Energy Security Scenarios in the Baltic States

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Energy Security Scenarios in the Baltic States

Karl Sjöblom

Master of Science Thesis

KTH School of Industrial Engineering and Management Energy Technology EGI-2016-010MSC

Division of Energy Systems Analysis SE-100 44 STOCKHOLM

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Master of Science Thesis EGI-2016-010MSC Energy security scenarios in the Baltic states

Karl Sjöblom

Approved Examiner

Mark Howells

Supervisor

Constantinos Taliotis

Commissioner Contact person

Abstract

The Baltic region is facing a large‐scale transformation of its electricity supply system. The current generation system consists of large fossil fuel based power plants that need to be replaced with more environmental friendly generation types. Therefore, a thorough analysis of the future electricity supply system is necessary to avoid shortages and ensure the security of supply. Not only does the Baltic electricity systems contribute to a large amount of carbon emission, but is also struggling with a regional deficit of electricity and is therefore forced to import electricity from Russia. The installed capacity is not enough to cover the domestic and regional demand.

Four scenarios have been compared and analyzed in order to find possible ways to improve the energy security. The first scenario was a plain least‐cost scenario, the second scenario included a target of renewable electricity production of 100% by 2050, the third scenario included a target of zero carbon emissions by 2050 and the fourth scenario included the construction of a nuclear power plant in Visagina, Lithuania by 2022. The results from these scenarios detected several possible directives, which would both improve the energy security and the Baltic region would obtain o more sustainable electricity generation system. These results indicated that if Lithuania initiated the plans of a nuclear power plant this would heavily decrease the Baltic region’s dependence on imported electricity.

However, large investments must be made in the renewable electricity production industry in to secure the phase out process of the large fossil fuel based power plants.

These actions are the most effective way to improve the security of electricity supply in the Baltic region. Still there are more research areas related to the same problems that has to be investigated.

To obtain a holistic overview of the energy system other sectors must be included. Both the transport and heat sector contribute to large amount of carbon emissions due to the dependence on fossil fuels.

Further investigation in this area would be to include these sectors in the analysis.

Keywords: OSeMOSYS, energy security, Baltic region, long‐term scenario planning, carbon reduction

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Preface

This project is the final step of my five years here at the Royal Institute of Technology, KTH. After finishing my bachelor’s degree in energy and environment I started the master’s programme sustainable energy engineering with focus on power generation and energy systems analysis and this is the thesis project that sums up all these years. First of all I would like to thank my supervisor Constantinos Taliotis for all great feedback and support. This valuable feedback has given me the guidance and directions I needed to achieve the goals. I would also like to thank the department of Energy System Analysis at KTH. This project has given me a great insight in the system perspectives of the energy analysis and how to find improvements using these methods.

Finally, I would like to send a warm thank you to my family and friends for the support during these months!

Stockholm, January, 2016

Karl Sjöblom

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1 Introduction

The Baltic region states, Estonia, Latvia and Lithuania became sovereign on 6th of September 1991 after almost half a century of Soviet occupation. Traces from that period can still be found in several places including the electricity supply system. Even though it is more than 20 years since the Baltic countries, together with the Soviet Union declared their independence the electricity transmission infrastructure is heavily integrated with today’s Russian network. The electric grid is still synchronized with Belarus and Western Russia in the so called BRELL transmission network. This means that frequency regulations and load/generation control is in the hand of foreign operators (BALTSO, 2006).

The integration of the Baltic electric grid with the European grid is a continuous project. During the past ten years several interconnection links with the Nordic countries have been implemented and there are more to come. The first interconnection line, Estlink together with Nordbalt and LitPol are three larger interconnection projects with the aim of integrating the two separate grids (NTI, 2015).

These matters together with the fact that the region depends heavily on import of electricity show the importance of an analysis of the security of electricity supply in the region. However, the Baltics is not the only region dependent on import of energy. According to the European Commission more than 50% of the EU energy supply is imported, which clearly points out a lack of energy security not only in the Baltic but also in the whole European Union (Eurostat, 2015). Therefore, a numerous of policy plans and incentives have been implemented by the European Commission in order to increase energy security and to avoid energy shortages, conflicts or other matters that follows lack of energy. If the Baltic countries aim for a more independent and self‐controlled electricity supply structure actions must be done within a clear frame of united goals.

1.1 Energy situation in the Baltic countries

As mentioned above the Baltic region is heavily dependent on electricity import and has been so for the past 5 years, due to the transformation of the Lithuanian electricity supply caused by the shutdown of nuclear power. However, what is important to mention is the situation is different in all three states.

In figure 1 the net electricity import is presented. In table 1 and table 2 the detailed electricity import and export flows are presented for the reader to see from which country the electricity comes from.

