S P R I N G 2020
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B A LT I C B U S I N E S S Q U A R T E R LY | S P R I N G 2020
Organizers of the event
2nd German-Baltic Digital Summit 7 October 2020, Munich Germany is not only the biggest single European IT market. It also invest massively in its own digital infrastructure and services portfolio. Germany is therefore a main target market for Baltic services suppliers DQG EHQHĆŹWV DW WKH VDPH WLPH VLJQLĆŹFDQWO\ IURP FRRSHUDWLRQ ZLWK WKH innovative Baltic technology scene.
Digitizing Energy
(VWRQLD /DWYLD DQG /LWKXDQLD DUH (XURSHDQ ĆŹJXUHKHDGV DQG JOREDO forerunners when it comes to digitization. Digital Energy solutions, Sustainable Mobility in a Smart City, Cyber Security and Digital Administration & E-Government are the main topics of the 2nd GermanBaltic Digital Summit.
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Skeleton Technologies: Competing against big names
www.digital-baltics.de
www.ahk-balt.org
Partners of the event
12 | Personality
28 | Interview
Historic visit of the German Minister for Economics and Energy, Peter Altmaier, to the Baltics
Trading biomass like electricity, Andrius Smaliukas, Baltpool
34 | Baltic energy transformation What does the future energy system look like
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Renewables and the digitization of the energy system
Digitization can prepare the markets for renewables and distributed energy production, and conversely, also make these resources fit for the market Enefit Green Paldiski wind farm
by ALE X ANDER WEL SCHER
Technological innovation, cost efficiencies and increasing consumer demand are driving the transition towards renewable energy in the Baltics. This leads to new challenges for the energy system. Digital innovations can help to relieve some of the stress on the grid and optimize performance.
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ower will still come from a socket for another 20 or 30 years in the Baltic states. However, what happens in front of and behind it will change fundamentally. Estonia, Latvia and Lithuania are to transform their energy systems into a more sustainable, renewables-based system, away from large-scale fossiland fuel-based energy production. Due to the increased use of domestic “green” energy, the power supply is becoming more decentralised. This calls for more flexibility in the energy system and changes in the way electricity networks are built and operated. Digitization can prepare the markets for renewables and distributed energy production, and conversely, also make these resources fit for the market.
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Photo: Eesti Energia
“A green transformation cannot take place without a digital transformation,” said Estonian Prime Minister Jüri Ratas after a gettogether with European Commission President Ursula von der Leyen
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in February in Brussels. In their meeting, they discussed the European Green Deal – the EU’s ambitous plan to achieve climate neutrality by 2050. To achieve this aim, the Green Deal sets a path for an energy and economy-wide transition to massively reduce the bloc’s carbonintensive activities and therefore its contribution to global warming. Among the presented series of actions is the shift to climate-friendly energy production, and this is also a prevailing topic in the Baltics. In Estonia, Latvia and Lithuania, oil and natural gas have long been the dominant fuels. However, high energy prices and a political desire to reduce import dependency have prompted a on-going move towards local resources. The installed capacity of power plants based on renewable energy sources has significantly increased in recent years in the three countries. Growth has been particularly strong for biomass and biogas plants. Several small hydropower plants and wind farms have also been put into operation, while solar energy is still rarely used for electricity or heat generation.
