Country Studies

3.3 Lithuania

3.3.1 Energy Generation and Use

Before Lithuania re-established its independence, its power system was an integrated part of the north-western United System, and this in turn was part of the Soviet grid. Although oil, natural gas, coal and uranium were imported, Lithuania was a net exporter of electricity.

The total installed capacity of the Lithuanian power plants is 6324 MW, including the Ignalina nuclear power plant (NPP) with 3000 MW of installed capacity (later reduced to 2500 MW for safety reasons) and the Lithuanian thermal power plant (TPP) with 1800 MW of installed capacity, along with significant combined heat and power plant (CHP) installations, and some hydro power.

Until 1991, significant amounts of electricity generated in Lithuania were exported to Belarus, Latvia and Russia (the Kaliningrad region). As a consequence of a recent deep economic crisis, electricity demand within the country decreased sharply in 1992. At the same time, an economic recession in neighbouring countries and problems with payments reduced demand for electricity exports.

The characteristics of the main Lithuanian power plants are shown in the table.

Characteristics of the Lithuanian Power Plants

Ignalina Nuclear Power Plant.The plant has two reactors, each with a capacity of 1500 MW. The reactors are of the RBMK type (the same model as at Chernobyl). The first reactor was commissioned, and the station started to produce electricity, in 1984. The second reactor was put into operation in 1987. Ignalina generates about 85 % of Lithuania's total electricity demand and operates about 3940 hours per year. (The average annual load of the plant is 45 %).

Conventional Thermal Power Plant (CTPP). The first unit at the Lithuanian thermal power plant was commissioned in 1963. Total installed capacity is now 1800 MW (four 300 MW capacity units and four 150 MW capacity units). All 300 MW units are condensing units (used for electricity production only), and two of the 150 MW units also supply heat to the surrounding area. Two 150 MW units of the Lithuanian TPP have been refurbished, and further modernisation is planned, based on the results of a recent pre-investment feasibility study. Despite its huge potential, the thermal power plant is in a so- called "cold regime" and operates only about 306 hours per year (average annual load 3.5 %). Maintenance of doubled electricity generation capacity (just for replacing of Ignalina in case of emergency) at other sources puts a huge financial burden on the state economy.

Combined heat and power plants(CHPs).There are three large, modern CHP plants in Lithuania (Vilnius, Kaunas and Mazeikiai). There are also several small, older public CHPs and industrial co-generation plants. The plant at Mazeikiai is oil-fired, and all the other plants are dual-fired from oil or gas. Due to the same problems affecting Lithuania's TPP, the average annual load of CHPs is only about 11.5 %.

Industrial co-generation plants are located within industries where there is a demand for process steam. The plants are in mineral fertiliser factories in Joanna (24 MW capacity) and Kedainiai (10 MW), and in paper mills at Grigiskes (5 MW) and Klaipeda (12 MW). The total installed capacity of these plants is 51 MW.

Hydro and pumped storage plants The only large hydro- power plant is at Kaunas on the Nemunas river; its installed capacity is 100.8 MW. The plant was constructed in 1960, and replacement of turbine runners, generator windings and other equipment would increase its lifetime by 30 years. The average annual load of the plant is 40,3 %.

The Kruonis Pumped Storage Power Plant was erected in 1992 and now comprises three units of 200 MW each. The fourth unit is under construction. The was designed for 1600 MW of capacity, based on the assumption that four reactors at the Ignalina NPP would be in operation. With the reduced capacity at Ignalina, however, no further increase in capacity at Kruonis is expected in the near future.

There are also 11 small hydro- power plants located in different parts of the country, with a total capacity of 5.25 MW.

3.3.2 Organisational Structure of the Lithuanian Power System

The recent parliamentary elections in Lithuania have brought about some reforms in the country's energy sector. One of these was the establishment of the Ministry of National Economy in April 1997, which took over the functions of three former ministries: Energy, Industry and Trade, and Economics. The Energy Agency (founded in October 1993) will continue its activities, though it will be reorganised. Therefore, the institutional structure of the energy sector still remains very centralised and complicated.

At present, the major energy sector institutions can be divided into two parts: Regulatory Institutions and Administrative Institutions.

Regulatory Institutions

The Nuclear Power Safety Inspectorate (VATESI)

The State Energy Inspection

The State Commission of Energy Pricing and Energy Activities Control

The Competition Board

Administrative Institutions

The Government represents the highest level of policy-executing institutions.

