What's been happening in the energy sector lately?

Wk 41-42, 2021

Germany's RWE Renewables visited Port of Klaipėda where it got acquainted with the Lithuanian offshore wind farm project. The company joins a host of big names drawn to the region by renewable energy megaprojects. Also, the “golden weld” of the region's gas interconnector with Europe was finished.

What is more, companies we are already familiar with will be installing a 200 MW battery system; and the region's electricity transmission system operators have requested EU funding for several more synchronisation projects. Finally, a solar power plant set up by a flooring manufacturer caught my eye.

Here’s all of that in more detail.

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Golden Weld

Lithuanian gas transmission system operator Amber Grid and its Polish counterpart Gaz-System have completed the welding of the gas pipeline between Lithuania and Poland (known as Gas Interconnection Poland-Lithuania, GIPL). The "Golden Seam" ceremony was held on 22 Oct. Project is 90% complete in Poland and 95% in Lithuania. All of it is expected to be done and the pipeline to be operational early in Q3 2022.

Some facts and figures: the interconnector is 520 km long, of which 165 km in Lithuania. The capacity is 27 TWh of natural gas per year to Lithuania and 21 TWh to Poland (2.4 and 1.9 bcm). In comparison, in 2020 Lithuania transported about 33 TWh (3.1 bcm) of natural gas to all three Baltic states and Finland. The project budget is around €0.5bn.

The pipeline will connect not only Lithuania, but also Latvia, Estonia and Finland, via Poland to the European gas system. Gas consumers on both sides of the border will have access to Polish and Lithuanian LNG import terminals. On the Lithuanian side, there have already been proposals to discuss a tariff system to incentivise use of the interconnector.

Why it matters:

• “On schedule and on budget” is how the builders describe the project. If true, this sounds like a good result for the pipeline built during a pandemic. Especially considering that in Lithuania project started with a row with potential contractors. The disputes ended with a peace agreement only this August.

• The new infrastructure will bring our gas prices closer to European ones. Probably not by much, as the gas import terminal in Klaipėda has already done much of the heavy lifting. However, the pipeline enables trade, whereas the LNG terminal only allows imports.

• Both sides seem to think they will be using the pipeline for exports.

• I think the most important thing is that GIPL will allow the Baltic and Finnish gas systems to participate in the inevitable “greening” of this infrastructure Europe-wide. It is especially useful since the exact trajectory of this process is not yet clear.

Ports and Wind Farms

Offshore wind giant RWE Renewables visited Klaipėda on 12 Oct., where it was acquainted to Lithuania's plans for offshore wind and the opportunities to develop related activities in the port. The port authorities “listened to the company’s needs” and assured that they are “ready to accommodate”. All in all, not much meat. But the visit adds another company to the Baltic offshore wind map.

Lithuania plans a 700 MW offshore wind farm by 2028, and possibly another one like that. Lithuanian state-owned Ignitis Group has expressed interest in the projects. It has signed an MoU with Ocean Winds, a subsidiary of France's Engie and Spain's EDPR.

Estonia's Eesti Energia, in partnership with Denmark's Orsted, has not ruled out participating in the project. The latter also scouted the project independently during its preparation.

The Lithuanian industrial and energy group Achema Group also wants to build and supply the offshore wind farms. Offshore wind park was somewhat in its plans for a decade. It is also one of the few companies that has the space to expand activities in the port of Klaipėda.

Why it matters:

• Wind power projects are the mega-projects of the renewable energy age. They require huge investments, not only in the turbines themselves or the electricity infrastructure. Their construction and maintenance require infrastructure in ports. Companies, ports and countries will be competing for all this investment. In other words, it is interesting.

Fluence and Siemens Energy

Energy Cells is a state-owned company set up specifically to implement the large-scale battery project. On 15 Oct. it signed a contract with Fluence and Siemens Energy, US and German companies, for the installation of a battery storage system. These companies have already installed a 1 MW pilot battery for the Lithuanian electricity system operator Litgrid. The latter project was completed and connected to the system at the end of September.

The new contract, worth €109m, stipulates the installation of four battery systems with a total capacity of 200 MW and 200 MWh. The contract also covers the design and maintenance of the system for 15 years after it is switched on. The batteries will be installed in substations in Vilnius, Alytus, Šiauliai and Utena. This should be completed by Nov. 2022.

The battery systems will ensure the stability of the power system until the Baltic states disconnect from the Russian IPS/UPS system. If all goes according to plan, this will be done by the end of 2025. After that, the battery storage system is to be transferred to a private operator through a tender process yet to be defined by the Ministry of Energy.

Why it matters:

• The battery system will play an important role in ensuring that the country's energy system is ready to operate on its own. This is one of the requirements for synchronous operation with the continental European electricity grid.

• It will be even more interesting to see how this taxpayer-funded equipment will be transferred into private hands. And under what conditions such equipment will participate in the electricity system after synchronisation.

Money to Synchronize

The electricity system operators of the Baltic States and Poland have submitted their third application for funding from the EU's Connecting Europe Facility (CEF) for synchronisation projects – i. e. for the connection of the Baltic States to the Continental European electricity system. The request is for €238m for four projects around the Harmony Link electricity interconnector on the Lithuanian and Latvian side. These projects are what did not fit into the CEF budget for 2014-2020.

Roughly speaking, the synchronisation funding is divided into two phases. First, the Baltic countries received funding to shore up their electricity grids internally. The second phase consists of international projects and additional equipment. However, this was not fully funded in the previous period, so part of it has been shifted to the budget for 2021-2027. The total cost of the synchronisation is estimated at ~€1.65bn.

First part of the second phase (€720 million), approved at the end of 2020, was earmarked for Harmony Link, the offshore electricity interconnection between Lithuania and Poland, as well as for the reinforcement of the Polish electricity grid and the installation of specific equipment (synchronous compensators) in the Baltic States. So far, projects have been financed at an intensity of 75%, this time no less is expected.

Why it matters:

• Without EU funding, the Baltic countries’ exit from the Russian electricity system would be impossible. The progress toward this goal, including the securing of funding, needs an eye to be kept on it.

• It is good to know that at least EU funding still manages to unite the three Baltic countries for joint energy projects.

2.1 MW of Solar Power

Finally, my eye caught an announcement of a new solar power plant by the parquet manufacturer Bauwerk Group Lietuva last week. The 2.1 MW solar power plant was installed on the roof of the factory by Ignitis, a subsidiary of the state-owned Ignitis Group. The project is said to be “one of the largest” of its kind in the region, and the plant will be able to meet around 6% of the factory's annual electricity demand.

Why it matters:

• This piece of news goes to show the growing size of private solar plant projects: before the pandemic, it was common for factories in Lithuania to install 1-1.4 MW of solar. Also, it was more common to put money into building an owning a solar power plant rather than renting one.

• The fact that is being leased illustrates another way for industry to access renewable electricity at a fixed price. In addition to power purchase agreements (PPAs), leasing a remote solar park or installing your own power plant.

• It seems to me such leases may be another model for financing the installation of an own solar power plant, without the need to put up your own or borrow, I would guess, ~€1.5m.

• The more flexible and varied the ways there are to develop new green generation capacity, and the broader the access to them, the better it is for all of us.

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