Figure 1: Net electricity import of the three Baltic countries from 2000-2012

Table 1: Annual electricity export from the neighboring countries

Exporter: ESTONIA LATVIA LITHUANIA

‐100

‐75

‐50

‐25 0 25 50 75 100

2000 2002 2004 2006 2008 2010 2012

[TWh]

Estonia Latvia Lithuania

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[GWh] [GWh] [GWh]

Importer: Finland Latvia Russia Estonia Lithuania Russia Latvia Belarus Russia

2010 1 967 2 695 285 38 3 055 8 234 402 1 549

2011 1 657 2 633 696 26 2 734 0 443 747 155

2012 385 3 364 1 150 13 3 231 1 293 1 022 128

2013 476 3 535 1 971 23 3 626 1 89 893 146

2014 44 3 804 2 682 5 3 017 1 244 535 118

Table 2: Annual electricity import from the neighboring countries

Importer: ESTONIA

[GWh]

LATVIA

[GWh]

LITHUANIA

[GWh]

Exporter: Finland Latvia Russia Estonia Lithuania Russia Latvia Belarus Russia

2010 246 38 1 459 2 695 234 1 044 3 055 4 488 634

2011 480 26 1 011 2 633 443 934 2 734 2 916 2 436

2012 1 511 13 1 114 3 364 293 1 280 3 231 2 230 2 603 2013 1 534 23 879 3 535 89 1 382 3 626 2 335 2 112 2014 3 522 5 185 3 804 244 1 290 3 017 3 356 2 147

Estonia has due to its great domestic oil‐shale resources been a consistent net exporter. This has played an important role of the economic development and has also been a large contribution to the growing gross domestic product (Sousa & Fedec, 2015). When it comes to import Estonia has shifted from Russian electricity to a larger import of Finish electricity, which can be seen in table 1 and table 2. This is because a second interconnection link between Estonia and Finland, Estlink 2, was in place 2014. Estlink 1 have a capacity of 350 MW and was installed 2006 and is now complemented with Estlink 2 which has a capacity of 650 MW. In Latvia and Lithuania the situation is different and by viewing figure 1 it is easy to see how the situation has changed. Latvia has during the past 15 years been net electricity importers, mainly from Russia and Estonia (ENTSOE, 2015). Due to lack of reliable primary energy sources they have been forced to import large shares of its domestic electricity supply.

The situation in Lithuania has changed dramatically the past 15 years. From being a consistent net exporter Lithuania is now a major net importer. A milestone of this development occurred in 2009 when Lithuania was forced to shut down its nuclear power plant in Ignalina due to its low standard.

This was necessary in order for Lithuania to be accepted as a member of the European Union (World Nuclear Association, 2015). The consequences that followed were an increase of the import demand, which pushed Lithuania even further away from safe and independent electricity supply. The shutdown of the Ignalina power plant affected the whole region, which can be seen in Figure 1, where the import increased significantly by 2010. Lithuania is now heavily dependent on import from Russia, Belarus and Latvia, which can be seen in table 2.

Even though Estonia is a consistent net exporter of electricity they have to prepare for a larger change in its production technology system. Oil‐shale fired power plants contribute to almost 90% of the annual electricity production, which causes large amounts of carbon emissions. Therefore, large investments must be done to increase its small renewable share to a more decent level. Latvia has by far the highest share of renewable energy in its domestic production. Due to its investments in hydropower the average renewable share stands for over 55%. Lithuania on the other hand has an average renewable share of 30%. Partly because of its hydropower but also an amount of wind power worth mentioned. Both Latvia and Lithuania will in the future struggle with both their dependence of import but also their large share of electricity produced in natural gas‐fired power plants. In table 3 the electricity generation mix of 2012 in each country is presented:

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Table 3: Electricity generation mix of 2012

Estonia Latvia Lithuania

[TWh] [%] [TWh] [%] [TWh] [%]

Fossil fuels 10,5 87,6 2,1 38,7 3,1 64,8

Biofuels 1,0 8,4 0,2 4,2 0,2 4,5

Other renewables 0,5 4,0 3,0 57,1 1,5 30,7

Total production 12,0 100 5,3 100 4,8 100

Net Imports ‐2,2 1,7 6,6

Final el. demand 9,7 7,0 11,4

Table 4: Installed capacity in 2010 and 2015

Estonia Latvia Lithuania

[MW] 2010 2015 2010 2015 2010 2015

Oil‐shale 1 787 1 787 0 0 0 0

Natural gas 188 438 865 865 2 520 2 520

Biofuels 83 101 16 88 45 120

Wind 149 301 30 68 163 288

Hydro 7,5 7,5 1 553 1 579 877 1 102

Nuclear 0 0 0 0 0 0

Fossil fuels stand for most of the installed capacity together with hydropower in Latvia and Lithuania.

The installed capacity of 2010 and 2015 is presented in table 4 and it proves the Baltic regions dependence on fossil fuels. Oil shale capacity in Estonia and natural gas‐fired capacity in Latvia and in Lithuania are important facts and clearly gives an idea of the situation in those countries. All three countries have also experienced an economic growth since the separation from the Soviet Union with a, except during the financial crises of 2008, growing gross domestic product. In table 5 the economic forecasts are presented and they are positive which means that the future looks bright and the economies will continue to grow (Sousa & Fedec, 2015). Even though the annual growth rate is slowly decreasing the total GDP will follow the trend presented in table 5 (Sousa & Fedec, 2015).

