Renewable Energy for Lithuania: Offshore Wind

RENEWABLE
ENERGY FOR
LITHUANIA

Policy Architecture to Promote Offshore Wind
10/16/2009
Energy

Prospectus for Policy Analysis Exercise
Justinas Pagirys / MPP 08-10

Renewable energy for Lithuania

Table of Contents

1. DEFINING THE PROBLEM ...............................................................................................................2
1.1. Context ............................................................................................................................................2
1.2. Background of the Problem ........................................................................................................2
Need for a policy intervention ............................................................................................................2
Current electricity production infrastructure in Lithuania ................................................................3
Role of Wind Power in Electricity Generation .................................................................................4
Current Wind Related Regulations .................................................................................................... 5
2. RESEARCH QUESTION ....................................................................................................................6
3. METHODOLOGY .............................................................................................................................6
3.1. Analytical Framework - Criteria for Assessment ..................................................................... 6
3.2. Research Methodology ................................................................................................................7
4. WORK SCHEDULE ...........................................................................................................................7

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1. DEFINING THE PROBLEM

1.1. Context

Energy production in Lithuania is facing multiple challenges. In the European Union, besides operating Soviet
built nuclear reactor (to be closed by January 2010), Lithuania is known for complete dependence on Russian
oil and gas supplies, absence of electricity grid integration with Western Europe and lag of climate change
policies.
At the same time, EU is taking a lead in combating global climate change. In March 2007 European leaders
signed up to a binding EU-wide target to produce 20% of their energy needs from renewable sources
(biomass, hydro, wind and solar power) by 2020. Council decision also included a minimum of 10% biofuels in
overall fuel consumption by 2020 (same across all member states).1
On 23 January 2008 the Commission put forward differentiated targets for each EU member state.
Calculations were based on per capita GDP, current energy production structure, and potential of the
alternatives. In 2005 share of renewables within the EU was 8.5% (measured in terms of gross final energy
consumption), while in Lithuania - 15%. Hence while EU target is 20% by 2020, Lithuania was assigned to
reach 23%.2 The renewable energy sector includes electricity, heating and cooling, and transport, and it is left
to each Member State to determine the manner in which each will contribute based on their national
circumstances.
End of June, 2010 is a set deadline for the EU states to present their National Renewable Energy Action
Plans: respectively, Lithuania is expected to bring forward own national framework on renewable energy
development.3

1.2. Background of the Problem
Need for a policy intervention
Climate change essentially is the problem of “global commons”. Preserving stable climate conditions is public
good, and an imperative for the governments to address the externalities created by carbon-intensive
economies.
First of all, governments have an obligation to force CO2 emitters internalize the contamination. Since polluted
air has adverse impacts on health and climate change threatens with tremendous financial costs,4 sustainable
energy producers should be provided with leveled platform. Contamination has price and it must be reflected
in energy production systems.

1
Pew Center on Global Climate Change, "European Commission’s Proposed "Climate Action and Renewable Energy Package", January 2008",
http://www.pewclimate.org/docUploads/EU-Proposal-23Jan2008.pdf
2
European Commission, Renewable Energy Targets, http://ec.europa.eu/energy/renewables/targets_en.htm
3
European Commission, “Commission Decision of 30 June 2009, establishing a template for National Renewable Energy Action Plans under
Directive 2009/28/EC of the European Parliament and of the Council”, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:182:0033:0062:EN:PDF
4
Nicholas Stern, The Economics of Climate Change, http://www.hm-treasury.gov.uk/d/Summary_of_Conclusions.pdf

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Secondly, energy market is distorted due to unpriced externalities such as historical subsidies for conventional
energy producers and presence of persistent non-technical barriers. States have been financially supporting
traditional energy producers,5 while alternative energy faces barriers as information asymmetry, first cost
hurdle and investor bias, inflexible infrastructure and etc.6
Thirdly, positive externalities of sustainable energy have not been appreciated by policymakers. Successfully
developed, alternative technologies offer bunch of benefits – energy security7, job creation and healthy
environment.