The Parliament is the highest body of state power in Lithuania. The Parliament has appointed several Committees relating to energy sector management. However, a special committee for the energy sector has not yet been established.

The Ministry of National Economy is responsible for all issues concerning energy supply and relations with other countries on energy problems.

The State Company Energy Agency

The Lithuanian Energy Institute

The "Lithuanian Energy" Joint Stock Company

The Ignalina Nuclear Power Plant

The "Lithuanian Oil", "Lithuanian Gas", and similar Joint Stock Companies

At the moment, there are three main energy policy documents in force in Lithuania:

The National Energy Strategy (approved by the Government in beginning of 1994).

The National Energy Efficiency Programme (approved by the Government in January 1992 and revised in 1996).

The Energy Law (passed by the Parliament in March 1995).

3.3.3 Potential for Renewable Sources and Energy Efficiency

Lithuania is almost entirely dependent on energy imports. In 1990, Lithuania's indigenous energy resources (hydro, peat, firewood) supplied only about two to three percent of energy demand.⁽⁷²⁾ In 1994, this percentage increased to some four to five percent.⁽⁷³⁾ However, there is a potential to improve the use of indigenous energy. There is some potential for the use of renewable energy, especially from geothermal, hydropower and biomass. Specifically, opportunities exist for small hydropower rehabilitation, and conversion of heat-only systems to CHP (combined heat and power) using wood waste and wood chips.⁽⁷⁴⁾ The country also has some other indigenous energy resources, including onshore and offshore oil, peat deposits and natural gas, but these amounts are either insignificant, or their exploitation could have negative environmental consequences.

Lithuania's hydro power output has averages 320 GWh per year, and it makes up only 10% of technical harnessable hydro power resources. Only Lithuania's two biggest rivers, the Neris and Nemunas have total potential capacities of more than 100 MW. Medium and small rivers are estimated as having about 120 MW of potential capacity. Total hydro power potential is estimated at 6000 GWh, of which 3600 GWh per year is technically feasible.

The use of economically harnessable hydro-power resources would help to cover from 15 % to 20 % of all electricity demand. In Lithuania there are about 40 neglected small hydro power plants which could be easily rehabilitated. Because of existing dams and water storage, rehabilitation would require only about 2/3 of the capital cost. Such construction could prove to be economically interesting, and could yield 16 MW total capacity. Electricity production from such rehabilitated small hydro power plants is estimated at 60 GWh per year.

There is an even bigger potential for using small and micro hydro power plants, from which about 500 GWh could be produced annually.⁽⁷⁵⁾ Unfortunately, the National Energy Strategy considers the economic viability of new hydro capacity economically restricted, and rehabilitation of only 8 MW of small hydro power capacity has been planned by the year 2000.⁽⁷⁶⁾ Fortunately, in the last few years, some private companies have expressed an interest in rehabilitating 13 small hydro power plants, and they are looking for loans from the EBRD.

Lithuania has a strong potential for the use of biomass fuels. The annual potential of firewood fuels from Lithuanian forests is 33.8 PJ. Using this wood for electricity production would account for approximately 52% of the present annual gross electricity consumption in Lithuania. Lithuania also has an annual energy potential of about 3.5 - 15.5 PJ from cereal residues. This accounts for 5.2 - 23.2% of the annual gross electricity consumption in Lithuania.

Moreover, biomass should be economically competitive with both coal and oil, even without considering the environmental advantages of using biomass fuel. The costs of imported coal and oil in 1994 were 5.9 USD/MWh and 9.7 USD/MWh respectively, while forest residues (branches, tops, stumps, etc.) cost only 0.72 USD/MWh (collecting costs not included). Shavings from sawmills cost 1.44 USD/MWh, and fuel wood (wood chips, sold by sawmills for heating of private houses) cost 5.7 USD/MWh. With support of the Nordic countries, a small number of boilers heated by wood chips have already been introduced in Lithuania as pilot projects.

The technical potential of geothermal energy within Lithuania's borders is about 96 x 10 ⁹ MW h. The economical potential is about 64 x 10⁹ MWh. Of this amount, about 69 % is located in the Devon stratum (800 - 1200 m). In terms of fossil fuel, this would correspond to 6.8 billion tons of oil equivalent (TOE), or an economic asset value of approximately 640 billion USD based on the current fuel price of 95 USD per ton.