Table 5: Gross domestic product forecast

2015

[Billion USD]

2020 [Billion USD]

2030 [Billion USD]

2050 [Billion USD]

Estonia 25,9 30,9 39,2 55,7

Latvia 31,9 37,9 47,8 67,5

Lithuania 48,2 58,4 75,6 110

In order to increase the security of supply a thorough analysis of the energy situation must be done.

Important system components like infrastructure, access to necessary primary resources, regional political stability are a few parameters that affect the energy security. Another important parameter is the cost of energy. Even though future energy policy planning will focus mainly on low‐carbon alternatives that can replace today’s dependence on fossil fuel alternatives, the economic costs must

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be taken into account. Future predictions of investment cost, operating and maintenance cost, and the cost of fuel must be included in the policy plans to create a more reliable electricity system.

1.2 Aims and objectives

The aim of this project is to create and compare long‐term scenarios of the electricity supply in each of the three Baltic countries and use these comparisons to find improvements of the security of electricity supply. This is done using optimization software program OSeMOSYS. In order to create these scenarios several matters must be taken into account to obtain more reliable scenario plans and ease the comparison process. Important aspects that need to be analyzed include the current situation of installed capacity, domestic production, import of fuels and/or electricity, and other potential generation technologies that could replace existing technologies. Other important aspects are existing, and future cross‐border transmission infrastructure links, relevant European Union legislation and domestic energy policy plans, as well as cost projections of new investments, fuel extractions and imports, operating and maintenance. When comparing the four scenarios the following criteria will be used to perform the analysis. They are based on the International Energy Agency definition of a secure energy supply (Tanaka, 2009):

 Diversification of generation technologies

 Access to natural resources used for fuel extraction

 Amount of imported electricity and from which country the electricity is imported

 Environmental aspects

1.3 Literature and data collection review

In this project the data is collected from well‐known sources to ensure that the results are as reliable as possible. Most of the data is collected from sites connected to the European Union (EU), European Commission (EC) and the International Energy Agency (IEA). The electricity demand forecast is collected from a publication created by the EC. It is a publication of the energy situation in Europe and compares a business‐as‐usual scenario with a reference scenario based on the EU targets of 2020.

Since the EU targets are binding for all member states, the demand projections are based on the reference scenario. Data related to load demands are collected from European network of transmission system operators of electricity (ENTSOE).

Cost projections are mainly based on an IEA program called Energy technology systems analysis program (ETSAP). In the section of energy supply technologies a great collection of publications for different generation, transmission and distribution technologies can be found. Additional cost projection data was collected from the IEA publication World Energy Outlook of 2014. One technology that did not appear in either of the two publication databases was the oil‐shale power plant costs, capital, O&M and fuel costs. In this project the projections of these costs are based on a study conducted 2005 by the European academics science advisory council (EASAC).

2 Methods

In order to achieve the project goals of comparing several scenarios a well‐structured method is necessary. Therefore, a few steps have to be taken and in chapter 2 a detailed explanation of the model development is presented in three sub‐chapters. Chapter 2.1 describes the scenarios with focus on the

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link between the chosen scenario and current energy policy plans, economic projections etc. Chapter 2.2 describes the optimization software program OSeMOSYS, a brief description of its mathematical content and why it is preferred instead of other similar software programs. Chapter 2.3 deals with the data input and other assumptions.

2.1 Scenarios

A detailed presentation of the chosen scenarios is vital and necessary to obtain a clear picture of what is expected from the results. In this chapter the different scenarios are presented with both a short summary of the goal and also with an explanation of why the scenario is important. In scenario 2, 3 and 4 all three countries must fulfill their share to the binding EU target of 2020. This includes a 20%

decrease of its carbon emissions compared to 1990. The target also consists of an individual renewable share in the electricity generation mix, where the Estonian target is set to 25%, Latvian is set to 40%

and the Lithuanian is set to 23%.

 Scenario 1: A plain least‐cost scenario. This scenario will only take into account economic aspects and current cost projections and present the most economically competitive scenario. It is necessary to investigate how the electricity system will evolve over time if neither policy plans nor targets are implemented, and the future electricity generation systems will completely depend on the net present value of the different technologies.

 Scenario 2: 100% renewables by 2050. By 2050 all three countries must transform their electricity generation system into 100% renewables. A milestone target is set to 2030 of at least 50% renewable energy. This scenario is important in order to find a possible strategy to transform the current system into a complete renewable electricity system.

The renewable energy has large potential to grow and this scenario might help policy planners with the share structure of the generation mix since the net present value differs among the generation types.

 Scenario 3: Zero carbon emission by 2050. By 2050 all three countries must produce all their electricity from renewable energy sources. This scenario is important to show an alternative carbon reduction scenario to scenario 2. With a goal of a total carbon reductions other none carbon emitting sources might be an option. Nuclear power is one example and nuclear potential have been discussed between the countries.