Current electricity production infrastructure in Lithuania
To a large extent Lithuania depends on Ignalina nuclear power plant which has been generating 75-88% of
the total electricity production since 1993. Nevertheless, in 2004 Unit 1 was closed, and the shutdown of Unit
2 is set by the end of 2009.
For renewable electricity production, market is dominated by hydro power. In 2004, it generated 421 GWh
out of a total 429 GWh provided by renewables. Small-scale hydro power is growing (average annual
growth of 20% between 1997 and 2004), but has limited potential due to topographical constrains.8
As of today, other renewable sources play only minor role in electricity production.

Electricity Generation (TWh) by fuel, 1990 - 2006
18.00
16.00
Elec. Generation (TWh)

14.00
12.00 Oil (TWh)
10.00
Gas (TWh)
8.00
6.00 Nuclear (TWh)
4.00 Renewables (TWh) (*)
2.00 Other (TWh) (***)
0.00

Source: European Commission, Derectorate-General for Energy and Transport (DG TREN), EU ENERGY IN FIGURES 2007/2008 (Update, EEA
June 2008), http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.pdf

What is more, closure of the Ignalina nuclear power purports substantial restructuring of the electricity market.
From net exporter of electricity, Lithuania will become importer, raising issues of energy security, reliability
and price.

5
Balsas.lt, “Penktadalis elektros kainos – šilumininkams”, http://www.balsas.lt/naujiena/301671/penktadalis-elektros-kainos-
silumininkams/rubrika:naujienos-verslas-ekonomika
6
Bejamin Sovacool, “Renewable Electricity for Southeast Asia. Designing the Right Policy Architecture”, 14.
7
Security will become critical after the closure of nuclear power plant by the end of 2009. Lithuania will increase significantly dependence on
gas and electricity supplies from foreign states, including Russia.
8
Directorate - General for Energy and Trasport, "Lithuania Renewable Energy Fact Sheet", 23 January 2008,
http://www.energy.eu/renewables/factsheets/2008_res_sheet_lithuania_en.pdf.

Page 3


Future export – import balance (electricity) 2009-2011
Year 2009 2010 2011
Export Import Export Import Export Import
Estonia9 1858.2 60 0 1500 0 1500
Latvia 305.6 105 0 145 0 145
Russia 240.0 382 0 1561 0 1161
Belarus 204.0 0 0 200 0 200
Scandinavia 392.2 12 0 600 0 1000
Ukraine 0 0 300 0 300
3000 559 0 4306 0 4306

Source: Ministry of Energy of the Republic of Lithuania, "Security of Supply in Lihuanian Electricy Market. Monitoring Report, 2009",
http://www.ukmin.lt/lt/veiklos_kryptys/energetika/elektra/doc/Monitoringas_2009.pdf

Given the issues of climate change, EU targets and security issues, Lithuania government has a clear
imperative to promote capacity of renewable electricity production.

Role of Wind Power in Electricity Generation
This PAE narrows down the analysis to one auspicious technological solution. Reflecting Europe-wide trend of
wind energy preference,10 technical studies of Lithuanian electricity potential suggest wind power to be the
most promising alternative.11

Predicted development of renewable energy in Lithuania (thousands Mtoe)
2008 2010 2012 2014 2016 2018 2020
Directly consumed 539 559 579 600 622 644 668
Hydropower 34 38 39 41 42 43 44
Wind power 11 33 54 86 128 148 200
Other renewables 6 8 13 19 26 35 48
Biofuels 74 121 160 206 257 317 390

Source: LITBIOMA, Lithuanian Biomass Energy Association, Action Plan to Promote Renewable Energy Sources 2010 - 2020, Report,
http://www.ukmin.lt/lt/veiklos_kryptys/energetika/bendrieji_dokumentai/doc/Ataskaitos_2008/Atsi_EI.pdf

