CURRENT STATUS OF THE LITPOL LINK PROJECT

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CURRENT STATUS OF THE LITPOL LINK PROJECT

• Zygmunt Mozer, PSE SA

BALTREL Committee meeting, Vilnius 23 October 2007
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Presentation Content

• Assumptions and conclusions - EBRD study
• New approach to the project
• Results of the LitPol Link common study
• Possible role of the neighbouring systems
• General conclusions

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Study Regarding Poland-Lithuania Interconnection

• In 2000 European Commission and the EBRD made a
  decision to finance a feasibility study on the
  Poland Lithuania transmission interconnection,
• The feasibility study was performed by a
  consortium of companies IPA Energy Consulting,
  SwedPower, SEK Advisory Services,
• The study was completed in September 2002 .

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Conclusions From the Study (1)

• The study showed that
• Polands and Lithuanias systems may operate
  together only via a back-to-back station,
• the recommended capacity of the converter
  substation is 2500 MW,
• the location of the back-to-back substation is
  possible only on the Lithuanian side, and it is
  scheduled to be installed at the existing Alytus
  substation,
• the border substation in the Polish side would be
  the substation at Elk, which would have to be
  upgraded to 400 kV,
• All analyses have shown that the project is not
  cost-effective.

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Conclusions From the Study (2)

• Reliability analyses of the interconnected
  systems, which take into account the needs of the
  IEM, define the necessary scope of system
  expansion in the Baltic countries, Poland and
  Germany for the purposes of the Lithuania-Poland
  interconnections
• The results have been unacceptable to the TSOs,
  mainly to the Polish TSO due to effects on
  transmission tariff
• The outstanding funds required to achieve
  financial closing for the project exceeded 60 of
  the planned expenditure.

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New Initiative Boosting Interconnection Project

•  
• On March 13 2006 during the Polish and Lithuanian
  Presidents meeting, President Valdas Adamkus
  invited Poland to join Lithuania, Latvia and
  Estonia to take part in the construction of new
  Ignalina NPP
• Connecting LitPol link project - which itself is
  not commercially viable together with the
  broader Ignalina project, offers a chance to
  positively change the economic calculations
• In September 2006 PSE SA i Lietuvos Energija AB
  (LE AB) reactivated a LitPol Project Working
  Group to analyze the project from the technical,
  economic, legal and organizational point of view.

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Conditions of the Pl-Lt 400 kV Interconnection
Construction

• Technical,
• Economic,
• Environmental,
• Organizational and legal.

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Technical Conditions (Polish Side)

• Minimal scope of the investment
• 1.Construction of the 400 kV switchyard in the
  Elk substation (together with the 400/110 kV
  transformer)
• 2.  Construction of the 1-circuit 400 kV
  Elk  Narew line
• 3.  Construction of the 2-circuit 400 kV
  Ostroleka  Olsztyn Matki line
• 4.  Construction of the 2-circuit 400 kV
  Ostroleka  Elk line
• 5.  Construction of the 400 kV switchyard in the
  Ostroleka substation
• 6.  Construction of the 2-circuit 400 kV
  Milosna  Ostroleka line
• 7.  Construction of the 2-circuit 400 kV
  Elk  country border line
• (in the Alytus Lithuanian side- direction).

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Polish Transmission System
Planned 2012
Out of operation since 1July 2004
Ukraine
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Technical Conditions (Lithuanian Side)

• Construction of first part (500 MW) Back-to-Back
  converter station in Alytus (2x500 MW)
• Construction on Alytus country boarder
  2-circuit 400 kV line
• Reconstruction and extension of Alytus
  substation
• Construction of the 2-circuit 330 kV Kruonis PSPP
  Alytus line (53 km)
• Reconstruction of Kruonis PSPP substation
• Extension of Kruonis PSPP 330 kV switchyard
• Extension of Ignalina 330 kV switchyard
• Kruonis - Ignalina 330 kV line should be
  commissioned by the date of commissioning of the
  second unit of a new NPP in Lithuania.

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Network development enabling exchangeof 1000 MW
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Economical conditions

• Forecasted cost of the investments
• 237 mln Euro- LitPol Link Elk-Alytus
  (71Pl/166 Lt mln Euro)
• 371 mln Euro- necessary development of the
  Polish internal grid
• 95 mln Euro- necessary development of the
  Lithuanian internal grid.
• Excluding connection fees(to be negotiated with
  the TSO)
• Possible financing sources
• Investors resources
• European Union aid funds.

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Funding of the Project

• The LitPol Link Project is in principle eligible
  for the following instruments of the financial
  support
• The European financial aid within the framework
  of the Operational Program on Infrastructure and
  Environment, the TEN-E budget
• The European Regional Development Fund, special
  loans from the European Investment Bank and loan
  guarantees from the European Investment Fund
• Usage of the assets of Ignalina NPP
  Decommissioning Fund (EBRD mechanism).

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Polish Participation in the Ignalina Project (1)

• Preliminary analyses performed in Poland showed
  that Polands participation in the Ignalina
  project equal to 1 000 1 200 MW is economically
  justified.

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Polish Participation in the Ignalina Project (2)

• Poland is interested in constructing a large
  power plant of not less than 3,000 MW (in this
  case the Polish part will equal to 1,000-1,200
  MW) in order to
• Own the zero-emission power source influencing
  the power generation structure in Poland,
• Use transmission capacity of the Lt-Pl
  interconnection,
• Ensure necessary power reserves,
• Ensure power supply security in the north-eastern
  part of Poland, as well as in Baltic States.

