THREE BALTIC STATES SAY “YES” TO NUCLEAR ENERGY

The following report by Jonas Gylys, President of the Lithuanian Nuclear Energy Association and Stanislovas Ziedelis, Secretary General of Lithuanian Nuclear Energy Association summarises the recent energy history of the Baltic States, highlights the ongoing EU energy policy debate and focuses on the future as expressed collectively by the leaders of Lithaunia, Latvia and Estonia.

Striving to fulfil the EU’s accession requirements, the Parliament of Lithuania decided to close the Ignalina NPP, with its two RBMK-1500 type reactors. Fulfilment of the decision started in December 31, 2004, when the first reactor at Ignalina NPP was shut down. Then second reactor should be shut down at the end of 2009. This closure will negatively affect the energy sector of all the Baltic States.

In recent years, discussions at different levels about the future energy options of Lithuania, Latvia and Estonia have continued to intensify. Several studies and research projects concerning the analysis and forecasting of possible future changes in power balance of Lithuania and entire Baltic region have been carried out. The results can be summarised as follows:

1. Power reserves are decreasing, and the energy balance has become negative in the most countries – those neighbouring on Lithuania.

2. The power balance in the Lithuanian energy system will become negative sometime between 2010 and 2020 and new bigger power generating capacity is needed if the balance is to remain positive. New nuclear power plants or combined-cycle gas turbine power plants could achieve this purpose.

3. Lithuania’s energy supply system once the Ignalina NPP is finally shut down will not comply with the main security requirements and will be extremely vulnerable due to lack of diversification of primary energy sources and energy supply routes. Security of energy supply could be substantially improved if new modern nuclear power plant were built.

These well-known arguments were further reinforced by the important changes in the gas market that occurred in January 2006. A sudden jump in gas prices from GASPROM (about 40%, on average, for Lithuania) and interruptions of the gas supply from Russia to Ukraine and Georgia demonstrated that problem of security of energy supply have becomes much more important than other considerations.

In order to coordinate future activities for ensuring security of energy supply, a meeting between the Prime Ministers of Estonia, Latvia and Lithuania was organized, in Trakai (Lithuania), on February 27, 2006. Two official documents of great importance to the Baltic States’ energy sector were signed during the meeting – the “Declaration” and the “Communiqué.”

In the Declaration it is stated the following:

• referring to the forthcoming European Commission Green Paper on Secure, Competitive and Sustainable Energy for Europe and to the European Council in March 2006, and welcoming the initiative of the Austrian Presidency regarding the need to develop a new energy policy for Europe;

• seeking to achieve the EU’s energy objectives, especially with regard to its primary goal of creating a safe, competitive and secure internal energy market;

• taking into account the sensitive issue of security of energy supply in the Baltic States and the fact that the Baltic States do not have any gas and electricity interconnections with other EU Member States, and therefore do not have possibilities to participate in the internal energy market;

• considering the necessity to reduce the dependency of the Baltic States on dominant outside suppliers of energy and

• bearing in mind that the closure of the Ignalina NPP will have serious effects on the energy security of the Baltic States;

Andrus Ansip, the Prime Minister of the Republic of Estonia; Aigars Kalvitis, the Prime Minister of the Republic of Latvia and Algirdas Brazauskas, Prime Minister of the Republic of Lithuania:

1. Express their support to the development of a common European energy policy as a guarantee to the security of supply at the Community level;

2. State that the energy security problem that affects the Baltic States should be addressed at EU level and, therefore, request that the European Commission, by the end of 2006, assesses the energy vulnerability of individual Member States and EU regions in order to propose specific actions - at the EU level - for reducing this vulnerability. In order to integrate the Baltic States into the EU energy market, it is necessary to define appropriate measures that would diminish the existing fragmentation of the EU energy market.

3. Consider that there is a need to integrate the EU’s energy, external relations and security policies. A harmonized EU external energy policy should be established vis-à-vis third countries and organisations, notably with Russia and the OPEC countries. The European Union should speak to suppliers of energy in one strong voice. For example, the Community and international instruments, such as G-8, WTO, Energy Charter Treaty, should be effectively employed to ensure the transparency of energy supply and the liberalisation of energy markets.

4. Call for the development of an EU mechanism that prepares for and ensures solidarity and assistance to a country facing difficulties following damage to its essential infrastructure or disruptions in energy supply. This includes enhancing Europe’s gas stocks, inter alia utilising the vast potential storage capacity of the Baltic States to ensure against short-term supply disruptions to the European Union.

5. State that while being in favour of a common EU energy policy, the necessity to maintain national sovereignty over the choice of primary energy sources and structure of energy mix is paramount.

6. Call the European Commission and the Member States to develop an action plan of immediate measures aimed at enhancing EU energy security. Such an action plan should be approved by the Council on the basis of the above mentioned assessment of the European Commission.

