Direct Speech, Energy, Interview, The Baltic Course No. 27

International Internet Magazine. Baltic States news & analytics Sunday, 20.05.2018, 22:36

Towards common European energy market

By Olga Pavuk, 30.11.2007.Print version
On 1 July 2007, Lithuania and Latvia have announced a program for the full liberalization of their energy markets. Estonia has negotiated with the EU the conditions concerning its open energy market. The BC discussed this and other important issues in development of the Baltic energy markets with the heads of the national energy utilities in the three Baltic states: Sandor Liive, Board Chairman of the Eesti Energia; Karlis Mikelsons, Board Chairman of Latvenergo; and Rymantas Juozaitis, Director General of Lietuvos Energija.

BC: What does the full liberalization of the energy market introduced on 1 July 2007, means for large and small end-users?

Sandor Liive: When discussing the issue of opening the markets, we need to agree on what market we are talking about. Like in most “new EU countries”, the Latvian and Lithuanian markets were opened in two stages. Industrial clients have been able to choose the electricity supplier since 2004 and from 1 July 2007 all other clients will also have the same opportnities.


At the same time, one has to admit that nothing changed in Estonia on 1 July 2007. Estonia has negotiated with the EU certain reservations in opening its energy market. The Estonian market will be opened gradually. Currently the market is opened for major electricity consumers, 35% of the market will be opened from 1 January 2009, and full opening of the market is planned for 1 January 2013. Thus, there have been no changes for end-users of Eesti Energia, while household consumers in Latvia and Lithuania have presently an option of choosing an electricity supplier. This has improved the chances of Eesti Energia as an electricity supplier to enter those markets. By now the Latvian subsidiary of Eesti Energia has signed first agreements with the customers and the electricity supply has begun.

Karlis Mikelsons: In order Latvenergo could participate in the liberalized market, the restructuring of the company has been carried out that is essentially aimed at creating the conditions for energy market liberalization by legally separating the electric power transmission operators from the electric power distribution systems.


Latvenergo core businesses — electric power generation and trade and telecommunications — would remain with the parent company, thus a separate Latvenergo subsidiary, legally independent electric power transmission system operator, Augstsprieguma tikls has been established, and, a legally independent distribution system operator, Sadales tikls started its functioning on July 1, 2007.


It should be said that Latvenergo is the leader in creating legal environment of the electricity market in the Baltics, because Latvia has the least statutory restrictions on market opening.


As regards the electricity users, the electricity market has been opened since July 1, 2007, and every client can freely choose his own electricity supplier. The freedom of choice applies only to the electricity itself, but not to its transportation. Existing contractual relations remain in force for the clients buying electricity from Latvenergo and they have not been affected by the changes.

Rymantas Juozaitis: In accordance with the Lithuanian Law on Electricity, which came into force on the 1st of June 2007, all electricity consumers have been granted the right to freely choose their electricity supplier and to purchase electricity at contractual prices. Although all commercial customers have had the right to independently choose their own electricity supplier since June 2004, residential customers had no possibility to enjoy such freedom of choice until July 2007. However, because the Lithuanian electricity market is quite small and the afore mentioned freedom of choice rather limited (Ignalina Nuclear Power Plant produces the cheapest electricity and is capable of covering the entire domestic electricity demand), the full liberalisation of the electricity market has not brought about any radical changes. Regardless of the well framed legal and administrative conditions for competition in Lithuania, favourably evaluated by the European Commission, in fact there is no competition among electricity producers. 7 producers, 27 companies holding an electricity supplier’s licence, from which only 8 are operating on the market, are the players of the Lithuanian electricity market.


BC: What your company’s actions could possibly facilitate competition between the participants on the Baltic market?


S. L.: Without doubt, operations of Eesti Energia subsidiaries in Latvia and Lithuania would help to increase competition on the Baltic market. Eesti Energia through its subsidiary E.Energy has been operating in Latvia since May 2006, and the Lithuanian subsidiary Lumen Balticum started operating in February 2007. The main objective of both companies is to sell electricity to end users in the respective countries. Based on our experience, we already can claim that the market as well as the consumer have both benefited from the growing competition.


In addition to operations in the end user market, Eesti Energia is closely involved in development of the pan-Baltic electricity market spearheaded by NordPool. The goal of this process is to create in the Baltic states the electricity market where all the players could sell and buy electric power. This means creating a better competition situation. Such market would help give rise to a single transparent price on the Baltic market and increase synergy through joint consumption of the energy generated in different countries. A combination of various generation types — shale oil, hydro power and nuclear power — would ensure much more efficient use of the Baltic power generation resources.


