What happened in energy this week?
Week 42 of 2022 (I. e., the week starting on 17th of October)
Fuel oil returns to the Lithuania's capital's heating sector to keep district heating prices stable. A state of emergency had to be declared to do this.
The regulator has drawn up a list of requirements for potential offshore wind developers. It includes both serious and slightly bizarre demands.
Klaipėdos Nafta (KN) found something to do during the European LNG renaissance. The company will help the Germans manage the commercial processes of their new gas import terminal.
Let us look at all that in detail.
Fuel Oil in Vilnius
Vilnius Šilumos Tinklai (VŠT), the company that manages Vilnius’ district heating system, was officially permitted to use low sulphur (0.9%) fuel oil instead of natural gas this heating season. This will keep heating prices for customers stable year-on-year. Fuel oil will account for around 36% of the fuel used for heat production this year.
Continued use of natural gas would have meant doubling of the YoY district heating prices for the capital city. The price of fuel oil, based on monthly futures for the heating season, is €46.37/MWh. This is about three times cheaper than gas.
Overall, Vilnius uses biofuel, fuel oil, waste and natural gas for heating. VŠT produces large portion of it themselves, but there are others. Vilnius waste cogeneration plant is owned by Ignitis Group, while French Idex owns several biofuel boilers in the city. Some industrials, like Grigeo, a paper producer, and Vilniaus Baldai, a furniture manufacturer also sell their surplus heat to the district heating network.
Why is this important? VŠT is one of the larger consumers of gas in particular and energy in general in the country. Last year the central heating system in Vilnius alone required 3.172 TWh of energy. At the same time, Lithuania's entire electricity transmission system shifted 11.84 TWh of power.
A curious wrinkle in all this is that a state of emergency “due to the extraordinary-critical situation regarding energy prices” had to be implemented, so that burning of fuel oil in the city could be allowed. This was confirmed by the Government while the decision to implement the state of emergency was taken by the Vilnius Municipality.
This allows the city to temporarily disregard normal environmental standards. In the energy sector, it is more common to declare a state of emergency in the event of a blackout or a gas shortage.
Further reading:
Vilnius Municipality's declaration of a state of emergency (links are in LT, unless stated otherwise): https://vilnius.lt/lt/2022/10/21/vilniaus-mieste-skelbiama-ekstremali-situacija-del-drastiskai-isaugusiu-energijos-istekliu-kainu/
Government's notification on the state of emergency: https://lrv.lt/lt/naujienos/vyriausybe-pritare-ekstremaliuju-ivykiu-kriteriju-saraso-pakeitimams
Earlier announcement by VŠT: https://chc.lt/lt/musu-veikla/naujienos/pranesimai-ziniasklaidai/13/vilniuje-prasideda-sildymo-sezonas-laiku-priimti-sprendimai-leis-islaikyti-pernykstes-kainas:712
Crumbs Off the Table
The Lithuanian Government has approved requirements for potential offshore wind farm developers. Any potential participant in the upcoming offshore wind auction must have prior experience developing an offshore wind farm of at least 150 MW. Annual revenues must average €250m for the last 3 yrs and assets cannot amount to less than 20% of the estimated project value. These criteria must be met by the bidder or by one company if the bid is to be placed on a joint-venture basis.
Bidders will have to “meet European and transatlantic integration criteria”. This means, no strategically unsound (read: no Russia, no Belarus, no China) companies can bid.
Winner of the tender will be obliged to contribute to environmental protection efforts and the well-being of the nearby community. This means, the developer will have to control emissions during construction, also a minimum of €5m will have to be allocated to be used for environmental protection in the vicinity of a wind park, at Government’s discretion.
The project operator will also pay a compensation of around €3m per year (€1/MWh produced) to the communities in the vicinity the offshore wind farm.
These requirements will be part of conditions for the auction that should be announced in the 2nd half of 2023.
Why is this important? For an untrained eye, the requirements do not seem to restrict competition. The prior experience and financial soundness criteria seem to mean that "anyone who has built a non-miniature offshore wind farm" can participate. One would struggle to find an offshore wind farm under 150 MW. The bidding company does not have to be particularly large either – this criterion could easily be met by, say, the Ignitis Group.
On the other hand, additional emission controls during construction seem excessive. Marine fuel use is already quite strictly regulated in the Baltic Sea.