 Scenario 4: The construction of a nuclear power plant in Visagina, Lithuania, with the start‐up year of 2022. Policy makers are currently investigating the possibility to construct a nuclear power plant in Lithuania and this is why this scenario must be included. This construction will change the energy mix a lot and will affect both the net import of the Baltic region and the net import of each of the three countries. It is therefore necessary to investigate.

2.2 Modeling software program

In order to perform the simulations and create the different scenarios OSeMOSYS is used. OSeMOSYS is short for Open Source Energy Modeling System and is developed to solve problems within the area of medium‐ and long‐term scenario planning (Howells, o.a., 2011). These scenarios can deal with installed capacity planning as well as planning of energy supply and is applicable in a multi‐sector use, which makes it useful for many different actors (Howells, An Introduction to OSeMOSYS, 2013).

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OSeMOSYS has the advantage of that it is easy to understand the software and the so called “learning‐

curve” is considered low (Howells, o.a., 2011). A brief summary of the structure of the software program is that it is constructed with a block‐structure of 7 blocks. Each block represents so‐called functionalities, which together will contribute to the model. The functionalities are objectives, costs, capacity adequacy, energy balance, constraints, storage and emissions.

 The objective block of OSeMOSYS is to use a built‐in discount rate together with cost projections of fuels and technologies, and calculate the lowest net present value (NPV) of the most cost effective structure of the energy supply system (Howells, 2013).

 The block of costs relates to the cost of the different technologies, where several costs like capital cost, O&M costs, and fuel costs are implemented. The current costs together with cost projections in each year during the chosen time period is vital in order to obtain the optimized model results (Howells, 2013).

 The block of capacity adequacy deals with issues of having enough installed capacity to cover the different demands in each time slice and each year. If the installed capacity does not cover each time slice or year no results will be obtained and the model will collapse (Howells, 2013).

 The block of energy balance is there to ensure that during each time slice and year there are a production and a supply of fuel to cover the demand. It is not enough to only have enough capacity if there isn’t enough fuel. The fuel input must meet the demand in each time slice and year (Howells, 2013).

 The block of constraints is there to implement different limits that might be used for several occasions. It is there to set a maximum and/or a minimum limit for both capacity and activity related problems. By implementing these limits it is ensured that the model becomes more realistic and it also simplifies the possibility to create scenarios based on for example emission reduction, renewable energy generation, and implementation of a specific capacity or activity (Howells, 2013).

 The block of storage represents any possible reserve margins in the initial state (Howells, An Introduction to OSeMOSYS, 2013).

 The block of emissions is there to analyze and implement environmental aspects into to model.

Each technology has a certain emission activity ratio which denotes how much emission that has been polluted per generated unit of energy (Howells, 2013).

There are two interfaces and one extra third way to use OSeMOSYS configuration for the optimization process. LEAP, ANSWER, and the possibility to write your own code using Notepad and do the optimization in the Microsoft Windows typing commander Command Prompt. In this project ANSWER is used for the optimization process. The advantage of using the ANSWER interface is that there is a possibility to apply for almost all energy sectors and not only the electricity system. Even though this project only take into account the electricity supply system, there is now a possibility to expand this project and add the heat and transport sectors which would give an even more detailed analysis of the security of energy supply. ANSWER is also a very easy managed software program where the user can start right away with the modeling and don’t have to worry about a tricky learning process (Howells, 2013).

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2.3 Model assumptions and inputs

In this section the assumptions and inputs of the model are presented. The sub‐chapter describes every detailed model input necessary to create the model. It is of major importance to be well oriented about the energy situation before the actual modeling begins. A clear picture of the energy system is therefore necessary to avoid uncertainties and to be better prepared for the modeling process.

2.3.1 Demand profile

2009 the European Commission released a document with percentage forecast of the final electricity demand. By viewing table 6 with the demand projections and table 7 with the annual percentage change we can see that there will be a continuing demand growth in all three countries (Capros, Tasios, Mantzos, De Vita, & Kouvaritakis, 2009). The percentage values are used in this project as a frame of the future Baltic electricity demand system. In order to present scenarios of the future electricity mix it is first necessary to view the demand predictions. As written above, the demand curve will continue to grow and the growth is presented with values in table 6 and the annual percentage change in table 7.

Table 6: Final electricity demand projections 2010-2050

2010

[PJ/TWh]

2020 [PJ/TWh]

2030 [PJ/TWh]

2050‐

[PJ/TWh]

Estonia 24,9/6,9 29,9/8,3 34,7/9,6 46,7/12,9

Latvia 22,4/6,2 27,6/7,7 30,8/8,5 38,3/10,6

Lithuania 30,0/8,3 39,9/11,0 44,5/12,4 55,4/15,4

Table 7: Annual percentage change of the final electricity demand

2010‐2020

[annual % change]

2020‐2030 [annual % change]

2030‐2050 [annual % change]

2050‐

[annual % change]

Estonia 2,2 1,5 1,2 1,2

Latvia 2,4 1,5 1,5 1,5

Lithuania 2,3 0,7 0,7 0,7

To obtain a more accurate picture of a country profile it is also of major importance to investigate at what hours the demand occurs and during what hours the different electricity generation technologies are capable of producing electricity. Certain electricity production technologies are time dependent, which means that they can only produce electricity at certain hours of the day. This analyze is necessary to avoid shortages at peak demand states.

