Ojars Kehris

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Energy market and security of supply in the
Baltics Latvia, Lithuania, Estonia

• Ojars Kehris
• Economist Association 2010
• President

Reforming Infrastructure. Privatization,
Regulation and Competition. Workshop co-hosted by
The World Bank, Public Utilities Commission of
Latvia. May 3 , 2005. Riga, Latvia
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• I would like to rise two main challenges in
• the energy sector development
• potential deficit in the Baltic energy market
• how to guarantee the security of supply in this
  market
• and discuss the role of regulation to solve
  these problems.

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Potential supply deficit in the Baltic energy
market

• Main generating assets in Baltic area have
  fixed closing deadlines
• Two blocks of Ignalina, Lithuanian Nuclear Power
  Plant - Year 2005 and 2009,
• The old blocks of the Narva, Estonian Oil shale
  Power Plant - Year 2016.
• Electricity market in Baltics will have supply
  deficit due to reduced generating capacities and
  increasing energy demand, as a result of dynamic
  economic development.

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The alternatives for new generating assets

• new block of the Nuclear Power Plant in Ignalina,
  
• reconstructed Oil shale blocks in Narva Power
  Plant,
• new Coal-fired Power Plants in the Baltic ports
• Natural gas-fired power plants , based on gas
  imported from Russia

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The future competition in the Baltic energy
market

• It is not the Baltic States that will compete
  with each other, but, the energy sources will
  compete.
• In long term the Baltic States should manage to
  coordinate their investment activities instead of
  praparing to compete with each other.
• The main competition in the Baltic energy market
  will be between Russian origin gas, transported
  and sold by energy monopolist Gazprom, and all
  other energy sources.

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The economic aspects of the electricity market
liberalization

• In the current situation, regardless of the risk
  of the production deficit, it is not possible to
  develop economically viable projects in Baltic's
  energy market, because of energy and resource
  import from the Russian market, which has
  different from EU technical and ecological
  requirements and subsidized internal price
  structure for energy resources
• Through subsidiaries in Baltic states Russian
  enterprises achieve position in the EU
  liberalized energy market, keeping monopoly
  position in the natural gas supply.

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Steps to common Baltic (EU?) position

• Baltic states should take a joint and
  strategic view on the real objectives for energy
  industry within Baltics
• what would be incentives for installation of new
  generation assets
• what energy resources would be used for
  generation
• is there a possibility to set up generation
  portfolio that is independent and would compete
  with natural gas fired generation,
• how to cooperate and align individual country
  interests to secure supply in long term.

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• The first agreements - about the cooperation on
  the electric supply
• multilatteral agreement (1992) Latvia,
  Lithuania, Estonia, Russia, Belarus
• threlateral agreement (1997) Latvia,
  Lithuania, Estonia

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The security of supply

• The electricity systems in Latvia, Lithuania and
  Estonia are too small to individually balance
  electricity production and demand. Even if this
  balancing could be technically possible, it would
  be very expensive and inefficient.
• Transmission network operators in Baltic
  countries are responsible for the security of
  electric supply in each country, but technically
  and operationally they remain interdependent with
  the operators in other countries within the
  common electric grid
• The current legislation doesnt provide for
  existence of the supra-national system
  operators

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The Pan-Baltic transmission system operator

• Baltic states should evaluate feasibility from
  economic and legal standpoints for a Pan-Baltic
  transmission system operator, that would be
  responsible for system security and certain
  auxiliary services in areas that are closely
  linked due to existing technical characteristics
  of networks and sizing limitations of each
  individual country.
• The impact should be analyzed, what
  interconnections between the Estonia and Finland,
  between Lithuania and Poland, as well as between
  Lithuania and Sweden will have on the Baltic
  energy market security.

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• Thank you!

Ojars.Kehris_at_ekonomisti.lv phone [phone]
010 fax [phone] www.ekonomisti.lv