The Baltic Course
Back in Business | Hobby or Business? | Winds of change

Latvia had over 800 such water  mills one hundred years ago.

Back in Business

By Tatyana Andreeva (Delovoi Chas)

It is assumed that by the end of 2003, Latvia will have around 160 small hydroelectric power plants in operation. Experts claim that this is normal procedure on the way to developing a decentralized power supply system. But for now, owners of the relatively simple dams are trying to grab as big a profit as possible - and are raking it in at double tariffs. Another of their advantages is that what they do is practically under no form of control.

All the rage

Inherited from times long past, Latvia has quite a number of old, run-down mills (in the mid 20th century there were 800 such mills in Latvia). A handful of enterprising people quickly understood that they could build small hydroelectric power stations on the foundations of these old mills and watch as the money flowed by. Renewal of the old mills started back around 8 years ago. Naturally, initial reconstruction was conducted on only those mills needing the smallest of investments.
Yet entrepreneurs were frightened neither by the long process of getting approval for the projects, nor by the expensive costs of constructing the plants (average costs amount to around 200,000 US dollars). If in 1993 there were only three small hydroelectric power plants in Latvia, by the end of 2000 the figure was already at 72. In recent years people have started to build mini plants on very small rivers. Interest in such plants is connected to the opportunity of selling surplus power production to Latvenergo, and consequently to the fact that such stations pay off quite quickly. Construction of a plant with a capacity of 2-3 kWh costs about 33,000 US dollars; monthly earnings amount to around 10,000 -11,000 US dollars. In the country's eastern region of Latgale, also the country's poorest region, one businessman built 10 such small plants in a span of two years. Rumor has it that these plants are owned through offshore companies by one of Latvia's most influential politicians.
90 permits have been issued for the construction or expansion of small hydroelectric plants. The combined capacity of small hydroelectric power plants in Latvia amounts to 8.6 megawatts. Nevertheless, the majority of these river-based rigs only barely pass off as being called a power plant, because of the low quality power they produce, power that needs to be boosted from the national grid.

Don't miss your chance

The speedy construction of these small plants was mainly promoted by one quite significant factor. Regulations adopted by the Cabinet of Ministers in 1995 stated that Latvenergo would buy surplus electric power from small power plants at double tariff - for an average of 0.046 dollars per kWh.
The regulation concerns only those plants launched before January 1, 2003 and only for a period of 8 years after the plants are launched. It has been estimated that investments towards reconstruction should already have paid off in these eight years. If in the given time a plant does not prove its profitability, then it's your own fault: the project thus has no economic grounds. Needless to say that many soon realized that their investments would bring a return much sooner than the eight-year period was over.
The amount of electricity Latvenergo, Latvia's power monopoly, may actually buy up is not all that clearly defined. According to Uldis Mosans, head of the Economics Ministry's power department, only surplus production can be sold for double tariffs. The law clearly states that 51% of the electricity produced at a plant must be used for local needs. And yet it's not all that simple to measure how much electricity the owners of these plants have actually produced, or sold for that matter. The best system would be if these tariffs were revised each year and on an individual basis for each and every plant, according to the amount of power produced.
This, by the way, does happen in a number of European countries. What's more, there are even special kinds of subsidies, regulated in fine detail, for building small hydroelectric power plants.
Mosans believes that the idea of these small plants should also be supported in the future, especially if they are able to provide electricity for local inhabitants in case of general grid failure or problems with the lines.

Pros and cons

The hydroelectric power stations have their supporters and also opponents. Interestingly enough, both sides use the same factors to argument their stance. Owners of the hydro-technical equipment stress that the small stations don't pollute the environment, and even take part in the purification of rivers. Purification in the sense that water, after trapped in the dams, falls through the turbines and gets saturated with oxygen, later promoting biological processes of self-purification. Other claims go on to say that the hydroelectric plants and dams make a beautiful view for the aesthetics, meaning that such places are quite attractive for campers and tourists.
Latvia's Environmental Protection Club believes that the small stations destroy fish migratory routes and the biospheres drowned by the dams poison the water and deteriorate the biological environment of the rivers. Nearby areas also become swampy, and routes for water tourism, fishing, boating, loose their attractiveness, moving further away from natural landscapes to those manmade.


Hobby or Business?