Since the electricity demand varies between seasons it is necessary to divide one year into so‐called time slices. An annual electricity demand curve shows that the demand is much higher during the winter period than the summer period. To calculate the time slices one must first create an annual demand curve to be able to see how the load varies over the year. Since the climate conditions are basically the same in the whole region one assumption is that the Estonian hourly electricity demand is proportional to the whole region. Therefore, the Estonian demand curve is used for the whole project. Data for the demand curve is collected from the European Network of Transmission System Operators for Electricity (ENTSOE) and the reference year is 2014 (ENTSOE, 2015).

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Figure 2: Average annual electricity demand in Estonia 2014

The blue vertical lines in Figure 2 represent the season breaks. Season 1 range from December to March, season 2 ranges from April to May, season 3 ranges from June to September and finally season 4 ranges from October to November. This gives us the following seasons and number of days in every season:

Table 8: Number of days in every season

Season 1 Season 2 Season 3 Season 4

Months Dec‐Mar April‐May June‐Sept Oct‐Nov

Days 31+31+28+31=121 30+31=61 30+31+31+30=122 30+31=61

It is not enough to only take into account at what time of year the demand occur. It is also necessary to analyze the load on a daily basis. Since the daily load changes over the year depending on the season three daily demand curves, one from January, one from June and one from October, are compared to find the most accurate representing daily load. The different load curves represent the Estonian load since the load is similar in all three countries and therefor the results will be the same. These load curves provides us a more detailed picture of when the power is needed.

400

600 800 1000 1200

1 2 3 4 5 6 7 8 9 10 11 12

(MW)

Month

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Figure 3: Electricity demand curves of two days in January, June and October

From figure 3 it is now possible to split the days into sub‐sections where the hourly load is similar to one another. The first part ranges between 01‐07 A.M., the second part ranges from 08 A.M. to 6 P.M., the third part ranges from 07 P.M. to 09 P.M. and the fourth part ranges from 10 P.M. to 12 P.M. This gives us the following part of the day values:

Table 9: Number of hours in each part of the day

Day Part 1 Day part 2 Day Part 3 Day Part 4

Time 01:00‐07:00 08:00‐18:00 19:00‐21:00 22:00‐24:00

Hours 7 11 3 3

By multiplying the number of hours in the specific part of the day with the number of days in that specific season and divide that number with the total amount of hours in one year (8 760 hrs.) we obtain the value of that specific Time slice. This is described in the following equation:

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^∗

Table 10: Time slices for each season and part

Day Part 1 01:00‐07:00

Day part 2 08:00‐18:00

Day Part 3 19:00‐21:00

Day Part 4 22:00‐24:00

Season 1 (Dec‐Mar) 0,097 0,152 0,041 0,041

Season 2 (Apr‐May) 0,049 0,077 0,021 0,021

Season 3 (Jun‐Set) 0,098 0,153 0,042 0,042

Season 4 (Oct‐Nov) 0,049 0,077 0,021 0,021

Next step is to calculate the specified demand profile and the calculations are very simple. The specified demand profile is necessary to include in the model in order to determine at during what time slice the demand load occur. By only include the total annual demand would give incomplete results since the load varies between the seasons and hours of the day. That is why a specified demand profile must be calculated since it takes into account each time slice. The formula can be seen below and the results are presented in table 11:

Table 11: Specified demand profile

Day Part 1 01:00‐07:00

Day part 2 08:00‐18:00

Day Part 3 19:00‐21:00

Day Part 4 22:00‐24:00

Season 1 (Dec‐Mar) 0,070 0,147 0,039 0,032

Season 2 (Apr‐May) 0,056 0,120 0,031 0,027

Season 3 (Jun‐Sep) 0,050 0,111 0,028 0,024

Season 4 (Oct‐Nov) 0,063 0,137 0,036 0,029

2.3.2 Fuel

The fuel section denotes the energy carriers at every stage in the reference energy system, before and after every technology. In this project fuel occurs in four different shapes; primary fuel, electricity before and after transmission losses and final electricity demand. In table 12 the different primary fuel types are presented. Estonia stands out with their large oil‐shale resources. Other than that biofuels and natural gas are used in all three countries.

Table 12: Primary fuel used for electricity production

Oil‐shale Natural gas Biofuels Uranium

Estonia X X X ‐

Latvia ‐ X X ‐

Lithuania ‐ X X ‐

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2.3.3 Reference electricity system

A reference energy system as in figure 4, 5 and 6 shows the energy flow and transformation within a country or region from import or extraction of a natural resource all the way to the final electricity demand. The boxes represent technologies such as import technologies, extraction technologies, transformation technologies and transmission/distribution technologies and they all represent a transformation or a transportation of a fuel. The brown boxes represent all existing technologies except the green boxes, which represents the existing renewable power plants. The yellow boxes represent import technologies and the purple boxes represent potential technologies. The vertical lines are the different fuels within the system and primary fuels are the state before the power plants transform the fuels into electricity, secondary is the electricity without any transmission losses, tertiary is the electricity without any losses in the distribution network and the final electricity demand is the amount of electricity to cover the consumption within the region.