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Environmental Conditions

• Poland-Lithuania interconnection will be
  constructed in the North-Eastern part of Poland
  mostly covered by the Nature 2000 Program area
• Location of the investments in this area will
  need special decisions of the EU relevant bodies.

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Nature 2000 area
National parks
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Organizational and Legal Conditions

• Initiatives concerning amendments of law
  regulations and governmental decisions -
  necessary for implementation of the
  Poland-Lithuania Interconnection Project with
  regard to
• - National Spatial Management,
• - National Cohesion Strategy Project for
  2007 - 2013,
• Granting the investment a government target
  status.

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Exemption from TPA regime

• Decision on exempting the Lithuania-Poland
  interconnection from the TPA regime under the EU
  Regulation No. 1228/2003 will allow the Partner
  Parties for commercial use of the
  interconnection
• The decision on (the scope and extent of) the
  exemption will be a decisive factor for viability
  of the Project, and further for its development.

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Creation of PDC (Project Development Company)
scope of competence (1)

• Preparation of all necessary analyses,
• (b) Conduct and (or) procurement of necessary
  works and services,
• (c)  Drafting, preparation and, if acceptable,
  execution of overall documentation.

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Creation of PDC (Project Development Company)
scope of competence (2)
(d)   Administration and realization of the
financial funds, (e)   Continual cooperation and
intercommunication with international and
national Lithuanian and Polish institutions ,
and (f)  Other functions expressly stated in
the founding documents of the Project Development
Company.
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Investment Process Phases

• Pre-investment phase
• Order procurement procedure
• Area-related system analyses
• Feasibility studies,
• including localization studies
• Technical and economic analyses
• Investment decision-making documentation

• Preparatory phase
• Order procurement procedure
• Inclusion of the investment in SCDSD and
  LSDP
• Acquisition of environmental impact decisions
• Acquisition of construction permits
• Acquisition of rights to manage real property
  for construction purposes

• Realization phase
• Order procurement procedure
• Handing construction site over to the
  Contractor
• Realization of construction and assembly works
• Establishment of land easement

• Acceptance and commissioning phase
• Completion of construction and assembly works
• Acceptance of works
• Notification of competent authorities,
• including handing-over of trial and test
  reports
• Acquisition of a utilization permit
• Exploitation and utilization of the facility

SCDSD Study of Conditions and Directions of
Spatial Development LSDP Local Spatial
Development Plan
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General Information
Two schedules were analysed
Schedule 1 construction period 2008-2012
Schedule 2 construction period 2008-2015
Scenario 1 60 of investments expenditures are
covered by grant (142 mln Euro) Scenario 2 30
of investments expenditures are covered by grant
(71 mln Euro) Scenario 3 0 of investments
expenditures are covered by grant (0 mln Euro)
Scenario 4 60 of investments expenditures are
covered by grant (142 mln Euro) Scenario 5 30
of investments expenditures are covered by grant
(71 mln Euro) Scenario 6 0 of investments
expenditures are covered by grant (0 mln Euro)


Additional scenario to specify amount of grant
ensuring positive evaluation of the project's
cost-effectiveness
Additional scenario to specify amount of grant
ensuring positive evaluation of the project's
cost-effectiveness
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General Conclusions
Schedule 2008-2012

• Even 142 mln Euro grant does not guarantee
  positive evaluation of the project's
  cost-effectiveness. NPV for the project and for
  equity are below 0.
• In some periods (years) problem with liquidity
  may occur.
• To ensure liquidity the Company's revenue must be
  at the higher level.

IRR for the project 10 IRR for equity 10,48
NPV for the project 28,5 million EUR NPV for
equity 0,9 million EUR
The grant on the level of 75 of investment
expenditures (177,9 mln Euro) ensures positive
evaluation of the project's cost-effectiveness
and no liquidity problems.
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General Conclusions
Schedule 2008-2015

• Even 142 mln Euro grant does not guarantee
  positive evaluation of the project's
  cost-effectiveness. NPV for the project and for
  equity are below 0.
• In some periods (years) may occur problem with
  liquidity.
• To ensure liquidity the Company's revenue must be
  at the higher level.

IRR for the project 11.23, IRR for equity
11.1 NPV for the project 35.4 million EUR NPV
for equity 2.2 million EUR
The grant on the level of 80 of investment
expenditures (189,7 mln Euro) ensure positive
evaluation of the project's cost-effectiveness
and no liquidity problems.
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Power Lines Crossing the Polish Border in the
East

• Currently operating
• 220 kV, Zamosc Dobrotwór line,
• Operation temporarily suspended
• 110 kV, Brzesc Wólka Dobrynska line
• 220 kV, Ros Bialystok line,
• 750 kV, Chmielnicka Rzeszów line.

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Use of Polands Eastern Cross-border Lines to
Power Exchange with Lithuania

• Operation of cross border connections with
  Belarus and Ukraine may help to ensure power
  supply continuity during the Polish power grid
  development period
• After decommissioning of the Ignalina NPP,
  electricity delivery to the Republic of Lithuania
  may be to some extent performed through the
  territories of Belarus and Ukraine
• Eastern cross border power lines may also be used
  for future electricity transmission from the new
  Ignalina NPP to Poland.

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Thank you for your attention !