Falling costs for using renewables open door to more growth The main driver for the use of renewables – besides the primary rationale of reducing CO2 emissions to mitigate climate change – has been the steady decline in costs of installation and maintenance that was long an important stumbling block to mass adoption. Renewable energy projects had experienced their share of problems as initial investments were huge and challenges such as hooking up the power stations to the grids resulted in temporary setbacks. Now, renewables are cost-competitive
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with fossil fuels and are most frequently the cheapest source of energy generation, according to a report by the International Renewable Energy Agency (IRENA) published in May 2019. The cost reductions, particularly for solar and wind power technologies, will continue into the next decades. Measured by their levelized cost of energy (LCOE) generation, wind and solar power are set to become the cheapest option for new generation investments in the Baltics in the short term, according to a scenario-based energy system analysis published by the Nordic Council of Ministers in 2018. Local energy experts agree that there are good wind and solar energy resources in the Baltics which, to a large extent, could already be explored by using existing techniques and networks. Tapping into the Baltics’ wind potential, several projects are in the pipeline in Estonia and Latvia that imply not only bigger wind parks and turbines but also a joint offshore wind farm in the Gulf of Riga, aimed at contributing to electricity grid security in both countries. In Lithuania, the wind power output hit an all-time record in 2019 and a boom in the construction of new turbines is expected between 2021 and 2023 by the Lithuanian Wind Power Association. At the beginning of this year, the first investment in a wind farm without state support was announced, hailed as a “breaking point in Lithuania’s renewable energyâ€? by Energy Minister ÄŁ\JLPDQWDV 9DLĂ?LÄ•QDV Energy companies in all three countries have launched new businesses to help residents and enterprises to install solar power systems that can be connected to the grid and feed in unused power. Large-scale solar panel rooftop
RENEWABLES IN THE BALTICS In general, the natural conditions in the Baltic states are favourable for the widespread use of renewables. The main potential lies in generating energy from biomass and biogas because of the large share of land used for agriculture and forestry. Other promising options to increase renewable energy production include heat pumps for buildings and district heating, while waste and by-product incineration also offer sufficient potential for generating green energy. The same is true for wind and solar power as well as geothermal energy, as scientific reports and studies have shown. The transition to renewables in the Baltics is being supported and encouraged by funding and incentive programs, as well as by feed-in tariffs. However, the lack of political support and nontransparent market conditions for renewable energies are often criticized in all three countries. For many years now, there has been constant tinkering with the funding instruments and the legal framework. Industry representatives are therefore critical of the lack of clear, long-term investment and planning security.
installations have started operations atop commercial buildings and industrial facilities. In Salaspils near Riga, the sun will now even provide most of the energy for heating water during warm months after the town’s municipal district heating company installed one of the largest solarpowered centralized heating systems in Europe. In another ambitious project, the Lithuanian state-owned enterprise Ignitis Gamyba has partnered with scientists from Kaunas
University of Technology (KTU) to construct an experimental floating photovoltaic power plant at the Kruonis hydroelectric facility – the first of its kind in the Baltic region.
New market roles, challenges and mechanisms Given the combination of low prices and zero emissions, future growth in both industries can be predicted. This will elevate the economic importance of renewable energy but, at the same time, add new levels of complexity to the power and utilities business since market mechanisms and the way participants interact are about to fundamentally change. “We are moving away from the traditional centralized energy production in power stations to decentralized networks with multiple sources of energy that are connected by smart grids and powered by digital solutions. There is a whole business eco-system coming together with this change while the long-standing monopoly PRGHO LV IDGLQJ DZD\ ČĽ VD\V .Ă—VWXWLV Kasakaitis, an expert at the German software firm SAP, of the shift within the industry. Driven is this trend also by other development, such the trends toward electric vehicles, shared mobility and smart cities. While the transition to renewables has long been led by energy developers and power generating companies, consumers themselves are also now looking for ways to make use of alternative technologies and solutions. More and more people generate and store electricity and heat in their own homes, for example with photovoltaic systems, cogeneration plants, heat pumps and solar batteries. This puts an end to the old dichotomy between producers and consumers of electricity and heat. Instead, there
are now so-called prosumers who can do both and take on an increasingly active role on the energy market. However, this comes with new challenges and different approaches are needed to ensure that supply and demand can be balanced flexibly and cost-effectively. One of the strains is the variable nature of renewable energy sources. The sun does not always shine, the wind blows strong and weak at times – and that makes it difficult to ensure that there is enough energy to go around for top demand. Right now, such drastic supply swings have been compensated for through traditional coal, gas and nuclear power producers. Sooner or later, however, the renewable energy sources will assume ever more importance.