Figure 4: Estonian reference electricity system

Figure 4 shows the Estonian electricity supply system and a vast majority of the Estonian electricity supply are produced from oil‐shale fired power plants. Except the environmental concerns with carbon dioxide emissions, the oil‐shale fired power plants have played an important role in the development of the Estonian electricity system. During the past 20 years the net import of electricity have been negative, which means that they export more than they import (Capros, Tasios, Mantzos, De Vita, &

Kouvaritakis, 2009). Estonia is a consistent net exporter. During the past 25 years Estonia have been able to produce more than the domestic demand which have lead to a continous export to their neighbor countries mainly Latvia and Russia, which can be seen in tabel 1 . The oil‐shale power generation accounts for over 90 % of the total production. Other sources worth mentioned are biomass and an increasing on‐shore wind power industry. However, by today they have only a minor share of hydropower in the electricity mix and the possibility of expanding the hydro is considered low (Eesti, 2015).

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The installed capacity is around 2.9 GW and the largest power plants are located in the Narva region close to the Russian border due to the closeness of the oil‐shale findings. The more environmental friendly renewable alternatives are not that wide spread. The hydropower projections say that it will not expand, but remain its capacity level of 7.5 MW. The share of wind power is higher and acounts for 300 MW. Future important power plant projects worth mention is the oil‐shale/biomass fired power plants in Auvere. The start‐up date is set to late 2015 and with a total capacity of 300 MW.

Currently there are no existing plans of construct a nuclear power plant. Several discussionens and policy plans have been made but that has not lead to any serious actions (NTI, 2015). Due to Lithuania’s further plans of building a nuclear power plant in Visagina Estonias nuclear discussions and plans have been put on hold. However, discussions have been made regarding Estonia’s and Latvia’s participation of the investment in Ignalina. By today no serious actions have been made and both Estonia and Latvia are waiting for a response from Lithuania (WNA, 2015).

The Estonian government have implemented one incentive programme to stimulate the use and production of electricity from renewable energy sources and that is the premium tariff. But the future of that incentive programme is uncutrain since the government have said that they want to some how change the form of it. The reason is said to be that Estonia is predicting that they will reach the renewable targets and switch the focus to another subsidy programme (Pilvik, 2014).

Figure 5: Latvian reference electricity system

Figure 5 shows the Latvian electricity supply system and it varies a bit compared to the Estonian. Even though the reference energy system shows that there are similarities the generation mix says the opposite. The renewable share (see table 3) has during the past years contributed to over 50% of the total electricity production and the reason for that is Latvia’s large hydropower investments. This together with a tiny portion of wind power and biofuels has made the Latvian electricity generation much more environmental friendly than the Estonian. However Latvia still needs to deal with its large share of natural gas‐fired power plants, both because of the environmental concerns but also political aspects since all of the natural gas is imported from Russia and Latvia have no domestic natural gas resources. The amount of installed capacity is basically the same as in Estonia, around 3 GW.

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Hydropower plants stands for around half of the installed capacity and there are currently three large‐

scale power plants. All constructed in the Daugava River which flows from the Baltic sea, through Riga and all the way down to the Belarusian border. Besides the hydropower plants there are around 1.2 GW natural gas‐fired power plants.

Most of them in the areas around Riga except one plant placed in Liepaja by the Baltic Sea. There are also around 180 MW of other renewables, mostly wind and biofuels. There are two important incentive programmes to stimulate renewable electricity production in the Latvian Electricity Market Law (Upatniece, 2014). One of the programmes is a feed‐in‐tariff incentive, which stimulates renewable energy by supporting renewable technologies with subsidies that are based on, the kWh cost of each technology. The feed‐in‐tariff programme ended in 2010 but will start once again in 2016 (Upatniece, 2014). The other incentive programme is net metering which is implemented only for small‐scale producers and gives the producers the possibility to pay the net cost of electricity, which is the difference between the electricity gained from the national or regional grid and the electricity produced and sent back to the grid (Upatniece, 2014).

Figure 6: Lithuanian reference electricity system

Figure 6 shows the Lithuanian electricity supply system and it looks similar to the Latvian one but is far more dependent on import. The natural gas‐fired power plants accounts for 60‐65% of the total domestic production and this together with an electricity import of over 50% of the annual electricity demand has set Lithuania in a bad place. Not only do they import a lot of electricity from Belarus and Russia, but are also forced to import natural gas since Lithuania has none domestic natural gas resources. Lithuania has therefore by far the weakest electricity supply system and actions need to be taken in order to increase the security of supply. The renewable share of the domestic production is around 35% with a large portion of hydropower and tiny shares of wind, biofuels and utility‐scale solar PV. The installed capacity is 4.5 GW where 2.7 GW is natural gas‐fired power plants, 1 GW of hydro, 300 MW of wind, 70 MW of solar PV and around 80 MW of biofuels, mostly biomass. Most of the natural gas‐fired power plants are located near the towns of Kaunas and the capital, Vilnius in the Southeast parts of Lithuania and the larger hydropower plants are located in the Neman River.