Zydrunas Damauskas (Lietuvos Rytas)

In Lithuania, 35 small hydroelectric power plants produce 30 million kilowatt-hours of electricity a year. This is approximately one tenth of the electric power produced at only the Kaunas Hydroelectric Power Plant, or 0.02% of all the electric power produced in the entire country. In comparison, small plants in other countries produce around 2% of the electric power.

Small river dambs bring in the money and water leisure.

Those engaged in energy production at small hydroelectric power plants often call this business a hobby. They work in the business with excitement - it is a business, as well as a hobby, and a profitable one at that. Luxurious villas frequently sprout around the dams they build these plants on. Many of the small stations built on beautiful rivers or ponds have become recreational sites. This is an independent business - it is better to engage in this than in any kind of trade. "If you have built a power plant, you need not worry anymore: the turbine is churning, and your money flows in; but if you own a shop you have to run around all the time," says Petras Pinus, chairman of the Lithuanian Society of Hydroelectric Power Engineers.

Monopoly and profits

Electric power from the small power stations is bought for quite a decent price at 0.0445 US dollars for high-voltage lines and 0.056 US dollars per kWh for low-voltage lines. These rates are quite a bit considering that domestic consumers in Lithuania pay 0.065 US dollars per kWh, and even export prices are only around 0.01 US dollars per kilowatt-hour.
According to Petras Pinus, the price for power produced in these small hydroelectric power plants is comparable to that paid in Europe, where such power plants also enjoy state subsidies.
Owners of the small hydroelectric plants don't have to pay for using the water; and another advantage is the very favorable tariff for electricity they produce. If consumer prices for electric power grow, the purchasing price for power made at the small hydroelectric power plants will also increase. The cost of producing one kWh of electricity at the huge Kaunas Power Plant is 0.025 US dollars, but power produced by the small hydroelectric plants costs between 0.0075 and 0.01 US dollars. Although the owners of the small plants are satisfied with this price set by the government, they admit that constructing new plants would no longer be worthwhile at such rates. This is why new plants are being built only on ponds already dammed up, investments only paying off in around 6 or even 8 years time. The Society of Hydroelectric Power Engineers has confirmed that the market for construction in this sector has already been just about exhausted. But.

Competition and control

Owners of the small hydroelectric power stations are mostly Lithuanian businessmen, however, Norwegians have also been trying to penetrate the market. Power in Norway is produced only by hydroelectric plants. The past year has seen negotiations with a Portuguese and French company on the purchase of some of these small plants. Swedish companies are also interested in entering the business.
All of the small Lithuanian electric power plants are privately owned. Around six months ago the Lithuanian state-owned power monopoly, Lietuvos Energija, sold its last shares (52%) in Ekoelektra, a company owning seven small hydroelectric power stations. The shares were bought by the Vaizga oil company, backed by the chairman of LUKoil Baltija, Ivan Paleychik.
The other shares in Ekoelektra belonged to Pajaras, also owned by the subsidiary of Russia's oil giant LUKoil. Paleychik says he feels nostalgic for the small power industry. Firstly, because his profession is a power engineer, and only 9 years ago he was chief at Lithuania's Mazeikiu Nafta oil refinery.

Scandals and prospects

A big scandal started three or four years ago when Lithuania's Minister of Economy, industrialist Vincas Babilius, wanted to banish private capital from Ekoelektra. His opinion was that Pajaras had acquired its shares in Ekoelektra illegally. No one needed to ask why Babilius wanted to push Pajaras out of the market. Babilius was pushed into dealing with the business and into the Lithuanian power industry by his former boss - the leader of Lithuania's industrialists and an impressively influential person in Lithuania, Bronislavas Lubis. Lubis owns a company also working in the business of small power plants - Achemos Hydrostotys.
Despite his seemingly weighted support, Babilius didn't manage to fulfil the task and was forced to resign from his ministerial post. And after the last parliament elections in Lithuania, there was no stopping Paleychik in buying off the rest of Ekoelektra.
Manager of Ekoelektra, Lionginas Kairus, says investments in reconstructing old hydro-electric plants or building new ones pays off only in around 10 to 15 years. Renovating an old plant costs about 375,000 US dollars. And as there are no dams left free, there is also no place constructing any new ones.
For these reasons Kairus believes that no-one will really try to get into the relatively small business, a business, one might add, that is more for padding the wallets of a small chosen few.


