Russia will decide whether we Lithuaina will have electric power

September 23, 2008 at 6:55 pm 2 comments

I would like to present you with absolutely brilliant analysis of the current and the short-term Lithuania’s energy market situation.  This article was written by Audrius Paciulis and published in the weekly ‘Veidas’ on September 15.

It is very likely that Lithuania will have a shortage of electric power in January-February 2010.   From 1 January 2010 – the time by which the Ignalina Nuclear Power Plant (IAE) has to be decommissioned – the main raw material for production of electric power in Lithuania will be natural gas imported from Russia. Even if its price does not go up, (which is highly unlikely), still, the main electric power producers in the country will be thermoelectric power stations, including the biggest power station located in Elektrenai. The price of electric power produced by this power station is four times higher than the price of the electric power produced by the main electric power supplier so far – the IAE.

A parliamentary election campaign has started in Lithuania. This is why all the political parties, including the government, are working in the election mode. This means that all their time and effort is dedicated to the election campaign and to the meetings with the electorate, and the routine work is ignored for the time being. The problem is that some issues that are vital, for example, the supply of electric power after the shutdown of the IAE, cannot be ignored.

November 2008 is the deadline for the Lithuanian thermoelectric power stations to inform Gazprom about how much gas they are going to purchase in 2010 and later on, when these power stations will be burdened with the responsibility to provide Lithuania with electric power. In order to do that, the thermoelectric power stations need to receive a clear reply from Leo LT how much energy and from which suppliers – thermoelectric power stations, hydroelectric power stations, or other suppliers – it is going to purchase electric power, and how much of this electric power it is going to import. However, just like its predecessor, the Lithuanian 0.3 TWh.

Moreover, we need to take into consideration that the Scandinavian electric power is produced mostly by hydroelectric power plants. It is cheap only during the rainy periods, but it is not cheap in winter, when Lithuania needs the electric power the most. We could import some more electric power from Latvia, which launched a new thermoelectric power plant with the capacity of 400 MW, and which is in the process of building another generator of the same capacity.

Of course, we can assume that when the economic recession starts and the prices of electricity go up, the residents and the industries will start saving energy, and the need for electric power in 2010 will be less by at least 1 TWh than forecasted (especially if nature has mercy on us and the winter is mild). It is very likely that Lithuania will have a shortage of electricity in January-February 2010. Of course, the consumers may not necessarily feel this shortage, but businesses (especially the companies that do not have their own power plants) will have to go on an electric-power diet.

And the most important thing is that after we shut down the IAE, which produces cheap electric power (the electric power purchased from the IAE costs 6.8 cents per kWh), the price of electric power will undoubtedly double, because the cost price of the electric power produced by the Elektrenai thermoelectric power plant, if the prices of gas remain at the same level, is about 27-36 cents per kWh. If we add to the cost price the 21 cents per kWh for supply and distribution, the 8 cents per kWh of pollution tax, and another 3 cents per kWh of the price increase because the Kruonis hydroelectric power plant changed its status and because there are plans to increase the prices of the electric energy distribution and transfer in 2010, we will have to pay at least 59 cents per 1 kWh of electric power (current price the private consumers pay is 33 cents, including VAT; business companies pay more Lietuvos Energija, LEO LT is not providing the electric power producers with this information.

“This is a traditional scenario and a traditional problem,” one well-known energy specialist told Veidas. “Lithuanian Energy used to do the same. First it would say it was planning to purchase electric power from the Elektrenai and other thermoelectric power stations. It would demand lower prices, and then, the very last moment, it would announce that it agreed with Russia on the import of a cheaper electric power.

As long as the IAE, which produces two-thirds of all the electric power generated in Lithuania, is in operation, such a scenario is possible. But the situation will change radically after 2010, because the main electric power producers will be the power stations working on gas on oil. And these power stations need to take care of their supplies in advance, because the gas supply contracts are made in advance, and it will not be possible to suddenly purchase a big amount of energy resources (or at least cheap energy resources) from Russia, because it itself is f! acing a shortage of electric power, especially in winter,” he added.

If the Elektrenai thermoelectric power station is working at full capacity, it can produce up to 8 TWh [terawatt hours] of electric power per year, and thus compensate for the capacity that will be lost after the IAE, which is producing up to 9 TWh per year, is closed. If we add the capacity of other power stations, Lithuania will be able to produce up to 11.23 TWh of electric power in 2010, which is the capacity we will need in 2010.