The Klaipeda Geothermal Demonstration Project (18.02 million USD) is funded by the World Bank, GEF, EU-PHARE and Ministry of Energy of Denmark. It is aimed at demonstrating the feasibility of developing the indigenous Lithuanian geothermal energy resources, decreasing dependence on imported fossil fuels, and reducing emissions of greenhouse gases. This project was heavily criticised by specialists from the Lithuanian Energy Institute and by some independent experts, because not enough investigations of geothermal resources were done, and for that reason, the benefits of the project are unclear.

Yet although the final results of the Klaipeda Geothermal project remain questionable, it should be kept in mind that it is a demonstration project, and more than half of total project budget will be covered by grant money. Moreover, the project could have positive consequences by limiting environmental impacts: both the impacts of local air pollution through reduction of such pollutants as sulphur dioxide, and in broader terms, it would also limit emissions of greenhouse gases.

Investigations and calculations of the National Energy Efficiency Program have shown that approximately one quarter of currently consumed energy supplies could be saved over the next ten to fifteen years by the introduction throughout the country of energy saving measures expected to be realised in the National Energy Efficiency Program and in the National Energy Strategy.

According to these calculations, total energy savings potential is about 25 TWh annually, which represents 30 % of all primary energy consumed. Insulation of buildings could save about 10 TWh of this potential, but it demands relatively large investments. Other measures, including implementation of energy accounting and improvements in management could be introduced with comparatively small expenditures with very good economic returns.

Unfortunately, not enough energy saving measures have been introduced to date, and not enough attention has been given to this field in Lithuania. The World Bank's Energy Efficiency/ Housing project (10m USD), related to the National Energy Efficiency Program, is the only demand-side project to date. It is aimed at increasing energy efficiency in residential and public buildings. But project implementation is not optimal, due to problems with internal regulations and high interest rates charged by local commercial banks.

3.3.4 MDBs and Energy Policy

3.3.4.1 The World Bank

The World Bank's operations in Lithuania are oriented toward the macroeconomic level. The Bank's objective is to assist the Government to accelerate the country's further economic transformation towards a market system, along with a recovery of living standards and output and export growth. For implementation of these objectives, the Bank mainly assists in the implementation of set government policies. In the energy sector, the Bank provides the Lithuanian Government with some sectoral investigations, provides loans for energy sector projects, and conducts the country's structural adjustment loan. The Bank's policy advice provides an analytical review of the energy sector as well as needs and possibilities for future lending, but it is mainly oriented toward traditional energy sector development and supply- side management.

Recommendations concerning the development of the energy sector and corresponding national energy policy have followed from the Bank's studies. The Bank has not yet pushed the Government to look for non-nuclear alternatives to energy generation. Its position has been to simply investigate different scenarios set in the National Energy Strategy and find the most "beneficial" means of power generation.

According to the G-7's Power Demand and Supply Options study, the "high nuclear" scenario is the most efficient in economic terms, as the option demanding the lowest investments. This "high nuclear" scenario would allow both units at Ignalina to operate to the end of their useful economic lives.⁽⁷⁷⁾ However, as the most feasible option, the Bank proposes to retire one of Ignalina's units earlier, and the second unit by the year 2000.⁽⁷⁸⁾

In the World Banks' policy advice studies, little attention is paid to energy efficiency and the development of renewable sources of energy. The only general recommendations on energy sector development concentrate on rehabilitating existing facilities and retiring, in a planned manner, those that are unneeded, inefficient, obsolete or unsafe. Only two bank projects address the development of renewable energy sources, energy efficiency and demand side management. These are the Energy Efficiency/ Housing Project (10 million USD) and the Klaipeda Geothermal Demonstration Project (5.9 million USD), and they form only 6.3 % from all Banks investment in Lithuania.⁽⁷⁹⁾

Energy Projects Under Implementation

Power Rehabilitation Loan (26.4 million USD) The main objective of the project is to improve operating safety, efficiency, reliability, and environmental performance of the thermal electricity generating system, thus reducing the amount of imported fuels needed for its operation and facilitating the retirement of the Ignalina nuclear plant.

Klaipeda Geothermal Demonstration Project (5.9 million USD) The main objective of the project is to demonstrate the feasibility of developing indigenous Lithuanian geothermal energy resources, thereby decreasing the dependence on imported fossil fuel for heating purposes, which in turn would reduce emissions of greenhouse gases and sulphur dioxide.

Energy Efficiency / Housing (10 million USD) The objective of the project is to increase demand side energy efficiency in residential and public buildings and to support the implementation of governmental policies on the privatisation of housing, enabling increased private initiative in housing maintenance.

