#EnergyDigest (38/22): Kaliningrad Power System Test Postponed, Again

Hi, it has been a while.  

Sorry for the long break, the past year was crazy. But – here I am again, and I hope to get back to my usual weekly rhythm for the newsletter. I am not oblivious to the fact that only a few English editions came out before this unplanned hiatus, but there have been ~150 Lithuanian editions before that. So – let us try for 150 English ones. 

And now – to business.

What happened in energy this week?

Week 38 of 2022 (i. e. the week starting on 19th of September)

  • For the second time this year, power system operators in Kaliningrad have postponed their isolated system operation tests.

  • The Ministry of Environment’s very generous subsidy for the purchase of household power storage (batteries) has seen a great deal of interest. 

  • Also, there have been some developments on the Baltic offshore wind project front. 

Let us look at all that in detail.

Tests cancelled

This weekend, 24 September, the isolated operation test of the Kaliningrad power system was due to take place. By the end of the week Litgrid, Lithuanian TSO, received a notification from the Russian TSO that the test was cancelled. No further official explanation was given. This is the second time in a row that Kaliningrad opts not to test its system. Both times - in the face of the ongoing energy war. 

The Russian exclave has so far carried out three tests of isolated operation. The first one took place in 2019 and lasted 72 hrs, while the second and third, in 2020 and 2021 respectively, lasted 8 hrs each. Another 8-hr test, planned for the end of June this year, was cancelled. This weekend's test was scheduled to last slightly longer, 14 hrs. 

The test in Kaliningrad was to take place at the same time as the test of the electricity system in Lithuania. Back in June, the Lithuanian test was expected to take place on 10th of September but was later rescheduled for the 24th in consultation with neighbours. This was cancelled in mid-September "due to the tense situation on the Baltic power market". 

Incidentally, this week Taavi Veskimägi, the head of the Estonian TSO suggested that disconnecting the Baltic countries from the Russian system would cost up to €1,5 bn due to increased gas demand at current prices. In mid-September he said that a joint isolated system test in all three Baltic countries should take place "when all parties are ready". 

  • Why is this important? The Kaliningrad power system is connected to the continental Russian system via Lithuania. Recently implemented projects should allow the exclave to operate independently. Russia has also reinforced its power lines around St Petersburg so that if the Baltic countries are disconnected, Russia's second largest city would not face a blackout. Latvia and Estonia have not yet tested the capacity of their systems individually, while Lithuania has carried out some tests. 

    The looming specter of the Baltics being disconnected from the Russian system before they are ready looms over the region as an energy security threat. Kaliningrad authorities have been reluctant recently to test their system. Latvia and Estonia are also hesitant to test theirs, worried about Russian reaction. If I had to guess, I would say neither side is interested in pushing this issue, because neither is sure that it would really suffer less than the opponent. 

Further reading (in LT, if not stated otherwise, Google/Deepl are your friends): 

Subsidy for batteries

The Ministry of the Environment has distributed €1 m in EU funding to help people install electricity storage devices (batteries) at home. Residents who own their own house and own or are installing a solar or wind power plant could apply for support for up to 10 kWh of battery capacity. 

This was the first time such subsidy was made available. 

The call for applications was to last until 19th of June or until the money ran out. Almost 300 people applied for all the available aid in one day. Applicants requested around €4,200 to install a 10 kWh battery on average. 

The support rate per 1 kWh of storage capacity is set at €450.26 for a lithium phosphate battery and €391.08 for a lithium-ion battery. Currently, the balancing service – allowing prosumers to consume power at a different time than when it is produced – is provided by the DSO. The cost of "storing" one kWh is €0.0447/kWh. 

  • Why is this important? That is taxpayers' money, yet it is difficult to discern what the objectives of this support programme are. It is curated by the Ministry of the Environment, not the Ministry of Energy, so one would expect to see data on implied reduction of, say, CO2 emissions. However, the announcement of the support stated that it would "reduce the cost of electricity storage". 

    The intensity of the support is exceedingly high. The Ministry of the Environment stated it is targeting a 50% level of support. Such figure seems realistic when installation costs are included. However, the ratio is 3:1 when considering the purchase of a battery. Meaning, the consumer needs to contribute only 1€ to €3 of subsidy. To put it bluntly, the Ministry of the Environment nearly outright buys the device for you with EU funds. 

    The support is targeted exclusively at large households. Back-of-an-envelope calculation suggests that, under current conditions and with this level of support, the battery would need to store and supply 10 MWh of electricity annually to pay for itself in 10 years. By comparison, less than 100,000 Lithuanian households consume more than 5 MWh of electricity a year – out of a total of 1.6 million.

Further reading:

Offshore wind farm progress

The Lithuanian Energy Agency intends to find out what infrastructure solutions would be best for the installation of a wind farm in Lithuania. It launched a public tender for such a study. The estimated value of the contract is €0.49m LEA is waiting for proposals until 10th of October. The study is expected to be done by early 2024. The planned date for the installation of the first offshore wind farm in Lithuania is still 2028. 

Meanwhile, the Latvian state-owned group Latvenergo has signed a MoU with Germany's RWE Renewables to develop offshore wind farms in Latvia. 

Offshore wind farms require massive investments and specific knowledge and skills that local energy companies do not have. That is why they are looking to partner up for future wind farm projects. Estonia's Eesti Energia is working with Denmark's Ørsted. Lithuania's Ignitis Group is working with French-Portugese Ocean Winds. Poland's PKN Orlen – with Canada's Northland Power. 

  • Why is this important? Offshore wind projects are expected to soon provide a significant share of Lithuania's electricity generation. The planned 700 MW offshore wind farm could generate almost a quarter of Lithuania's current yearly power demand. At least two such parks could be built. 

    Investors need to know what infrastructure they will be expected to develop before submitting a bid at a future tender. If this is to become clear only in 2024, then the 2028 deadline for the project is looking more ambitious than ever. 

Further reading: 

What next?

  • Hando Sutter, Chairman of the Board of Eesti Energia, the state-owned Estonian energy group, will not be reappointed for another term. The current term ends on 31 March. The company did not specify faults with CEO’s performance. The Estonian media are reporting on disagreements between Mr Sutter and Prime Minister Kaja Kallas. Taavi Veskimägi, head of the Estonian electricity TSO Elering, is named as one of the potential candidates for the position.

  • The Lithuanian government will look for ways to subsidize electricity for households supplied by Lithuanian Railways (LTG). Around 2,700 electricity consumers are connected to its grid. The normal subsidy (up to €0.09/kWh) does not apply here because LTG does not have an electricity supply license. Before retail power market liberalization, it was the second largest household supplier of electricity to in the country (cf. the monopoly supplier had 1.6 m customers). Negotiations on the takeover of these customers have been ongoing with the DSO since at least 2017.

  • Amber Grid, the gas transmission system operator, will reconstruct more than 16 km of the Vilnius-Kaunas main gas pipeline. This is one of the most important gas arteries in Lithuania and connects to the new gas pipeline between Lithuania and Poland, GIPL, since May. The work is to be carried out by DS-1 and MT Group, by mid-2023, at a cost of €12.5m.