Eesti Energia together with the energy companies from other Baltic states and Finland has invested in construction of the Estlink underwater power cable linking the Baltic states and the Scandinavian countries and enabling the Nordic energy companies to sell their power to the Baltic states, thus increasing the competition on the market.


K. M.: Experts have estimated that systematic replacement of suppliers in the Baltic states will begin in about two years, therefore timely preparations for the process should be done. In June 2007 Latvenergo established a subsidiary in Estonia, Latvenergo Kaubandus (Latvenergo Tirdznieciba). Latvenergo Kaubandus that will help Latvenergo to optimize electricity purchases from small producers in Estonia, thus contributing to the competition between the market players. Latvenergo also plans to establish a similar company in Lithuania.


R. J.: Lietuvos Energija performs both the functions of transmission system operator and of administrator of the electricity market. Therefore, our company can neither interfere with nor facilitate competition in the Baltic electricity market. However, the company is prepared to operate under the conditions of the Common Baltic Electricity Market, which will be comprised of more market players and hence will offer more favourable conditions for competition. Trade in electricity in the Baltic Electricity Market has been implemented, but only at the level of wholesale trade. To establish the Baltic retail market, it is necessary to harmonise the relevant legal acts of the Baltic States and some rate-making principles. Our company can have only limited influence on the process and this is related to the adaptation of our information system for electronic trade in electricity.


BC: How would you interpret the concept of “the Baltic regional market”?


S. L.: First of all, the Baltic regional market is “our own” market. When we speak about a common Baltic regional market, we definitely mean liberal market arrangements based on common rules where electricity producers and suppliers of the region are able to operate in all three Baltic states. In addition to the above-mentioned, for us the Baltic regional market means the place for buying and selling electricity, i.e., a wholesale market.


As it has already been said, creation of a common wholesale market will open up the possibilities for more efficient use of production resources. Such liquid market will also offer the best idea about the electricity prices in the region which, in its turn, will provide a foundation for efficient operations on the next level, i.e., the retail market.


Development of the Baltic regional market is inevitable, considering the future, as it unreasonable and unrealistic for an individual country to develop own national electricity market. This is due to the fact that as separate countries they are very small in terms of production concentration. But if a common Baltic market is created and subsequently integrated with the Nordic electricity market, foundation will be laid for the market that would function adequately and efficiently.


For example, electricity consumption in the Baltic states is comparable to that of Denmark. This fact strengthens the confidence that a market of this size will be able to ensure liquidity and volumes required for efficient functioning of the market. At present we already have a power cable to Finland but it is not enough. We are working with Finland’s main power grid, Fingrid to build another cable with greater capacity between the Baltic States and Scandinavia. It is important to create a power link between Lithuania and Poland and another link from one of the Baltic States to Sweden. Only then we will have the electricity market that is actually functioning.


K. M.: In Latvia electricity is generated by the three Daugava hydro power plants that belong to Latvenergo, Kegums HPP, Plavinas HPP and Riga HPP as well as by the two combined heat and power plants in Riga — TEC-1 and TEC-2. In 2006 the Daugava hydro power plants generated 2661 GWh of electric power or 60% of the total power generated by Latvenergo. In 2006 the combined heat and power plants generated 1740 GWh or 39% of the total power generated.


R. J.: The Regional Baltic Market means the market which is much larger than the individual markets of Lithuania, Latvia, and Estonia. To have an efficient electricity market, the yearly turnover of electricity must be over 2.50 — 300 TWh. However, in the Baltic market the turnover is currently ten times less than this figure. The Regional Baltic Market should, therefore, be treated as an intermediate step towards bigger markets: the market of the Baltic Sea Region and, subsequently, the European integrated electricity market. For us, this regional market is necessary for gaining experience and skills in the trade of electricity on the market.


BC: What are the main electric power sources in your country (as a share of the total consumption)? What alternative energy sources would you prefer to use?


S. L.: At present Eesti Energia has the power generation capacity of some 2300 MW. We have over 480 thousand household clients and 22 thousand industrial clients. Eesti Energia can fully satisfy their needs as well as to sell electricity on the Nordic power exchange NordPool, to neighboring Latvia and, if necessary, also to Lithuania.