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Two important projects to increase the energy security are the cross‐border transmission links to Sweden and Poland. The link to Sweden, Nordbalt, is a 400 km long submarine plus 50 km above ground HVDC cable with a capacity of 700 MW and with a commissioning date some day during 2016 (Litgrid, 2014). The other link, LitPol, is connected to Poland and is a 163 km long above ground HVDC cable with a capacity of 500 MW. A commissioning date is set to late 2015‐early 2016 (LitPol, 2014).

These cables will decrease the dependence on Russian and Belarusian electricity. There are also four important subsidy programmes to stimulate the renewables; feed‐in‐tariff, loan from climate funds to stimulate climate neutral technologies, tax reduction on electricity from renewable sources and subsidies.

2.3.4 Technology

In the model a technology represents all transformations, transports, distributions, imports and extractions of the different fuels. Biofuels, natural gas, hydro, wind and utility‐scale solar PV plants are currently being used for power generation. However, nuclear power plants and small‐scale solar PV plants have potential to grow in that region and will therefore be a part of the model. Both Estonia and Lithuania have discussed the possibilities of constructing a nuclear power plants. The Estonian nuclear plans are currently paused but the Lithuanian plans are still in question (WNA, 2015). Table 13‐

20 shows the data for each technology with current cost and cost projections up to 2050.

Table 13: Information and projections of biofuel-fired power plant and fuel costs

Biofuels ¹ Unit 2010 2020 2030 2050

Availability factor % 93 ‐ ‐ ‐

Capacity factor % 91 ‐ ‐ ‐

Capital cost 2010 $/kW 3 750 3 100 2 750 2 160

Efficiency % 32 35 38 40

Fixed cost ² 2010 $/kW 64,5 53,3 47,3 37,1

Extraction cost ³ 2010 $/GJ 1,11 1,09 1,09 1,07

1 – Values of biofuel power plants, except the fixed and extraction costs are collected from ETSAP database (Lako, IEA ETSAP, 2010) 2 – Values of the fixed cost are collected from Electricity market module (EIA, U.S. Energy Information Administration, 2010) 3 – Values of the extraction cost are collected from IRENA publication RPGC in 2014 (IRENA, 2015)

Table 14: Information and projections of natural gas-fired power plant and fuel costs

Natural gas ¹ Unit 2010 2020 2030 2050

Capital cost 2010 $/kW 1 100 1 000 900 700

Fixed cost 2010 $/kW 44 40 36 28

Extraction cost ‐ ‐ ‐ ‐ ‐

Fuel import cost ² 2013 $/GJ 10 10,5 11,5 12,6

1 – Values of natural gas power plants, except fuel import cost, are collected from ETSAP database (Seebregts, 2010) 2 – Values of the fuel import cost are collected from IEA publication World energy outlook 2014 (Hoeven, 2014)

Table 15: Information and projections of oil-shale-fired power plant and fuel costs

Oil‐shale ¹ Unit 2010 2020 2030 2050

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Capital cost 2010 $/kW 1 370 1 233 1096 822

Fixed cost ² 2010 $/kW 60 49,3 43,8 32,9

Extraction cost 2013 $/GJ 1,2 1,2 1,2 1,2

1 – Values of oil‐shale power plants, fixed cost, are collected from European Academic Science Advisory Council 2005 with a discount rate of 5% (Francu, Harvie, Laenen, Siirde, & Veiderma, 2007)

2 – Values of the fixed cost are collected from the Department of mechanical engineering, Jordan (Jaber, 2005)

Table 16: Information and projections of nuclear power plant and fuel costs

Nuclear ¹ Unit 2010 2020 2030 2050

Capital cost 2010 $/kW 4 600 4 350 4 250 4 000

Fixed cost 2010 $/kW 115 109 106 101

Fuel import cost 2010 $/GJ 2,11 2,11 2,11 2,11

1 – Values of nuclear power plants, except fuel cost, is collected from IEA publication ETP 2012 (Diczfalusy, 2012) 2 – Values of the fuel cost is collected from U.S. Nuclear Energy Institute (NEI, 2015)

Table 17: Information and projections of hydropower plants

Hydro ¹ Unit 2010 2020 2030 2050

Capacity factor (Est) % 52,5 ‐ ‐ ‐

Capacity factor (Lat) % 26,6 ‐ ‐ ‐

Capacity factor (Lit) % 13,5 ‐ ‐ ‐

Capital cost 2010 $/kW 4 500 4 000 3 600 3 000

Fixed cost 2010 $/kW 90 80 72 60

1 – Values of hydropower plants are collected from ETSAP database (Lako, ETSAP, 2010)

Table 18: Information and projections of on-shore wind power plants

Wind Unit 2010 2020 2030 2050

Capacity factor (Est) % 24,2

Capacity factor (Lat) % 24,9

Capacity factor (Lit) % 26,4

Capital cost 2010 $/kW 1 800 1 600 1 550 1 500

Fixed cost 2010 $/kW 36 32 31 30

1 – Values of wind power plants are collected from IEA publication ETP 2012 (Diczfalusy, 2012)

The capacity factor of hydro and wind power varies depending on in which of the three countries we are focusing on and is based on installed capacity, produced electricity and the time measured in hours.