Structural Adjustment Loan (80 million USD) Lithuania received half of this loan in the Autumn of 1996. Another part will be given this spring if accepted conditions are met and expected economic indicators are achieved. This agreement also provides recommendations on how Lithuania's economy should be developed and the role of the Lithuanian energy sector in its economy.

Project in the pipeline

The Energy II Project (under preparation) The project may include the modification of network connections in the Klaipeda District Heating System. This would comprise the replacement of obsolete equipment, including the installation of new thermostats and circulation pumps. It would also provide for the establishment of a workshop for the assembly of sub-stations, and supervision of equipment installation.

3.3.4.2 The European Bank for Reconstruction and Development

The EBRD's official position concerning energy sector operations in Lithuania is based on the rational use of energy, security of supply, and nuclear safety. Theoretically, this corresponds to the set national energy policy, but both EBRD operations in Lithuania's energy sector have problems, which are outlined below.

The Necessary Investments in the Energy Sector project was devised for the improvement of energy efficiency, commercialisation of the energy sector, improvement of environmental performance, and related issues. But the actual usage of this loan unclear, because no one in the Energy Agency could explain what exact measures for energy efficiency improvement or for better environmental performance were taken and where the money was used. About 5 % of the loan was used for investments to improve energy sector performance, and the rest was used for purchasing of fuel and other operational and consumption costs.⁽⁸⁰⁾ In Lithuania, about 25 % of total foreign loans for energy issues was used for investment projects, while 75 % went for operational consumption.⁽⁸¹⁾

Ignalina Nuclear Power Plant Safety Upgrades According the Grant Agreement (signed on 10 February 1994) for 42 million USD for safety upgrades at Ignalina, the Lithuanian Government and Ignalina made commitments not to extend the lifetime of either nuclear reactor beyond the time at which its fuel channels should be replaced, and to stop electricity generation at Ignalina's first unit by 30 June 1998, unless the VATESI⁽⁸²⁾ issues a new license after the implementation of recommended safety and other measures.

At the time of writing, the Lithuanian Government was negotiating with the EBRD to prolong the licensing term for the first unit at Ignalina until May 1999, due to a delay in setting safety measures.⁽⁸³⁾ At the same time, official statements in the media have been promoting the myth of cheap nuclear energy and claiming that the Ignalina NPP is necessary and important for Lithuanian economy. For example, the Minister of National Economy Vincas Babilius said: "Today it is difficult to imagine Lithuania's future without the Ignalina Nuclear Power Plant, which provides about 85 % of electricity produced in the country..."⁽⁸⁴⁾

In the National Energy Strategy, operation of the nuclear power plant is closely connected with the country's economic development. It is very clear that if the export of electricity becomes possible for Lithuania, operation of both Ignalina units will be extended as long as possible.

Recently, the government has been looking for possibilities to join the European electricity grid (UCPTE), and has very actively promoted the export of electricity. At several rounds of high level negotiations on joining UCPTE, a few possibilities were discussed. These included a scheme through the Nordic countries (laying cable under the Baltic sea) and another through Poland.

Finally, in the beginning of 1998 the Ministry of Economy proclaimed an international tender for construction of a 110 kV electricity transmission line to Poland (Kruonis - Alytus - Elk). According to the tender's conditions, the winning bidder, in addition to paying for construction of the transmission line, will have to purchase 6 TWh of electricity annually during a ten year period. Electricity export is anticipated to start in the year 2002, meaning that the Government is planning to operate both units at the Ignalina NPP at least until the year 2012.

EBRD Energy Projects

Energy Sector Emergency Investment (46.25 million USD). In December 1992, the EBRD made a loan to address urgent problems in Lithuania's energy supply and to improve the country's energy use efficiency. The project began the process of commercialising the operations of Lithuania's energy utilities, by improving financial management in the sector. The project will also have a significant impact on environmental performance. Technical assistance has been provided to help with commercial re- orientation of the energy sector.

Ignalina Nuclear Power Plant Safety Upgrades In February 1994, a grant of 42 million USD was made from the Nuclear Safety Account (NSA) for urgently needed safety upgrades to the Ignalina Nuclear Power Plant. The NSA was established in 1993 at the request of the G-7. It is funded by 13 donor countries and the European Community, and it is administered by the EBRD. Prepared in close cooperation with the G-24 Secretariat and bilateral assistance programs, in particular with Sweden, the project is helping to implement a Safety Improvement Program by providing equipment for operational and technical safety improvements and by funding project management and engineering experts.

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