Winds of change

Hannes Tamme (Radio Ku-Ku)

Estonia stopped using small hydroelectric plants in the beginning of the Sixties. Ten years ago, Voldemar Enno, a power engineer who worked in a kolhoz farm fixed up a small and old hydroelectric power plant on the River Ahja. A new phase started in the existence of Estonia's small power stations.

Old Enno has no lack of energy.

An old fanatic

"It was hard to get the various permissions, but Eesti Energia supported me greatly at the time," Voldemar Enno told the BC. In 1991 he signed a contract with Eesti Energia, which promised to buy electric power from him at a price 13% lower than the average consumer price: "At first I earned 4.35 kopecks per kilowatt."
Enno, a 70-year-old power engineer has worked in different positions within the Estonian power system, developing his career from a simple worker to the chief power engineer of an agro-industrial complex in Estonia's region of Pilva. He was personally acquainted with many officials in the power industry; and thus had the opportunity to acquire a private hydroelectric power plant for himself.
At present Enno owns five small plants: Saesaare, Leevaku, Lotka, Raapina, and Kunda. All of them are situated on small Estonian rivers, on dams once already boasting hydroelectric plants in the past. Enno either renovated the old ones or constructed new turbines, and altogether invested more than 4 million Estonian kroons (over 220,000 dollars) in his business. But he does not intend to stop at this; his plans include constructing another couple of plants in southern Estonia.
Small hydroelectric power plants have become very profitable, as Eesti Energia pays 90% of the average consumer price for each kilowatt of this so-called alternative power (i.e. 0.05 dollars per kWh). "Eesti Energia settles accounts with me very properly, and I invest this money in the renovation of old plants," admitted Enno, a fanatic. In mid-July I met him on the river Vihandu, where he and his friends were cleaning out the riverbed, allowing the water to flow better. This old man has no lack of energy.

Economy comes first

In 1992, Estonia adopted a program for economizing power. One of the basic conclusions the authors of the program came to, is that Estonia must reduce importing various fuels. The result of this was that by 1998, heating oil, oil products and coal imports had halved. There is a steady growth in demand for local fuel materials - wood, sawdust, bark, and peat, as well as wind and solar energy. According to expert predictions, alternative energy sources in Estonia should account for 13% by 2010.
A new public program for energy saving was launched in January 2000. Estonia's government believes that it is possible to consume less power than it is at the moment. On average, every Estonian family spends 12% of its salary on electricity. At the same time, families in the European Union spend only between 2 and 3%.

A cleaner environment

In addition to the five private hydroelectric stations that belong to Voldemar Enno, another one is situated on the River Poltsamaa by Vaike-Kamari boasting a capacity of 200 kW; another is located in southern Estonia, on the River Tudulinna with a 100 kW capacity. There are around another ten very small stations across the country with capacities of 10-30 kW. Most of them are in southern Estonia where the rivers are rich with waterfalls and rapids.
Yet another promising sphere for producing alternative power is developing wind-powered generators. Windmills of such kind with a capacity of 150 kW have been producing power on Estonia's Hiiumaa Island for the past ten years. Saaremaa Island has another two windmills with two more near the city of Haapsalu. Even Tallinn has a windmill, built by the city's shipyard in cooperation with the Tallinn Technical University.
Tartu Agricultural University (TAU) has organized two conferences on wind power and other alternatives replacing combined heat and power engineering. "We carried out research and now we are working on a program for the consumption of wind power in all the Baltic States, and we think that the opportunities for this are very good," - the BC was told by a scientist of TAU, Valdur Tiit. According to what he said, the program will be ready by the end of this year. "If one wind-powered generator is placed per every area of 200 square kilometers, this would be enough to supply the whole of Estonia with electric power, and the environment would stay clean," said Tiit. It seems that similar prospects look promising. Denmark's REG has already taken an interest in building several wind generators in western Estonia.

There is a law, but.

Nevertheless, Estonia cannot manage this without facing certain problems also related to power market competition, just as anywhere else in the world. Eesti Energia has lately refused to buy electric power produced in peat-burning plants at the government set price. A similar situation developed with joint - stock company Sangla Turvas (near Tartu) and Tootsi Turvas (near Pernu). "There is a law, but we don't have the feeling that alternative energy in Estonia has got the green light quite yet," says chairman of Tootsi Turvas, Lai Maelet.

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