Who turned the lights out?

By bne IntelliNews December 10, 2009

Mike Collier in Riga -

Anyone planning a New Year's Eve party in Lithuania this year would be well advised not to wait until midnight to indulge in food and drink, as there's an outside chance the new year will arrive unpleasantly cold and dark.

If all goes according to plan, the Soviet-vintage Ignalina nuclear power plant in northeastern Lithuania will go offline at 11pm on December 31, with its power output seamlessly replaced by alternative sources. However, New Year revellers might consider getting in a decent stock of candles and Camping Gaz just in case, as Lithuanians are not exactly famous for their planning ability. Vilnius' disastrous year as European Capital of Culture also comes to an ignominious end on the stroke of midnight and the Lithuanian government has just liquidated energy company LEO LT - which was supposed to be a "national champion" charged with sorting out the country's energy needs - just 18 months after it was cobbled together.

"LEO LT produced no added value and did not take the necessary steps that should have been taken to implement the planned nuclear power plant project," Energy Minister Arvydas Sekmokas tells bne. "With the liquidation of LEO LT, we also respond to the EU internal energy market legislative package, aimed at separating the operation of the electricity and gas networks from supply and generation activities."

Certainly the loss of Ignalina - which supplied around 70% of Lithuania's electricity and also exported power to Estonia, Latvia and Belarus - does finally seem to be concentrating minds on how to secure future energy needs - albeit years too late.

On December 4, Sekmokas approved the terms of a tender for the design, construction, operation and decommissioning of a new nuclear power plant. The tender was officially issued in Brussels on December 8 and the first round of bidding closes at the end of January.

Lithuania is hopeful of attracting bids from the likes of EDF, E.On, Enel, Iberdrola, RWE, Vattenfall and Areva. In theory, the project will also involve Estonia, Latvia and Poland, though they have yet to sign any binding agreements and are unlikely to do so until the tendering process has run its course, some time in late 2010.

How many bids will be received is an open question. The terms of the tender are vague enough to allow bids for two or three reactors of various capacities and types. With likely costs per reactor of between €3bn-5bn, according to Energy Ministry estimates, the total cost is likely to range from €6bn to €15bn. Given the tendency of all grand projects in general and nuclear projects in particular to overrun, it would be no surprise if the final price tag turns out to be much higher.

Growth stymied

Construction costs aren't the only worry. Lithuanian politicians, led by President Dalia Grybauskaite, are stressing that they want open contracts with trustworthy suppliers rather than reliance on Russia or Russian-controlled intermediaries. But that's easier said than done, particularly when the sources of such supplies are countries like Ukraine and Belarus.

Buying electricity from outside suppliers also means paying more. Energy prices will certainly rise - no one yet seems to know by how much and how quickly, but around 25% immediately is likely - and will affect Lithuania's attempts to struggle out of what has become the deepest recession in the EU. Danske Bank predicts the closure of Ignalina will scrub up to 1.3% from Lithuania's potential GDP for 2010.

Large-scale supplies from the West will have to wait until planned energy connections with Poland and Sweden are completed - a process likely to take around five years. But Sekmokas insists Lithuanians won't be left in the dark during the 10 years that are likely to pass before a new, improved Ignalina gets switched on, but his figures seem a trifle vulnerable. "The actual requirement for 2010 according to estimates is only about 9.1 TWh [terawatt hours]. In other words, we need only one third of the energy that we could deploy as a whole," he said, adding that around 6 TWh is already hedged by means of agreed contracts.

"Almost half the necessary supply will come from oil and gas power plants at Lietuvos Elektrine in Elektrenai. In addition, there will be thermal power plants of 1.15 TWh and 0.35 TWh of wind turbines and hydroelectric plants in Kaunas and Kruonis. The remaining 2 TWh supply of electricity is covered by agreements with Estonia and Ukraine. The additional required capacity - about 35% of the total needs - will be bought at market rates from Estonia, Scandinavia, Ukraine and Russia," Sekmokas said.

Nevertheless, Lithuanians who have yet to invest in a warm winter coat might like to consider getting one even before the January sales start.

Who turned the lights out?

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