In the fiscal year of 2006/2007 we produced 7818 GWh of electricity, of which 6610 GWh were consumed in Estonia and 1208 GWh were exported. Our goal is to be selling electricity to two million clients in 2015, expecting that a wider client base would help us to invest in reliability of supplies and production capacity.


We are the largest energy company in the Baltic states but one of the smallest operators on the international arena. For example, in terms of electricity sales, Finland’s Fortum is nearly eight times larger and Italian, German and Spanish energy companies are about 20 times larger than our company.


We have to work hard to be successful in such a situation. Along with looking for new clients we also diversify our production capacities, increase significantly the power grid quality in Estonia and build links with electric power grids of other countries.


In Estonia electricity is generated mostly from oil shale as well as from renewable sources and natural gas. Oil shale is a vital resource for Estonia as at least 93% of the electricity is currently generated from it. But in future, in addition to oil shale, we would like to produce energy also from other sources. That way we will be able to provide clients with electricity at stable prices and quality even at the times of shortage in the region.


We are researching new technologies for oil shale development and have joined the preliminary project for construction of a new nuclear power plant in Lithuania. We are also developing co-generation and power generation from renewable resources and building gas turbines in order to balance the wind energy.


At present there are two oil shale power plants operating in Ida-Virumaa (north-eastern Estonia), one small oil shale co-generation plant at Kohtla-Jarve and a natural gas powered plant at Iru near Tallinn. We also have two operational hydro power plants and a wind power plant. We are working on development of several more wind power plants, for example, in Narva, on the Ruhnu Island and in Virtsu.


Oil shale generated electricity currently accounts for more than 90% of our production portfolio. We would like to increase the share of renewable energy to 10% by 2010 and expect renewable sources to cover already 20% of the energy consumption in Estonia in 2020.


R. J.: Until 2010 Ignalina Nuclear Power Plant (INPP) will remain the main source of electricity in Lithuania. Until 2005 Lithuania was the global leader in nuclear power generation, 75-80 percent of the generated electricity output coming from Ignalina power plant. However, after the closure of INPP Unit 1, Lithuania yielded this leadership to France. In 2005, only 70 percent of electricity was generated at Ignalina Nuclear Power Plant, as compared to the 78 percent generated at the nuclear power plants in France. When INPP Unit 2 is closed in 2009, the role of the main generation source will be regained by Lietuvos Power Plant and the cogeneration heat and power plants located in Vilnius, Kaunas, and Maþeikiai. According to the National Energy Strategy, the construction of new cogeneration heat and power plants is planned in Panevëþys, Ðiauliai, Klaipëda, Alytus, and Marijampolë. Lietuvos Power Plant can be operated by burning natural gas, heavy fuel oil, or orimulsion. New cogeneration heat and power plants will be fired not only with gas, but with bio mass as well. By 2010, it is planned that wind farms with a capacity of 200MW will have been installed. At present, only wind farms with a capacity of 55 MW are in operation. By 2010, it is planned that 7 percent of electricity will be produced from renewable energy sources. However, although the development of renewables is being given close attention by the Lithuanian government, electricity production from renewable energy sources will only cover a larger portion of the electricity balance after some 30-40 years. Indeed, this much has been noted by the World Energy Council. The reason for the delay is that, at present, this type of production remains costly. Therefore, Lithuania, with the assistance of neighbouring countries, is planning to construct a new nuclear power plant, which will replace the one based at Ignalina.


BC: What is your attitude towards the project of a nuclear power plant construction in Lithuania?


S. L.: We have great recent experience from cooperation between the Baltic energy companies in construction of the first joint underwater power cable between the Baltic region and the Scandinavian countries. As Eesti Energia together with Latvenergo and Lietuvos Energija are among the initiators of the project for construction of a new nuclear power plant project in Ignalina, we strongly support this project and have trust in it.


Considering electricity consumption forecasts for the Baltic states and generation capacities in the nearest future, presence of nuclear energy in the region is very important. After 2009, when it is planned to shut down the currently functioning Ignalina Nuclear Power Plant, Lithuania in its electric power generation would become fully dependent on natural gas imports from Russia and so would Latvia during the drought period. Only Estonia will have power plants running on local fuel, i.e., oil shale. They would cover the country’s internal consumption and will even be able to export energy but require renovation and upgrading to continue operating.


Eesti Energia is making all efforts to avoid dependence on Russian gas in energy production. It is actively looking for the ways to diversify its power production portfolio through use of renewable energies and, of course, nuclear energy.