Smart solutions for the energy transition Energy firms have already been pushing forward with smart grids in order to make better use of the expanding, widely strewn renewable energy source. In line with EU regulations, intelligent measuring systems have been installed in many houses across the Baltics, enabling the utilities to get a detailed insight into consumer behaviour and patterns. While in Estonia already 100% of the consumers have a smart meter for electricity and access to an energy metering data sharing plattfom, the grid operators in Latvia and Lithuania are planning to complete their roll-out in the upcoming years. Smart home systems also enable consumers to monitor and regulate their own energy consumption. Automated solutions let them remotely control and use items around the house more flexibly with the help of smart devices. This
will include the lights, temperature, a heating system, air quality, ventilation, the indoor climate, locks and security surveillance. A survey conducted by mobile operator Tele2 and market researcher Norstat in 2019 in Latvia showed that there is much interest in these solutions: Almost a quarter of the respondents would like to get heating control systems or have smart sockets installed in their houses. However, the adoption rate is still low. “In Latvia, compared to the US or Western European countries, smart technologies are entering households very gradually. This is due to various prejudices about the functionality of such devices and the level of trust in technology, as well as the fact that some smart devices do not yet recognize the Latvian language,â€? explains Tele2 retail director Dace Ĺ krabe. The situation in Estonia and Latvia is estimated to be similar and also limited by the often missing local language options for smart devices. In addition, the demand throughout the Baltics is further hampered by the low purchasing power of the population, according to a Tele2 spokesperson. Smart meters, smart appliances, and smart grids are all available, but just to roll out and employ these technologies is not enough. What needs to be done is to make sure that they are interconnected and interact in an intelligent way to be able to integrate more power from renewables, according to technology and market experts. Only then can the markets for power and heat be more market-based, and provide for greater flexibility within the entire energy system. At the same time, cybersecurity will become one of the major aspects. Increased digitization and integration of electricity grids make energy systems more vulnerable and also raise new security and privacy risks.
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Unplugged
The decommissioned Ignalina nuclear power station in Visaginas
by ALE X ANDER WEL SCHER
Ten years ago, the Ignalina Nuclear Power Plant in Lithuania was shut down forever. The forced phase-out of the only atomic power station in the Baltics led to a fundamental transformation of the energy sector. Further big changes are underway, but by no means completed yet.
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Switching off the ageing Sovietera reactor dramatically changed the power generation landscape in the Baltics, with the region looking for new sources and ways to secure their energy supply ever since. “It had quite a negative impact on our energy balance. Instead of being an exporter, we became an importer. It also brought some negative consequences to the energy price – the average electricity price increased by almost 30%�, Lithuanian President Gintanas Nauseda recalls the implications of
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the planned nuclear phase-out for his country. On a positive note, he also referred to the shutdown as “a huge trigger to stimulate the development of our renewable energy�.
Electricity shortfall and HQHUJ\ GHSHQGHQFHb Ignalina used to supply 80% of Lithuania’s electricity and also exported power to Estonia and Latvia, covering almost 40% of the overall consumption of the Baltic countries. However, as important as the power plant was for the region’s energy supplies, its hefty 1,500-megawatt reactors caused safety concerns, especially in Western European countries. Fears centred on the reactor design that was of a similar type to those at the infamous Chernobyl reactor in Ukraine which melted down in 1986, causing the world’s worst nuclear accident to date. Brussels thus demanded Ignalina be shut down because it was deemed unsafe. The first reactor was taken offline on December 31, 2004, the second on December 31, 2009. The end of Ignalina caused mixed emotions. Not least because it meant that the whole region had to rely on alternative sources of energy. Lithuania had to increase the output of its conventional power stations and also raise the amount
Synchronization of the Baltic power grid with Europe of energy it imports from other countries – including Russia. Almost 20 years after breaking away from the Soviet Union, the three Baltic states were again heavily dependent on Moscow due to a lack of other connections and suppliers. The increased reliance on the powerful neighbour as the primary energy supplier left many with a sense of unease – energy policy is still understood as a question of national security in Vilnius. The same is true for Tallinn and Riga where energy issues in the past have also risen to the top of the political agenda and still have a significant impact on bilateral relations.
Going past monopoly and the status as “energy islands� Lithuania even lobbied for Ignalina to be granted an extension to its lifespan but was rebuffed by
Photo: Alexander Welscher
the midst of a scenic forest area nestled in the north-eastern tip of Lithuania, close to both the Belarusian and Latvian borders, the silhouettes of two washed-out redand-white striped smokestacks poke into the sky. Visible already from afar at the end of a single road, they tower up from hulking structures that were part of the only nuclear power plant in the Baltic states: Ignalina. The huge atomic station was Lithuania’s most important power source, but had to be closed for good ten years ago. Fulfilling a commitment that Lithuania gave when it joined the European Union, the plant ultimately went offline at the end of 2009 – long ahead of the date that its builders had envisaged. Since then, the power plant has not generated any more electricity.