As for the additional payments, like €5m for environmental protection cause, seems like a small time racket. The need to "contribute to the well-being of coastal communities" gives off similar vibes. It means that the developer would have to contribute €1/MWh annually, or around €3m per year, depending on the amount of power produced – to Palanga, the neighboring municipality.
It is hard to see why such mechanism is needed. The payment effectively becomes a kind of, I would guess, ~1.5-2% tax on almost a quarter of the electricity consumed in Lithuania. Since the project will receive state support, this money will in the end be paid by all electricity consumers in the country for about 12 yrs. Why not just support local communities straight from the budget?
Will these petty rackets and nuisances discourage anyone from participating? Probably not. But it’s curious to see who gets those crumbs of a €1.2bn table.
Further reading:
List of requirements from EPSO-G (in Lithuanian and in pdf, for god knows what reason): https://www.epsog.lt/uploads/documents/files/Kriterijai.pdf
Government’s notice: https://lrv.lt/lt/naujienos/vyriausybe-patvirtino-reikalavimus-busimiems-jurinio-vejo-parko-vystytojams
Klaipėdos Nafta Goes to Germany
The German energy giant Uniper has selected Klaipėdos Nafta (KN) to manage part of the commercial operations of the Wilhelmshaven LNG import terminal, currently under development. This is an FSRU-type import facility, i.e. the same as the one in Klaipėda. Norwegian Hoegh LNG will deliver the vessel itself.
KN will develop and run the gas metering and IT systems for commercial operations until March 31st, 2024. The company will also assist the Germans in preparing the terminal for commercial operation and related issues.
Uniper is building the gas import terminal in Wilhelmshaven, in the Northern part of Lower Saxony, by the North Sea. It is the first FSRU project in the country. It is also the most advanced, with completion expected this winter.
The terminal has a designed annual capacity of 7.5bn m3 of natural gas, or ~8% of Germany's gas demand in 2021. It is also almost twice as much as Klaipėda's FSRU can handle in a year.
Why is this important? Well, first of all, it is encouraging to see KN participating in the renaissance of gas import terminals that is currently taking place in Europe. Interestingly, the KN mentions that it will advise Uniper on the "open access model as well".
KN’s FSRU Independence operates in an unusual manner for such a facility. They are normally built for a specific gas consumer - a power plant or a factory - and supply gas to that specific customer. A typical example is, for example, the Açu terminal in Brazil. A FSRU terminal is docked next to two massive gas-fired power plants and supplies them with LNG.
However, there are no such large gas consumers in Lithuania. Therefore, the terminal serves a number of different customers - industrial, energy companies and gas traders. This complicates the scheduling of cargo and regasification operations, especially when the facility is used intensively. Thus managing it is a rather unique competence of KN.
Further reading:
KN's announcement: https://www.kn.lt/naujienos/naujienos/kn-teiks-plaukiojancio-sgd-terminalo-valdymo-paslaugas-vokietijoje/5886
Earlier Uniper's report on the Wilhelmshaven terminal: https://www.uniper.energy/news/construction-of-wilhelmshaven-lng-terminal-can-start-quickly
What next?
KN announced a public procurement procedure to find someone to maintain and ensure day-to-day operations of Independence, the Lithuanian LNG import terminal, after December 2024, when the company buys it. Hoegh LNG, which leases the facility, is doing that currently. The contractor will maintain the terminal, hire the crew and organize the daily operations of the FSRU. The contract will be signed for five years, with an option to extend it. The contractor is expected to be announced by mid-2023.
Latvenergo, the Latvian state-owned energy company, intends to install 600 MW of green power generation facilities by 2026. The company is targeting the development of wind energy, which it sees as one of the most cost-effective means. Projects in Latvia and abroad are being considered for both acquisition and development, as well as for participation in projects with partners. In 2030, the total capacity of its green energy generation facilities will reach 2.3 GW.
Litgrid, the Lithuanian power TSO, is testing new AI and sensor technologies. These should increase the power throughput by 30% over existing power lines. Installed sensors transmit data that lets the TSO plan the capacity of a power line based on specific weather conditions and the physical parameters of the line. The technology has been installed on a busy line between Palanga and Vydmantai. The test will last until September and the first results will be analysed in December.