The geographical conditions for Lithuanian wind energy production are similar to those in Germany or France.
State has 99 km long costal line with average wind speed at 6.4 m/s (50 m above ground level).12 Given
average efficiency levels of 29% (land-based) and 40% (offshore), forecasts of possible expansion in wind
energy market vary from 1000MW (scientists) to 1600MW (businesses) of installed capacity.
Offshore wind brings additional benefits. It avoids intrusive visual and sound effects, fulfils the criteria for
substantial production potential and competitive price. Newsworthy, the project of “NordBalt” link (electricity

9
Role of imports from Estonia are expected to decrease as country will abandon 75% of its oil shale production capacity in 2013.
10
A total of 8,484 MW wind power capacity was installed in the EU in 2008, putting wind ahead of any other power technology - EWEA, “Wind
energy statistics”, http://www.ewea.org/fileadmin/ewea_documents/documents/publications/factsheets/EWEA_FS_Statistics.pdf
11
LITBIOMA, Lithuanian Biomass Energy Association, Action Plan to Promote Renewable Energy Sources 2010 - 2020, Report,
http://www.ukmin.lt/lt/veiklos_kryptys/energetika/bendrieji_dokumentai/doc/Ataskaitos_2008/Atsi_EI.pdf, 27.
12
Markevicius, A., Katinas, V., Marciukaitis, M., 2007. Wind energy development policy and prospects in Lithuania. Energy Policy 35 (10),
4893–4901.

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interconnector between Baltic States and Sweden) already is in the planning phase: grid development in the
Lithuania seaside may translate into additional synergies for offshore wind.
However, wind energy in Lithuania faces multiple challenges. Not a single offshore wind project has been
implemented yet. Businesses complain of imperfect legislation, financial burdens and other barriers
discouraging renewable electricity development in the country.

Current Wind Related Regulations
Two types of regulations affect offshore wind power in Lithuania. Firstly, wind power is subject to broad
renewable energy promotion policies (such as R&D investments and feed-in-tariffs). Secondly, bunch of
legislation acts regulates the way wind power should be developed and integrated into the grid (land use
regulations and etc).
Simplified content of renewable promotion policies is outlined below. However, finding shortcomings of other
regulations requires interaction with major stakeholders: industry representatives, bureaucrats, businesses and
NGOs.
Feed-in-tariffs
In 2002 the National Control Commission for Prices and Energy approved the minimum purchase prices for
renewable electricity. In 2008 the Commission revisited green electricity prices, setting feed in for wind (both
onshore and offshore) at 8.6 €cents/ kWh. The tariff level was guaranteed for a period until the end of
2020.
Exemption from Excise duty
Exemption from excise duty for renewable electricity was assured by the Law on Excise Duty (will come into
force since the beginning of 2010).
Grid – related issues
Law on Electricity requires operators ensure priority for renewable electricity if the transmission and
distribution conductivity of networks is limited. There also is a 40% discount for power plants connection to the
grid.
Purchase obligation
By Order of 27 December 2006, Minister of Economy drew a list of public services in the electricity sector.
Production from renewable sources is among the listed services and encompasses not only electricity
production but also Connection of electricity generation facilities using wind energy, biomass, solar energy or
hydro energy to transmission or distribution networks. Pursuant to the Regulations holders of the electricity
supply license are obliged to purchase renewable electricity and sell it to their customers. The transmission
network operator shall ensure transportation priority for the renewable electricity when the network
throughput is limited.13
Green mechanism

13
Energy Agency, “Report Of The Republic Of Lithuania On The Implementation Of The Requirements Of Article 3 And Article 5 Of Directive
2001/77/Ec Of The European Parliament And Of The Council Of 27 September 2001 On The Promotion Of Electricity Produced From
Renewable Energy Sources In The Internal Electricity Market”, http://www.ena.lt/doc_atsi/Report_77EC.pdf, 7.

