Submited by Krišjānis Kariņš, MEP, Latvia
to Turku School of Economics
Electronic Publications of Pan-European Institute
In Europe, we spend a lot of time talking about the importance of the internal market. Although the market functions quite well in many areas, in the field of energy the internal market cannot function fully for the basic reason that Europe still lacks grid interconnections between Member States, and still retains an “energy island” in the northeast. The gas and electric grids of the three Baltic countries of Estonia, Latvia, and Lithuania are still almost completely isolated from the rest of the EU. There can be no functioning internal market for energy without a fully integrated grid system.
This energy isolation is a result of the full incorporation of these countries into the former Soviet Union. During the 50 years of Soviet occupation, the energy grids in the Baltics were completely folded into the Soviet grid system, to whose successor countries they are still intricately linked today. Although the Baltic countries remain mostly isolated from the rest of the EU, they retain and regularly utilize the interconnections that they share with each other in both the gas and electricity sectors.
The current sole exception to Baltic energy isolation is the Estlink electrical connection between Tallinn and Helsinki, which is currently undergoing capacity expansion. After many years of discussion, other large inter-connector projects are also finally getting underway for electric grid connections between Lithuania and Sweden and Lithuania and Poland within the framework of the Baltic Sea Strategy. As these projects come on line, security of electric supply for the Baltics will only increase, as will their ability to participate in the internal market as producers and sellers of energy, as well as buyers.
The Baltic gas grid, on the other hand, remains completely isolated from other EU countries, which means that there is currently no end in sight to the 100% dependence on Russian gas supply. Indeed, as I have seen in the central control room of Gazprom in Moscow, the large underground storage facilities at Inčukalns in Latvia are viewed by Gazprom as an intricate part of the broader Russian gas supply system. After all, this storage facility supplies gas to the St. Petersburg area in Russia during the long winter months. Gazprom effectively owns not only the gas resources, it also controls the gas distribution system in the Baltics. There would be no interest from Russia’s side to change this situation.
As large EU projects such as Nordstream (between Germany and Russia) unfold, the isolation and hence vulnerability of Baltic gas supply will only increase. Currently, the EU acquires most of its Russian gas via Ukraine, which means that when Russia exerts pressure on Ukraine via the gas sector, the entire EU is concerned and gets involved in finding a solution. If Ukraine, as well as Poland and the Baltic countries are circumvented via Nordstream, possible Russian pressure on these countries will not directly affect the rest of the EU, and hence potentially leave these countries in a much worse situation than today.
This situation is compounded by the fact that as of January 2010, the Ignalina nuclear power station in Lithuania has been shut down, according to the accession agreement to the EU in 2004. In terms of electric generation, Ignalina accounted for 70% of Lithuania’s electrical generation, or 111% of electric consumption, which means that Lithuania was a net exporter of electricity until the closing of the Ignalina plant. Its northern neighbor Latvia produces only about 70% of consumption, which means that it was a buyer of electricity from Lithuania (among others). The gap in Lithuania and Latvia in electric supply will be partly compensated by electric production via oil shale in Estonia (whose production accounts for 169% of consumption in Estonia), partly by ready electricity imports from Russia and Belarus, partly by increased use of renewables, and partly by increased use of gas-fired electric generation plants in the Baltics, which before the closing of the Ignalina plant already accounted for about 9% of consumption in Estonia, 29% in Latvia, and 27% in Lithuania.
Besides building new gas grid interconnections between the Baltics and the rest of the EU, the other way to reduce this (growing) gas dependency on Russia is through the increased use of renewable resources, which is in line with the EU strategy for increasing the overall share of renewables in the EU to 20% by the year 2020.
In the Baltic countries, the leader in renewables is Latvia, which has an overall rate of 32% of renewable resources in its energy mix. This comes from utilizing the ample hydro and forest resources that abound in the country. Latvia is currently the second “greenest” country in the EU, and one of the “greenest” countries in the world. In the electricity sector, renewables account for 42% of consumption.
Lithuania’s and Estonia’s situations are different. In Lithuania, renewables account for 23% of its overall energy mix, with about 13% renewables in the electricity sector measured against consumption. If more natural gas capacity comes on line in Lithuania, this percentage could decrease. In Estonia, the rate of renewable resources in the overall energy mix is about 17%, with only about 3% of production in the electricity sector measured against consumption. The pervasive utilization of oil shale in Estonia will also be potentially decreasing as environmental requirements will diminish production in the coming years.
It should be taken to mind that increasing the share of renewable resources alone will not secure energy supply in the Baltics. Even Latvia with its 42% rate of renewable resources in the electricity sector produces only 70% of its total consumption. The Baltics will continue to also utilize fossil fuel sources coming from outside of their borders.
The full solution to energy security in the Baltics is by not only increasing the use of renewables and possibly building a new nuclear power plant, but by also becoming fully integrated into the EU electricity and gas grids. Grid interconnections are a prerequisite for a functioning internal energy market, which is the best guarantee of energy security not only for the Baltics, but for all of Europe.
