Although the Baltic region has not traditionally been considered a leading player in the global solar industry, this is set to change soon. The Solarplaza Summit Baltics 2023, held in Vilnius, Lithuania, highlighted both significant challenges and opportunities for the region.
The report below, written up and provided by our partner PVcase, highlights many key discussion points and conclusions from the event.
General Overview
The renewable energy market in the Baltics (Latvia, Estonia, and Lithuania) is shaped by the region's unique geopolitical and geographical position. A crucial factor is the planned exit of the BRELL agreement in 2025, which currently covers Belarus, Russia, and the Baltics.
At present, the Baltic states are synchronized with the Continental Europe Synchronous Area (CESA), which makes them more vulnerable to fluctuations in electricity prices from Nordic and Central European countries. However, synchronization with the CESA grid will increase energy security by preventing Russia from disrupting critical electricity supplies to the Baltics.
In addition, there was a government-imposed limit on solar installation projects in Lithuania, with a maximum capacity of 2GW for solar parks. However, after much debate, this limit has now been lifted.
However, the Baltic countries still face some obstacles when it comes to the adoption and implementation of solar energy:
- There is intense competition for available connections to distribution and transmission networks in the Baltic region.
- In Estonia, grid capacity issues prevent micro-producers from selling their electricity to the grid, and investments of around €300 million may be necessary, taking 3-5 years to complete. Building transmission networks is more difficult than renewable energy resource development due to regulatory industry requirements, land ownership, engineering complexity, supply chain issues, and other factors.
- The Baltic region's high altitude means that it receives less sunlight than countries closer to the equator, reducing the effectiveness of solar energy and limiting its potential. However, solar energy is becoming more competitive than wind energy in the region.
- While there is ample good land for renewable energy build-outs in the Baltic countries, it is typically used for agriculture and recreation and is often not well-connected to the grid.
- A lack of investment and financing for solar projects hinders the adoption of solar energy in the Baltic countries. Lithuania has implemented regulations for remote solar power plants, however, which is a positive development.
- Regulatory barriers also pose challenges, with connecting solar installations to the grid in some countries proving difficult and discouraging investment in solar energy.
The Baltic governments have implemented various policies and incentives to encourage renewable energy development, including solar energy. Estonia provides a premium tariff for renewable energy producers, while Latvia offers a feed-in tariff for solar energy producers. Lithuania's net metering program enables households and businesses to sell their excess solar energy back to the grid.
Furthermore, Ignitis, a Lithuanian energy company, acquired a 200 MW hybrid solar-wind project in Latvia, and the company's operational solar capacity is set to rise.
The European Regional and Development Fund (ERDF) and the Cohesion Fund will invest 839 million euros in renewable energy sources in Latvia between 2021 and 2027, aimed at enhancing energy security, efficiency, and resilience to climate change.
Power market outlook and expected revenues in the Baltics
Alexander Esser from Aurora Energy Research delivered an optimistic outlook on the Baltic power market. The following are the main points from his presentation:
Prices in all three Baltic states will decrease until 2030 as gas markets balance out. Renewable energy development will reduce prices in Lithuania relative to Estonia and Latvia until 2030. Most of the current energy demand is met by local production and imports from Nordic countries.
Due to the anticipated increase in the electrification of transportation, industry, and heating, the Baltics will require an additional 14TWh of electricity by 2050.
Solar power production is expanding rapidly in the Baltic region, and electricity production will also rise.
The prices for solar power will decline until the 2030s, and then the increased flexibility of the system will reduce the discount to baseload prices. Onshore wind will encounter similar trends due to the entry of more capacity into the system. However, solar power prices will start lower than onshore wind prices but will exceed them in the 2030s. The increased flexibility brought on by additional solar energy development in the late 2040s and 2050s will counteract the impact.
Opportunities and challenges in the Baltic solar markets
During the panel discussion, "Key Market Opportunities and Challenges in the Baltics," moderated by Algirdas Ducinskas, an R&D specialist at PVcase, several additional issues were identified. In Lithuania, the grid's ability to handle the anticipated capacity is a problem, making small-scale solar projects a better option. However, the Lithuanian government has set a target to produce an additional 9GW of power from renewable sources by 2030, which cannot be achieved through small-scale solar alone. With inflation and supply chain issues impacting growth and 65% of electricity imported, such objectives can only be met with a clear regulatory framework. In Latvia, as of April 1st, developers must pay a deposit to reserve grid capacity, which will provide a clearer view of the required additional capacity. Latvia currently requires a further 5GW of electricity and plans to convert many projects into solar/wind plants. Rytis Kevelaitis, CEO of Energy Unlimited, emphasized the need to achieve energy independence as soon as possible due to the ongoing energy crisis, with renewables being one of the most direct routes to achieving this goal.
Bankability status and investment opportunities for solar PV projects in the Baltic region
Banks are increasingly motivated to fund renewable projects due to environmental, social, and corporate governance concerns, with over half of the European Investment Bank's investments being focused on climate action. However, while renewable energy has had a good return on investment in the past, banks are now worried about the potential for low electricity prices.
Power Purchase Agreements are becoming more complex, with accurate pricing models expected prior to project development. This means that there is likely to be an increase in merchant projects, and the solar industry needs to improve to provide banks with more predictable cash flow. Banks prioritize cash flow predictability, and tools such as PVcase Yield, which provide accurate estimates on generated KWH and KW, can help improve CAPEX, OPEX ratio, and LCOE, the main KPI of an energy asset.
Summary
The obstacles faced by the Baltic states are comparable to those in other European markets, but the specific challenges are different in scale. These challenges involve problems related to grid capacity and flexibility, supply chain issues, lengthy authorization procedures, and a lack of consistent regulatory frameworks, incentives, and tax credits. In addition, the recent Russian incursion into Ukraine has made it even more pressing to accelerate the advancement of renewable energy projects.
This overview was written by PVcase and was originally published on their website. The original article can be found here: https://pvcase.com/blog/key-takeaways-from-solarplaza-summit-baltics-2023/