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After 2010, a green certificate scheme should be in place. The implementation of this mechanism has been
postponed until 2021.
Financial support for the investment
Public Company “Lithuanian Environmental Investment Fund” was established by the Ministry of Environment of
the Republic of Lithuania in 1996. The main fund source of the LEIF is environment pollution tax. LEIF provides
soft loans for financing environmental projects the implementation of which is expected to reduce the adverse
impact of economic activities on the environment as well as subsidies for financing renewable energy projects.
The maximum amount of the loan extended by LEIF is 1.5 mln LTL for one project. The maximum payback
period is 5 years. The amount of the subsidy for one beneficiary may not exceed 350,000 LTL (or 101367
EUR) in 3 years and 70 of the total investment amount.14

2. RESEARCH QUESTION
The study aims to recommend government policy architecture to promote renewable energy development:
case focuses on electricity production from offshore wind power in Lithuania.
The sub-questions to be addressed:
The potential of offshore wind power in country.
Best practices of renewable support policies in the region (and wind power promotion in particular).
Current renewable energy promotion policy framework in Lithuania and its effectiveness.
Other barriers for offshore wind to contribute to the electricity supply.
The policy question reflects the immediate concerns of the Ministry of Energy of the Republic of Lithuania.
Addressing issues of EU commitments, energy security, sustainability and cost-efficiency, the Government will
tailor National Renewable Energy Action Plan by June 2010. Consequently, this paper seeks merit of
delivering comprehensive policy advice beforehand.

3. METHODOLOGY

3.1. Analytical Framework - Criteria for Assessment
The PAE will utilize the analytical framework developed by Benjamin Sovacool.15 In the first place, study will
deliver assessment of existing renewable promotion policies judging by four criteria16 (and focusing on the
impact for offshore wind):
Efficacy (ability of the mechanism to achieve goals);
Cost effectiveness (ability to reach target at lowest social cost);
Equity (equitability in terms of support for different stakeholders: e.g. manufacturers and users);
Fiscal Responsibility (the cost of policy framework for the government).
Secondly, PAE will examine other barriers discouraging offshore wind development in the country. Utilizing
material from the interviews and analyzing public discourse, study will identify other (if any) financial, legal,

14
Energy Agency, 9
15
Sovacool, 17-18
16
PAE framework omits “dynamic efficiency” factor since only offshore wind is analyzed. Ability to encourage basket of technological solutions
is less relevant in this case.

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and technical hurdles for offshore wind. Based on these findings, PAE will draw recommendations either to
renewable promotion policies or other public policy shortcomings for the government to address.

3.2. Research Methodology
Based on the criteria outlined above, study will evaluate the renewable energy support policies and the
impact they have on offshore wind development. In order to achieve comprehensive assessment, following
methods will be utilized:
Extensive review of academic (peer-review) literature will help draw general insights how various
policy frameworks affect wind power development. This will encompass best practices in comparative
cases—especially European context.

Academic literature review will be supplemented with in-depth qualitative interviews with major
stakeholders in the country. The aim is to interview representatives from traditional electricity supply
industry, bureaucracies and regulating authorities, green businesses, research institutions and non-
governmental organizations—20 in total. In addition to the assessment of existing renewable energy
promotion policies, interaction with stakeholders is expected to provide with insights on other barriers
(technical, financial, regulatory) for offshore wind.

4. WORK SCHEDULE
Time Period Tasks Deliveries
Finalizing PAE prospectus Final PAE prospectus (October 16,
October 2009 Examining renewable energy promotion policies in 2009).
Lithuania

Preparing guidelines for interviews and list of possible Preliminary arrangements for the
respondents interviews.
November 2009
Reviewing academic literature on renewable promotion
policies

December 2009 - Conducting interviews in Lithuania Submitting progress report (due
January 2010 Writing progress report January 4, 2010).

Consolidation and initial analysis of data collected PAE Research Report (Due January 31,
January 2010
Writing fieldwork research report 2010).

Finishing research, delivering PAE draft PAE Draft (February 28, 2010).
February 2010
Preparing presentation

Oral presentation Oral presentation (March 2010)
March – April 2010
Final editions of PAE paper Final PAE April 15, 2010.

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Renewable Energy for Lithuania: Offshore Wind

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