However, this means that a considerable increase in gas import will be needed to ensure that the thermoelectric power stations can work at full capacity. The increase should be from the current 0.7 billion cubic meters to 2.3 billion cubic meters of gas import in 2010. This means that the total Lithuanian import of gas will have to be increased from the current 3.03 billion to 4.9 billion cubic meters.

Theoretically speaking, there is such a possibility. The former chief of the State Prices and Energy Control Commission, Professor Vidmantas Jankauskas, told Veidas that when Lithuanian Gas was privatizes, it was agreed with Gazprom that it would guarantee gas supply until 2015. Moreover, there is a possibility to increase the volume of the gas import to 6-7 billion cubic meters.

But there are two problems. The first one is that the capacity of the gas supply network that is used to deliver gas to Lithuania and Kaliningrad is not sufficient to double the throughput. It would take about 1 billion litas of investments to increase the throughput. But we have not heard so far about any steps taken by the government in this direction, even though this need was expressed in November 2007, during the meeting of the parliamentary committees on European affairs, foreign affairs, and economy.

The second problem is that we should negotiate with Gazprom the already rapidly growing need for gas supply now, so that we could reach an agreement in November. But the government is busy with the parliamentary elections, or does not have time, or does not see why it should take care of that, hoping to pass on this headache to the new government, which will be formed after the elections.

The Prices of Electric Power Will Double
And that is not all. We need to negotiate the much higher volume of gas import, and we need to negotiate the import of electric power, because up until now Lithuania has been importing the electric power it needed on an annual basis. So far, the biggest electric power exporter to Lithuania was Russia. For example, we are planning to purchase up to 1.25 TWh of electric power this year. A small amount of electric power is purchased from Latvia (during the high-water season, when the Riga hydroelectric power plant is working at full capacity).

After we build the electricity link with Sweden, we will be able to purchase more electric power from Scandinavia. The import of electric power was compensated for by the export of the cheap electric power produced by the IAE. But starting in 2010, when the IAE is closed, the forecast volume of import [as published] will decrease drastically from 1.42 to 0.8 TWh.

Moreover, we will have to look for other electric power suppliers. Russia, which according to forecasts will be consuming more electric power and will face a shortage of generating capacity, will be able to sell us only about 0.2 TWh (which is six times less than it sells us now). The import of electric power from Scandinavia should grow, from the current 0.06 per cent to 0.42 TWh.

The specialists who advised Veidas on the issue warn that the intention to purchase so much electric power from Scandinavia may turn out to be too optimistic. In their opinion, a real expectation would be a mere 0.1 TWh, in exceptional cases – up to Moreover, we need to take into consideration that the Scandinavian electric power is produced mostly by hydroelectric power plants. It is cheap only during the rainy periods, but it is not cheap in winter, when Lithuania needs the electric power the most. We could import some more electric power from Latvia, which launched a new thermoelectric power plant with the capacity of 400 MW, and which is in the process of building another generator of the same capacity.

Of course, we can assume that when the economic recession starts and the prices of electricity go up, the residents and the industries will start saving energy, and the need for electric power in 2010 will be less by at least 1 TWh than forecasted (especially if nature has mercy on us and the winter is mild). It is very likely that Lithuania will have a shortage of electricity in January-February 2010. Of course, the consumers may not necessarily feel this shortage, but businesses (especially the companies that do not have their own power plants) will have to go on an electric-power diet.

And the most important thing is that after we shut down the IAE, which produces cheap electric power (the electric power purchased from the IAE costs 6.8 cents per kWh), the price of electric power will undoubtedly double, because the cost price of the electric power produced by the Elektrenai thermoelectric power plant, if the prices of gas remain at the same level, is about 27-36 cents per kWh. If we add to the cost price the 21 cents per kWh for supply and distribution, the 8 cents per kWh of pollution tax, and another 3 cents per kWh of the price increase because the Kruonis hydroelectric power plant changed its status and because there are plans to increase the prices of the electric energy distribution and transfer in 2010, we will have to pay at least 59 cents per 1 kWh of electric power (current price the private consumers pay is 33 cents, including VAT; business companies pay more).

Source Veidas and the BBC Monitoring Service

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Entry filed under: Baltic States, Belarus, Economics, Energy, Estonia, Finland, Latvia, Lithuania, Northern Europe, Oil, Poland, Politics, Russia, Scandinavia, Sweden. Tags: .

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2 Comments Add your own

  • 1. jimamily  |  August 20, 2010 at 8:50 am

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  • 2. jimamily  |  August 20, 2010 at 11:08 am

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