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In 2014, Germany initiated the formation of a group called the “electrical neighbours” uniting neighboring countries wishing to strengthen electricity cooperation. The following twelve countries joined the group: Austria, the three Benelux states, the Czech Republic, Denmark, France, Germany, Norway, Poland, Sweden, and Switzerland. In July 2016, representatives of all these countries met in Berlin again to discuss “electrical progress”.

Flexible electricity markets for energy security

The “electrical neighbours” want to analyse the EU’s electricity supply and demand in general in order to make it more flexible: for example, the additional reliance on renewables would make the block’s energy industry more flexible.

Experts say that in future, the available amount of electricity won’t solely depend on demand: the amount of power generated from renewables will play a key role too having effect both on individual countries’ electricity markets and on European cross-border trade in electricity.
In order to successfully balance supply and demand in future, the EU energy policy will need to engage in more cross-border trade in electricity. Therefore the national grid operators will have to increasingly coordinate with one another more closely in order to achieve high levels of grid stability. And different national governments will also need to cooperate more, to ensure implementation of this framework.

Besides, close dialogue between the electrical neighbours needs flexibility: hence, a suitable framework needs to be put in place for the electricity markets. This will first require some remaining hurdles to be cleared: an absolute necessity is free price formation and free and unhindered market access for all participants.

Enhanced cooperation between seven states

About 10 years ago, the seven closer neighboring states established an energy forum - Austria, Belgium, France, Germany, Luxembourg, the Netherlands, and Switzerland to make more flexible electricity markets. The small size of the group allowed for more specific action on flexibility to be prepared in detail. The seven members seek to align their interests with those of the larger group of twelve electrical neighbours – as far as possible.

Efforts for energy security at affordable prices proceed beyond the seven states’ forum; i.e. within the EU-28 Energy Union’s framework, which is a generic term for all EU projects in energy security, sustainable energy sources, and in competitive and affordable supply of energy.

See more on: http://www.bmwi-energiewende.de/EWD/Redaktion;  and http://amprion.net/sites/default/files/pdf/Pentalateral%20MoU.pdf .

Baltic electricity networks: synchronization with the West

The political decision about the synchronization of the Baltic electricity networks with Western Europe, which has been listed as one of the most important energy projects of the decade, should be made at the end of 2016. The participating “actors” are: representatives of the European Commission, the Joint Research Center and countries of the Baltic Energy Market Interconnection Plan (BEMIP).  

"Lithuania, just like the rest of the BEMIP countries, emphasized their expectation that the BEMIP political decision should be made before the end of this year, and the European Commission assured that this would be the case," Rimvydas Stilinis, director for infrastructure at Epso-G energy company holding.

The EC Joint Research Center presented a study of synchronization alternatives in October 2015; then in December a top-level task force of BEMIP countries approved the plans and actual synchronization work started.

Baltic States’ electricity markets

The price of electricity in Nord Pool Spot's Lithuanian bidding area in mid-2016 averaged €36 per megawatt-hour (about €32,4 in Estonia and Latvia), down by 17 % from 2015. The power transmission system operator attributed the downfall due to lower supply: e.g. Kaliningrad power plant was closed for maintenance and Sweden-Polish interconnection was out of service, and the flow of electricity from Lithuania to Poland slightly increased. Electricity price for 2017 is expected in the Baltic States at the level of € 34,7. 

Lithuania at the end of 2016 imported 77% of its electricity: about half of electricity imports came from Sweden, 20% from Latvia, Estonia and Finland, and 23% from third countries.

Wind power generation in Lithuania rose in October 2016 by 24% compared with the summer months; wind turbines across the Baltics generated 17% more electricity and hydro power plants increased their output by 6%.

Some 22% of the cross-border interconnection capacity exists between Lithuania and Latvia, 93% of that between Lithuania and Sweden and 60% of that between Lithuania and Belarus was used for importing electricity to Lithuania. Over 60% of the capacity of the Lithuania-Poland interconnection was used for the flow of electricity to Poland, and 8% for the flow to Lithuania.

The LitPol Link power interconnection between Lithuania and Poland operated at less than half of its capacity in its first year of operation and it could not be used at all for two-thirds of the time. LitPol Link could be used more efficiently, but capacity restrictions imposed by the Polish operator PSE prevent Lithuania from purchasing cheap electricity.

Average capacity at which electricity was transmitted via the link from Poland to Lithuania in the first half of 2016 amounted to 221 megawatts, or less than half of its total capacity.

New electricity line to Poland is necessary for preparation for the synchronization of the Baltic electrical energy systems with Western European grids. For the electricity system to operate reliably in a synchronous mode, at least two lines should connect Lithuania and Poland. It is planned that the new interconnection could be built from Marijampole, in southern Lithuania, to the Polish border. The Baltic countries aim to synchronize their energy systems with the Western European network by 2025.