After the meeting a Communiqué was signed. In the Communiqué, the prime ministers of the three Baltic States declared their collective action plan for launching concrete short-term activities to promote energy security in the region. The Communiqué outlines the aims of the action plan as follows:

• to work out a common energy strategy for the Baltic States up until the end of 2006

• to attempt to broaden the Baltic energy market until 2009 and to harmonize standards in the Baltic electricity market consistent with those applied in the Nordic countries’ electricity market (Nordpool)

• to support the construction of electricity grid interconnections between Baltic states and the rest of European Union, on the basis of full cooperation

• to promote an initiative to build a new NPP in Lithuania

• to invite state-owned energy companies in the three Baltic States to invest in the design and construction of a new NPP in Lithuania on the basis of agreed terms and conditions applicable to each party involved

• to follow the principle of consensus for all involved parties when inviting other companies to participate in the project

• to examine possibilities to erect terminals for liquid gas and to develop gas storage capacities;

• to examine the general conditions governing the importing of electricity to the Baltic States from states not included in the European economic space and the possibility of parties involved in the new NPP construction project to sign long-term contracts for the buying-selling of electricity

On the basis of the above-mentioned documents, which were agreed by the Prime Ministers of Lithuania, Latvia and Estonia respectively, the heads of the three Baltic national energy providing companies - Lietuvos Energija AB, Eesti Energia and Latvenergo - met in Ignalina, on March 8, 2006. Following that meeting, they signed a Memorandum of Understanding on the Preparation for Construction of a New Nuclear Reactor in Lithuania.

Mr. Karlis Mikelsons, chairman of the Board Latvenergo, Mr. Sandor Liive, CEO of Eesti Energia, and Mr. Rymantas Juozaitis, General Director of Lietuvos Energija AB (from left to right) signing a Memorandum of understanding on Preparation for Construction of a New Nuclear Reactor in Lithuania

The Memorandum of Understanding states, that the signatories will participate, in accordance with terms and conditions applicable to all parties, in the project and will contribute to its development. They will establish a Management Committee that will be responsible for managing and supervising the project and will delegate CEOs of all three energy companies to join the committee. The parties will share equally all expenses related to the common interests of the project. All signatories of the Memorandum of Understanding agree that in order to reduce dependence upon a single primary energy source, it is extremely important to have diversified power generation portfolio. The main issue to be solved is that of existing competition between gas-fired power plants and other energy generating sources that use other types of fuel. The parties of Memorandum of Understanding have pointed out that certain know-how has already been acquired with regards to the infrastructure required for building and operating of an NPP in Lithuania. At the same time, power companies have already developed skills needed to ensure successful cooperation.

With the signing this Memorandum of Understanding, the three countries involved launched the first preparatory phase, namely a feasibility study aimed at evaluating technological, environmental, legal and economic aspects of the project. This study will help all three countries to reach the most appropriate mutual solution and ensure the promotion of adequate electricity supplies throughout the region and the development of diversified electricity generation sources for the future. The feasibility study should be completed by November 1, 2006.

The parties will set up various working groups to prepare the feasibility study, each one preparing a study of its own. They will cover aspects such as technologies and environment, project financing, legal issues and electricity transmission that will.

The study prepared by the Working Group for Technologies and Environmental Issues will tackle essential issues relating to technology selection for the NPP and all related environmental aspects, available technologies, equipment suppliers, possible deadlines of the construction, fuel supply options and other factors important for evaluation of power plant technologies. It will also examine possible options for the disposal of radioactive waste and their approximate costs, as well as evaluate a possible location for the construction of the NPP.

The study prepared by the Working Group for Project Financing will address certain project financing options and calculate the primary economic and financial conditions that will need to be fulfilled for the construction of a new NPP in Lithuania.

The study prepared by the Working Group for Legal Issues will identify all the legal and regulatory preconditions that will have to be met for the construction and operation of the new NPP.

The study prepared by the Working Group for Electricity Transmission will evaluate the existing capacity among Baltic States for the transmission of electricity generated at the NPP and, if necessary, the need for additional transmission capacity. It will also evaluate options for reserves at the new NPP.

Once the project implementation feasibility study has been completed, the parties will launch the development phase of the project, unless the study results in critical obstacles that are beyond the reasonable control of the parties or unless conclusions are drawn that imply that the project is not economically justifiable.

According to Mr. Rymantas Juozaitis, General Director of Lietuvos Energija AB, “None of the parties alone would be capable of providing sufficient investments in generation sources that would allow the present market situation to be sustained.”
Mr. Karlis Mikelsons, chairman of the Board Latvenergo said: “This should be considered as a future joint project involving Baltic energy experts, as we have demonstrated successful cooperation before with the Estlink energy transmission project. We have so far only talked about replacing power capacity after the closure of the Unit 2 of the Ignalina NPP, and yet this project concerns the future development of energy for the Baltic Region. I would like to point out that our energy supply should not only be economically reasonable and perfect from a technical perspective. It should also offer maximum safety. I am confident of finding up- to-date, social, environmentally friendly and safe solutions”.

Mr. Sandor Liive, the CEO of Eesti Energia has shown an interest before in participating in NPP development projects. Speaking about how he felt that the agreement signed by the three Baltic energy companies constituted a real opportunity, he added: "The study we conducted in 2002 with Ministry of Economic Affairs showed that for the purposes of diversifying generation resources an NPP is one of the most seriously perceived options. Based on the aforementioned study, it was clear that it is reasonable to explore in depth the possibility of collaborative ventures with Lithuania. As one of our closest neighbours and partners Lithuania has the relevant infrastructure and experience."

The importance of ensuring energy supply independence was underlined once more during meeting between the Presidents of Lithuania and Poland on March 13, 2006. Valdas Adamkus, President of Lithuania, invited Poland to join the three Baltic States in preparing a project for the construction of a new NPP in Lithuania.