The Baltics Going Nuclear: Can a Regional Energy Strategy Work?
Central Europe Digest
Posted: 18 Aug 2006
A recently issued draft of the Lithuanian National Energy Strategy spells out a sad state of affairs in the energy sector. The document acknowledges that over the fifteen years of its independence, Lithuania has not managed to overcome the isolation of its energy system from those of Western countries and its excessive reliance on Russian energy sources.
In spite of efforts to diversify, the country continues to rely on Russia for supply of close to 90 percent of its crude oil and 100 percent of gas. Furthermore, Lithuania's electric energy system still operates on a closed circuit inherited from the Soviet era, with no direct access to Western electric energy markets. Lithuania has no other electricity connections except for those with Latvia, Russia and Belarus. While Lithuania's current power needs are fully satisfied by its only nuclear power plant (NPP), it will be decommissioned in 2009 in accordance with the country's obligations set out in the European Union accession treaty, which will turn the country from a large exporter of electricity into a net importer. Essentially, Lithuania - along with its neighbours Latvia and Estonia - make up a "Baltic Island" that is virtually cut off from energy suppliers other than Russia.
While on the face of it economic fundamentals - proximity, existent infrastructure, and matching technical grid specifications - ought to strongly favour reliance on Russian energy resources, the Baltic states learned long ago to distrust their resource-laden neighbours. From an outright energy blockade in 1990 to more subtle stoppages of the crude oil supply to Lithuania's only oil refinery, Russia has proved willing to withhold oil and gas supplies for political and economic reasons. And, despite predictions that the Baltic region would get on more easily with Russia once it joined the EU, this is not happening. Putin's Russia is no longer pounding her fist or threatening with diplomatic notes. Instead, it is carrying out energy infrastructure projects aimed at circumventing the Baltic region: the new crude oil pipeline and oil export terminal in Primorsk aimed to exclude Latvian ports, the German-Russian gas pipeline across the Baltic Sea, and a new electricity supply line from Leningrad to Finland. This will effectively provide Russia with an asymmetric response option in the energy field: termination of energy supplies to countries whose policies run counter to those of Russia.
These steps are a cause of grave concern to the Baltic countries and are reflected in the newly-issued Lithuanian National Energy Strategy. As Lithuania's previous experience indicates, going it alone will not free the country from the vicious circle of energy dependence. Now the country and her Baltic neighbours are determined to try a regional strategy in earnest. The core of the strategy is to build a new nuclear power plant in Lithuania which would serve the needs of the entire region, including the Nordic countries, the Baltic states and Poland. Expectations are that the plant would be erected at the site of the old one once the latter is decommissioned in 2009. The new 800-1000 MW nuclear power plant is estimated to cost approximately $ 3.6 billion and would start operating in 2015-2017. Construction of the new plant would be financed by all three Baltic states in equal shares. In February of 2006, the three countries issued a joint communiqué whereby they committed to prepare a regional energy strategy outlining the optimal NPP construction cost-sharing mechanism by 2007.
The idea behind opening a new nuclear power plant is to set it as a vehicle for further integration into Western energy markets. In addition to assuring electricity supply to the Baltic States, the new plant would serve as an enticement for Nordic countries and Poland to finally implement electricity bridges connecting Lithuania and other Baltic States to Western electricity grids. In the past, Lithuania has found it difficult to convince the Polish government of the necessity of such an electricity bridge because the total cost of the project would run at approximately 430 million euro and Poland would have to perform significant renovations of its electricity grid. Now, however, with the prospect of cheaper energy and new power capacities emerging in Lithuania, Poland might reconsider the economic rationale of the power bridge project. The Speaker of the Polish Parliament, Marek Jurek, recently indicated that Poland, along with the power bridge project, would consider joining the Baltic initiative to construct a nuclear power plant. A Polish power bridge - along with planned Swedish and Finish connections - would fully integrate the Baltic electricity ring into NORDEL (Scandinavian) and UCTE (Western European) networks and would enable all of the participants to share power reserves.
Construction of a nuclear power plant and implementation of power bridges with Western Europe would accomplish several objectives at once: it would balance the Baltic energy system by supplementing access to Russian resources with access to the Western energy market; it would reduce the need to import natural gas to the region from Russia (nuclear energy is currently the only viable and cost-effective alternative to natural gas); it would balance the energy needs of the Nordic countries and Poland - whose power demand is expected to outstrip supply by 2020-2025; and, incidentally, it could become a viable power reserve for Russia and Belarus in emergency cases.
The tricky part of this project is that it cannot materialise without extensive regional co-operation. The Baltic energy market alone is too small to sustain a nuclear power plant; due to high start-up costs, the project can be made commercially feasible only by integrating it into Nordic and Polish grids and Western energy trade networks. Furthermore, the new reactor will require not only grid interconnectivity but also new commercial agreements with the neighbouring EU countries concerning the maintenance of power reserves and other systemic services. Obstacles, protracted negotiations and misgivings in this process could lead to increased project costs and adverse domestic policy implications. As recognised by most experts in the field, mere consolidation of the Baltic energy companies and market will not be sufficient to carry out the project. The Baltic states will need to align the energy interests of other stakeholder countries through the setting up of a regular forum and sensitizing the European Union to the strategic importance of this project in order to sustain the impetus behind the initiative.
Arunas Gricius holds a M.A. in International Relations and European Studies from Central European University in Hungary. He is currently employed at a development agency in Lithuania.
The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.