We are very much interested in investment in the Lithuanian project but we also work to create opportunities for participation in a new nuclear project in Finland.


K. M.: Speaking about this project, we are currently having a public discussion of the preliminary environmental impact assessment of the nuclear plant in Lithuania, which was organized by Lithuania. Residents of Latvia can also study this assessment and submit their suggestions to the Environment State Bureau in Riga, thus those suggestions would be sent to Lithuanians officially, via Ministry of the Environment, and taken into account when considering the environmental impact of the project.


R. J.: The construction of a new nuclear power plant in Lithuania will be the best way of ensuring a long-term reliable supply of electricity for the country. The Lithuanian parliament has passed a special law by which the implementation of the project has been entrusted to our company. In accordance with decisions made by the Prime Ministers of the Baltic States, this will be a regional project, implemented not only by Lithuania, Latvia, and Estonia, but by Poland as well. Construction of the nuclear power plant will be a long and complicated process, but it will be achieved by those who have aspirations to move forward.


BC: What sources will be used to cover the power shortage during the “Ignalina holidays”?

K. M.: To avoid feeling the effect from the closure of the Ignalina Nuclear Power Plant, Latvenergo is thinking about the reconstruction of the second unit of the Riga TEC-2 (the first unit of TEC-2 is currently under reconstruction and will be put into operation in 2008) and also eventual reconstruction of the coal-fired power plant in Kurzeme, the western region of Latvia.


R. J.: During the scheduled maintenance works of the INPP reactor which took place both last year and this year, Lithuania had an opportunity to model its future, when both reactors will be taken out of operation. We now know that all other Lithuanian power plants are capable, if necessary, of producing the required quantities of electricity, and that the first source to be used to cover the domestic demand would be the Lietuvos Power Plant. However, recent increases in the price of natural gas suggest that it would be wiser to buy electricity from neighbouring countries instead of purchasing expensive gas and burning it in the power plants. Therefore, the load of Lietuvos Power Plant was increased only to an extent which would be necessary to secure stable operation of the power system. The remaining quantities of electricity were imported from Russia, Estonia, and, starting from this year, purchased on the Nordic market. The same pattern will be followed after the full closure of Ignalina Nuclear Power Plant. We also hope that by that time the construction of new interconnections with Poland, Sweden, and Finland will be completed.


BC: What are the likely benefits to your country from the Nord Stream project?


S. L.: This project is not related to Eesti Energia operations as a commercial group. From the economic perspective, Nord Stream will not create any added value for the Estonian consumers. But various scientists and experts have pointed out that construction of this natural gas pipeline entails a number of hazards and risks. As soon as Estonia is not participating in the Nord Stream project, the gas pipeline will not improve reliability of the supplies to the Estonian residents and will not influence the price of natural gas that Gazprom sells to Estonia.


R. J.: The Nord Stream project is the concern of gas companies. Therefore, it does not impact directly on our company’s activities, operating as it does in the electricity industry. However, if the project were to include the construction of branch-lines for the supply of gas to the gas systems of the Baltic States, it would enhance the reliability of gas supply to the power system of Lithuania. Other issues of international significance should be solved by the competitive authorities.


BC: What do you think about Gazprom plans to build gas-fueled thermal power plants in the Baltics?


S. L.: Electricity generated through use of natural gas is expensive, especially if its price is compared to the price of the Latvian hydro power, for example. In the situation where the Baltic States have no alternative gas supplier to replace Gazprom, it will be very risky to increase significantly the share of gas-generated electric power and invest heavily in the gas-fueled thermal power stations. In our opinion, the key points are the pricing forecast and the reliability of the supply.


R. J.: Lietuvos Energija is the transmission system operator. Our evaluation is, therefore, primarily based on the security of electricity supply. Our main concerns lie with the availability of more power plants and the greater security that this will provide.


BC: Where electric power industry specialists are trained today?


S. L.: In Estonia the specialties needed for the electric power system can be studied on the level of vocational education, applied higher education and academic higher education.


The Tallinn Polytechnical School, vocational training centers in Tartu and Idu-Virumaa turn out specialists on the vocational education level. Some other vocational technical schools also teach the relevant disciplines such as automation.


The Tallinn Technical University Virumaa College (in Kohtla-Jarve) offers applied higher education in the specialty of power engineering and after specialization in the final years turns out heating engineers (power production) and power grid specialists.