Lithuania imported in October 2016 about 88-94% of its electricity: about 40% came from Latvia, Estonia and Finland, 21% from Sweden and 40% from third countries.

In the first seven months of this year, the hydro power plants in Latvia generated 1.599 bln kWh of electric power compared to 1.56 bln kWh of electric power in January-July 2015. The highest amount - 385 mln kWh - was generated in April, and the smallest amount-77 mln kWh in January. Combined heat and power generation (cogeneration) plants generated 1.97 bln kWh of electric power in the first seven months of 2016, up 37.3 % from January-July 2015 when the cogeneration plants generated 1.435 bln kWh of electric power. The highest amount - 586 mln kWh - was generated in January, and the smallest amount - 202 mln kWh - in February and May.

Wind farms in Latvia produced 61 mln kWh of electric power in the first seven months of 2016 at a 31.5 % drop from 89 mln kWh in January-July 2015.

In 2015, hydro power plants in Latvia generated 1.868 bln kWh of electric power, cogeneration plants produced 3.522 bln kWh and wind farms 147 mln kWh.

The wholesale prices of electric power have been constantly declining in the Baltics and over the past year they have dropped by nearly one fifth, a small drop can be seen also in households' overall bills. At the same time, subsidy payments supporting renewable energy producers are maintaining significant differences in Latvia, Lithuania and Estonia. Also, each country has chosen a different policy for power distribution tariffs, which make up nearly half of the electricity price.

According to the Enefit report, Lithuania still hesitates to open its electricity market to households who are still buying electric power for regulated prices, which are significantly lower than in Latvia and Estonia. Over the year, the electricity price for Lithuanian households had dropped by 23%; at the same time, Lithuania has managed to significantly reduce support to large combined heat and power (CHP) plants, thus cutting the total expenses on the mandatory purchase component (MPC).

In addition to a lower electricity price and reduced MPC payments, Lithuania historically has the lowest power distribution tariff. As a result, the electricity price in Lithuania is approximately 30% lower than in Latvia and 20% lower than in Estonia, which is quite odd, given that the wholesale price in Lithuania is the highest in the Baltics.

As for Estonian households, their expenditure on electricity in summer 2016 has not changed much as compared to the situation a year ago as the electricity price has dropped by just 5.4% over the year.

Meanwhile, Latvia has kept its position as the Baltic country with the highest electricity price, sustained primarily by MPC payments, which in Latvia is nearly twice as high as in its neighbor countries. The situation in Latvia is expected to change somewhat with the new Sadales Tikls distribution tariffs from August 1, 2016. The new tariffs, however, are not going to have a very big effect on the household segment, as they are expected to influence the electricity price mainly for the corporate segment.

Lithuania's power links with Sweden and Poland, which was put into operation in early 2016, have not helped close the gap in wholesale prices between Latvia and Estonia. Likewise, Latvia's leading power supplier is selling electricity to households for prices that are 5% higher than those in Estonia.

The greatest differences among the three Baltic states are created by the way each of them has chosen to support various energy generation projects. Latvia is the most generous supporter of its large CHP plants, and three Baltic States wanted to reduce the MPC payments for end users.

Founded in 2006 and fully owned by Estonia's Eesti Energia, Enefit sells electricity in the open Latvian electricity market.

Rail Baltica railroad project envisages construction of a 330 kilovolt (kV) single-circuit power line along the road, which goes through eleven regions in Latvia - Rujiena, Mazsalaca, Aloja, Limbazi, Seja, Garkalne, Stopini, Incukalns, Ropazi, Salaspils and Burtnieki.

The third Estonian-Latvian 330 kV interconnection has acquired the status of national importance; the project is to be implemented by 2020.

According plans, a 330 kV high-voltage power line, 180 kilometers long, will be constructed from the Riga 2^nd thermal power plant to the Latvian-Estonian border, whereas Estonia's Elering will build the section of the power line from the border to the town of Killingi-Nomme.

The total cost of the project is estimated at over € 100 mln, of which 65% will come from the EU Connecting Europe Facility fund.

The third Estonian-Latvian 330 kV interconnection will improve power supply security in the Baltic region, making effective power market operations in the Baltics, and improve competitiveness of the Baltic countries. The new interconnection will also stimulate Estonian-Latvian power networks and improve Latvian consumers' access to cheaper electric power from Scandinavian countries.

Transmission system operator Augstsprieguma Tikls will launch procurement for construction of the third Estonian-Latvian 330 kV interconnection in Latvia at the end of 2016.