Another new zone of competition was enabled by the recent completion of the Estonian-Finnish gas link called Balticconnector. The bi-directional pipeline connects both countries’ grids and provides Finland with access to Latvia’s natural gas storage LQ ,Q�XNDOQV PDNLQJ ZD\ IRU D WKUHH country marketplace for natural gas. The united system encompasses a common tariff zone that allows cross-border trading at a single rate with no extra charges beyond pipeline and storage costs. However, the connection and common market will do little to end Gazprom’s prevailing dominance in the region before the Poland-Lithuanian gas link is ready for operation at the end of 2021. Not to mention that the negotiations on the possible accession of Lithuania to its Northern neighbours’ joint market are still on-going.
the European Union. Policymakers in Vilnius thus agreed to shut the plant down – grudgingly and without much preparation. To smooth out the transition and not throw the Baltics into perpetual darkness, Brussels pledged to largely finance the cost of decommissioning. The EU commission promised help with the connection to the European energy networks and came up with the so-called Baltic energy market interconnection plan (BEMIP) that was designed to end the Baltic states’ status as “energy islands� within the European Union by building links to other EU members. Interconnections were increased with Estlink 1 and 2 lines between Estonia and Finland, the LitPol Link line between Lithuania and Poland and the Nordbalt line between Sweden and Lithuania. This reduced the dependency on Moscow, which for a long time also used its economic leverage to exert political pressure.
A liquefied gas terminal that went into operation in 2015 in Klaipeda has also shifted the balance of power. The floating storage regasification unit – aptly named “Independence� – broke the monopoly of Russia’s state-owned gas company Gazprom over gas supplies to the Baltic states It can serve as an alternative to the natural gas supply by pipeline from Russia. Boasting 4 LNG storage tanks of a total capacity of 170,000 cubic metres, the facility can theoretically cover all of Lithuania’s gas needs and help to supply its Baltic neighbours. Initially, it imported mainly Norwegian LNG for mostly domestic consumption, but began to diversify in late 2017 with the import of its first US cargo. Since then, the gas transmission of Lithuania to the Baltic states has increased manifold and, with almost 6 TWh in 2019, reached the highest ever-recorded amount of gas to the Baltic states.
Similarly, the Baltic power grids are still part of the BRELL ring that operates synchronously with the Russian and Belarusian systems, and remain dependent on the control centre in Moscow. But this will change by 2025 when the Baltic states are to be fully connected to the rest of Europe via Poland and integrated into the continental European network. In mid-2019, the governments of the four countries and the European Commission approved a political roadmap and work schedule for the synchronization. To ensure a smooth disconnection, Brussels will be involved in negotiations with Moscow, which has already expressed its discontent and claimed the move would be very unwise economically and might cost billions. The price tag is indeed high: the total value of the Baltic synchronization project is â‚Ź1.6 billion, according to the Lithuanian Ministry of Energy
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Nothing was heard anymore by the presidential trio about the construction of an Ignalina replacement facility to serve the whole region. Lithuania, Latvia, Estonia and Poland have long been holding talks about building a new plant together at the site of the previous nuclear station. However, the initiative stalled due to domestic
by ALE X ANDER WEL SCHER
political disputes in Lithuania and a lack of binding agreements among the potential partners. Blighted by delays and indecision for years, it is more than unclear whether the project – which was also rejected in a non-binding referendum held alongside the parliamentary elections in 2012 – will ever be revived.
Lithuania stood in for its ‘sister’ in Chernobyl and now has become an off-beat tourist attraction since the show aired last year. Due to the high interest in visiting the plant, Ignalina had to increase its visitor capacity and attract additional tour guides to cope with the demand from Europe and beyond.
Atomic legacy
Still, most of the 1,800 people working at the power plant are dealing with the dismantling of the reactors – a process expected to take 30 years. Nearly 40% of the cleanup work has been completed. About a third of the nuclear waste held at the facility has been processed and taken away over the last decade, and 70% of spent nuclear fuel has been loaded into special storage. “We are definitely on schedule, ahead of it in some respectsâ€?, (QHUJ\ 0LQLVWHU ÄŁ\JLPDQWDV 9DLĂ?LÄ•QDV WROG WKH /LWKXDQLDQ SXEOLF broadcaster LRT at the turn of last year. “The decommissioning will be completed in 2038, when a green meadow will be all that remains in the 80-hectare territory.â€?