Academic education in power and heat engineering is organized at the Tallinn Technical University faculties of energy and mechanics (heat engineering). The Agricultural University in Tartu also trains power grid specialists. Both universities offer Bachelor, Master and Doctor degrees in energy industry specialties.


Eesti Energia supports many young students both on the level of vocational and higher education by granting scholarships, provides funds for scientific studies and research, offers internship opportunities at all levels, etc.


There are good opportunities for studying, but the problem is low prestige of technical specialists, including power engineering, among young people. Therefore Eesti Energia organizes excursions to electric power system facilities that are consistent with the high-school physics course (free for schools) and an annual physics contest, contributes to the foundation of the school student awards (for essays, research). We have supported and will continue supporting in future the development of teaching materials and publishing textbooks on power engineering.


K. M.: The Riga Technical College, the Riga Technical University and the Latvian University of Agriculture as well as several vocational schools across Latvia train power engineers. Latvenergo Group has a good cooperation with those educational establishments and we offer the students field training and a possibility to win a scholarship. Persons having the qualification of a power engineer can work as power engineers, dispatchers, foremen, relay protection and automation engineers. Power engineers work in the fields such as electric power generation, equipment operation, electricity consumption supervision, electricity trade, designing and technical development, project/assignment manager. They can also work in the generation facilities — the hydro and thermal power stations, the high-voltage power grid infrastructure, the power distribution grid infrastructure. Latvenergo employs at about 80 such specialists annually.


R. J.: Specialists in the main field of electric engineering are trained at Kaunas University of Technology. Other universities in Lithuania train other specialists demanded by the power companies.


BC: Does your company participates or intends to participate in any new projects?


S. L.: In addition to the above-mentioned plans about investments in nuclear power production in Lithuania and France, Eesti Energia is upgrading power production in Estonia. We have started actively developing wind power generation on the Estonian coast, simultaneously working on several projects of different size, for example, the installation of wind turbines to cover the electricity needs of the Ruhnu Island, construction of the largest in Estonia wind farm at the former ash dump in Narva, etc.


R. J.: Apart from the construction of a new nuclear power plant, Lietuvos Energija is also involved in the implementation of several other important projects in the energy sector of Lithuania. These other developments are, likewise, a response to the early closure of the Ignalina Nuclear Power Plant and the problem of ensuring a reliable supply of electricity. Two such developments are the interconnection projects between the power systems of Lithuania and Poland, and between the power systems of Lithuania and Sweden. The interconnection line between Poland and Lithuania will not only increase the reliability of energy supply, but also expand the electricity market of Lithuania and the other Baltic States. A new line to Sweden, along with the Estlink, a submarine power cable constructed by Eesti Energia, Latvenergo, and Lietuvos Energija last year, would further increase the access of the Baltic States to the Nordic electricity markets. This line would also promote exchange in electricity flows in situations where there may be a shortage of generation capacities. With regard to the Lithuanian-Polish line, the study assessing the feasibility of the interconnection of Lithuanian and Polish electric power systems was completed and the respective procedures for the establishment of the Project Implementation Company were started. With regard to the Lithuanian-Swedish link, the feasibility study for an electrical interconnection between Sweden and Lithuania funded by Lietuvos Energija and Svenska Kraftnat is currently being carried out. The study should be completed in November of this year.

EU proposals are beneficial for Baltic States

The new package of proposals for improving the EU energy market, which the European Commission presented on September 19, will be beneficial for the Baltic States, Energy Commissioner Andris Piebalgs from Latvia said at a press briefing.


He added that the new regulations would facilitate investments in the Baltic nuclear power plant project and development of energy links between the Baltic States and Sweden.


“Energy is the driving force of our economy. We need to make the right choices for a prosperous, low-carbon Europe. We need to achieve greater energy security and provide abundant energy at a fair price for citizens,” President of the European Commission, Jose Manuel Barroso, said at the press briefing.


The Commission’s proposals focus mainly on consumers’ freedom of choice, fair prices, clean energy and reliable supply. Power production and supply need to be separated from the power grid management.


“If a company sells electricity and gas and at the same time owns the networks, it has every incentive to make sure that its competitors do not get fair access to its grid,” said Barroso. He said that the Commission was seeking to establish not only a common market but also an open market. It is proposed to expand the competence of the national regulators to make them more independent. The draft directive will be discussed at the European Parliament and on the member states’ level.

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