eco-friendly heating plants to balance the expenses and to produce heat. However, the current capacities are far from enough. Therefore it can be expected that intensive promotion measures will be further applied and new tendering procedure will be held in this sector in the future.

Belarus: A bridge to Eastern Europe or a fickle partner?

Crucial for the implementation of such plans are the relations with the neighbouring Belarus. Despite the recently lifted sanctions on Belarus and the country's gradual rapprochement with the EU, opinions differ on whether in the case of common development of the energy market Belarus will be a reliable partner or rather a fickle supplier influenced by third parties. Belarus also continues to be strongly dependent on Russian gas. Recently, Gazprom announced that it would invest another USD 2.5 billion in the Belarussian gas transmission network. Unlike Lithuania, Belarus plans to use nuclear power in the future. Thus, it is currently building a nuclear power plant in Astravyets near the Lithuanian border, which is scheduled to be connected to the grid in 2018. This has triggered heavy criticism from the Lithuanian government and the involvement of the EU Commission as the project would contravene the EU objectives and, additionally, there is a fear of serious safety deficiencies.

The Belarussian energy policy places reliance on a mix of energy producers

In addition to gas and nuclear power, renewable energies are for the first time in the focus of the Belarussian energy policy. As late as in the previous year Belarus pointed the way ahead for a targeted promotion of renewable energy sector – a strategy followed in Western Europe for already two decades. A comprehensive quota system has been applied to give also Belarus the chance of gradually becoming independent from Russian energy supplies. But it can be clearly seen that what has been proposed here is a strong energy mix including diverse renewable energy sources on the one hand (where e.g. biogas from agricultural sources plays an important role; in addition, areas for geothermal energy production are currently being explored) and conventional energy sources on the other hand.

Block formation or collaboration?

It remains to be seen whether those different strategies will lead to a further drifting apart of Lithuania and Belarus or whether a more relaxed political atmosphere will result in an even more intensive collaboration in the medium term. There are surely factors that connect the two: both countries and markets share the objective of becoming independent from gas. After the start-up of the nuclear power plant in Astravyets, Lithuania could be at least temporarily provided with cheap electricity, which would allow it to concentrate more on the promotion of the development of renewable energy sources. This has to be the long-term objective of both Lithuania and the whole EU since the EU's energy dependence ratio amounted in 2014 to 53.4 percent and is on the rise. This means that more than a half of the EU energy demand had to be covered by imports.

Figure 2: Energy dependence in percent²

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On the other hand, cheap electricity supplies from Belarus harbour the risk that the development of renewable energy sources will be slowed down. However, the prerequisite for such scenarios is generally a political willingness to effect such electricity supplies – and this is currently clearly denied.

Therefore, there are manifold forecasts for the Belarussian and Lithuanian energy market. The following months will bring further development in this area. But investors in renewable energies should in any case keep an eye on this development as both trends, when coupled with a proper strategy, may create lucrative opportunities on both markets.

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¹ Eurostat, Energy from renewable sources, February 2016.
² Eurostat, Energy dependence, September 2015.