Meanwhile, work will continue on dismantling Ignalina, which served as a filming location for the highly-rated HBO mini-series Chernobyl, a dramatization of the 1986 nuclear disaster. In the episodic TV drama, the defunct plant in
Finland
New Baltic energy market interconnections
Inkoo 2014 Estlink # 2 650 MW DC
Sweden
Balticconnector 2007 Estlink # 1 350 MW DC
2015
To Europe II
Denmark
NordBalt 700 MW DC
Kersalu
Estonia
Incukalns UGS
Lithuania 2025 Harmony Link 700 MW DC
GoleniĂłw
Gustorzyn
Poland Sources: AST, Amber Grid, Baltic
• Gas infrastructure in the region • Electricity interconnections
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Decarbonisation, decentralisation and digitalisation .Ă—VWXWLV .DVDNDLWLV GRHV QRW KDYH D FU\VWDO EDOO WR WHOO ZKDW LV DKHDG RI XV in the energy sector. Nevertheless, Lithuanian representative of the leading German software company SAP is closely analysing new developments and trends in the energy sector and how they will affect the Baltic markets. In a short interview with Baltic Business Quarterly, Kasakaitis shares his insights.
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hich trends do you currently see in the energy sector? From a global perspective there are several main trends – a shift towards renewable energy and transition into low carbon, more sustainable economy. This has and will be further affecting the energy sector with fundamental changes in its markets. However, despite significant challenges a new course of action is being supported by the public opinion as well as political and economic players,and the society itself is becoming more demanding.
Latvia
BlĂĽbjerg
Baltic Pipe Project
Photo: Alexander Welscher
�We will do whatever it takes to make this process smoother and more effective�, Lithuanian President Gitanas Nauseda emphasized after a meeting of the three Baltic heads of state in Riga in mid-December. His colleagues Kersti Kaljulaid (Estonia) and Egils Levits (Latvia) also reaffirmed their support for the technically complex and daunting project which has led to internal disputes on the synchronization scenario in the past. Now, the synchronization should also contribute to green energy policies that drive the three countries towards climate neutrality and become regionally independent electricity producers in a CO2-neutral way, the presidents emphasized.
Ignalina’s red-and-white striped smokestacks will then no longer be visible. However, the atomic legacy of the plant will still be there and it appears to be more durable. There still is some controversy on the final destination of the radioactive waste which can only be kept in the interim storage for 50 years.
Are you referring to Greta Thunberg’s zeitgeist? Not only. This shift of mind-set was evident in the recent World Economic Forum where for the first time environmental topics such as climate change and global emissions took over the main stage from economical discussions. The European Union has a big agenda for decarbonisation and investment into
renewable energy sources. The Green Deal is yet another strong position and push from the governments. Europe is aiming to become carbon neutral by 2050 – this is an ambitious goal and can only be achieved with a profound investment plan. In which areas investments are needed? The energy transition will bring opportunities to further invest into
renewable sources digitalization of energy consumption as well as new business models that will be offered to final consumers who themselves start having a much more active role in the market. We are moving away from the traditional centralized energy production in power stations to decentralized networks with multiple sources of energy that are connected by smart grids and powered by digital solutions. There is a whole business eco-system coming together with this change while the longstanding monopoly model is fading away. What effect will this have on the markets? Overall, the energy markets are evolving and becoming much more interconnected. This needs to be orchestrated by an entirely new ecosystem that strongly relies on IT, to make sure that all elements are operational and linked to one big network and no information is lost along the way. Therefore the technological base is becoming critical and cybersecurity is a major aspect of it. The openness, cross-docking and exchanging of energy sources make the grid infrastructure more vulnerable, also due to our increasing dependency on energy data. Are these topics also on the agenda in the Baltics? Definitely. The energy transition is now very present in Europe and particularly in the Baltic States. Being smaller countries allows us to adapt even easier and quicker. We are turning fast in those new directions and the speed that the major Baltic energy companies have been demonstrating is impressive.
WHAT SAP IS DOING IN THE ENERGY SECTOR For decades SAP has been developing the software that helps its customers keep track of their entire business processes and use this data for their decision making process. Applying solutions of the German software leader, electricity and other utility providers around the world are maintaining their grids, monitoring access and consumption data, running the end-to-end business process from a settlement of a new connection to customer care. “In the energy sector, SAP is considered to be the industry standard for utilities. We are not yet very strongly SRVLWLRQHG LQ WKH %DOWLFV EXW ZH ZDQW WR FKDQJH WKLV ČŁ VD\V .HVWXWLV .DVDNDLWLV “We are coming with the knowledge and expertise of serving the 91% of the Top Forbes Global 2000 Utilities that runs SAP solutionsin the cloud or on their own premise. Latest SAP solutions enable energy utilities to develop new energy related services based on the data collected from smart home devices, intelligent meters, distributed energy sources, weather maps, as well as consumer behavior.â€?
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