Since the amount of produced electricity varies over the year every time slice has separate values of the capacity factor. The value in the Hydro and Wind tables (table 17 and 18) above are annual average values based on the years 2011, 2012 and 2013 and is calculated using the following equation:

∗

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Table 19: Information and projections of solar PV utility-scale power plants

Solar PV Utility ¹ Unit 2010 2020 2030 2050

Capacity factor % 19 20 20,5 21

Capital cost 2010 $/kW 4 000 1 880 1440 1 050

Fixed cost 2010 $/kW 40 19 14 11

1 – Values of solar PV utility power plants are collected from IEA publication ETP 2012 (Diczfalusy, 2012)

Table 20: Information and projections of small-scale solar PV power plants

Solar PV Rooftop ¹ Unit 2010 2020 2030 2050

Capacity factor % 17 18 19 20

Capital cost 2010 $/kW 4 000 2 300 1 750 1 300

Fixed cost 2010 $/kW 49 23 18 13

1 – Values of solar PV utility power plants are collected from IEA publication ETP 2012 (Diczfalusy, 2012)

2.3.5 CO2 Emissions

To be able to compare the emission activity between the four scenarios data about how much carbon dioxide emissions per energy unit is produced must be inserted in the fuel extraction and fuel import technologies. The emission factor determines how many kilograms of carbon are produced for every produced GJ of electricity. In table 21 the emission factors are presented and what is worth noticing is the fact that oil‐shale emits almost twice as much carbon compared to natural gas.

Table 21: CO2 Fuel Emission factors

Emission factor

[Mton CO2/PJ]

Emission factor [mol CO2/MJ]

Emission factor [kg CO2/MMBtu]

Natural gas¹ 0,0503 ‐ 53,06

Oil‐shale² 0,1056 2,4 ‐

1‐ Value of natural gas emission factors is collected from EIA (EIA, 2007)

2 ‐ Values of oil‐shale emission factors is collected from EASAC (Francu, Harvie, Laenen, Siirde, & Veiderma, 2007)

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3 Results

In this chapter the results of the four scenarios are presented. Each scenario is presented with six graphs. Three graphs represent the annual electricity supply and the remaining three graphs represent the installed capacity in each of the three countries. A detailed description of the scenarios can be found in chapter 2.1.

3.1 Scenario 1 – least cost

Figure 7: Total annual electricity supply, scenario 1, Estonia

Figure 7 shows the annual electricity supply in Estonia according to the first scenario. With given cost projections the oil‐shale (in orange) will continue to play an important role. However, after 2030 there will be a significant decrease since the biofuels will be a cheaper option. During the first five years the supply is significantly higher than the final electricity demand. That is because of Estonia’s over‐

production. Estonia is producing far more electricity than the demand due to its large oil shale capacity and resources. This electricity is exported mainly to Russia and Latvia, which can be seen in table 1 and 2. Biofuels (in green) will be tiny until 2030 and not reach annual productions above 1 TWh. After 2035 biofuels will contribute with productions up to 5,5 TWh which is almost half of the total production.

The wind power (in purple) will remain at a tiny level with an annual maximum of 1,3 TWh during the whole time period and Estonia will continue to export electricity with an annual net import of around

‐0,45 TWh. Other sources worth mention are hydropower and natural gas that both remain at a tiny level and has no significant contribution to the domestic electricity supply.

‐2 0 2 4 6 8 10 12 14 16

2010 2015 2020 2025 2030 2035 2040 2045 2050

TWh

Nuclear Solar PV Utility Biofuels

Natural gas Hydro Oil‐shale

Wind Net import Final el. demand

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Figure 8: Total installed capacity, scenario 1, Estonia

In figure 8 the installed capacity in Estonia is presented. At the beginning of the time period most of the installed capacity consists of oil shale fired power plants with a maximum of 1,8 GW. The oil‐shale capacity demand decreases while the production (see figure 7) continues to be large. The reason for that is partly because of an increasing efficiency of the plants, but also because of the over‐production that exists in Estonia. Biofuel‐fired power plants accounts for almost 100 MW until 2015 when another 300 MW is installed and this amount will remain constant until 2050. The wind power capacity varies from 300‐350 MW until 2035 when the capacity decreases due to biofuel and oil shale production domination.

The natural gas situation is a bit different here. By 2014 Estonia constructed a 250 MW natural gas‐

fired power plant, which is why there is a significant share. Even though there are 250 MW installed capacity the production (see figure 7) is only around 0,25 TWh. As mentioned earlier the hydropower remains its tiny level over the time period and no new power plants are to be constructed.

0 0.5 1 1.5 2 2.5 3

2010 2015 2020 2025 2030 2035 2040 2045 2050

GW

Nuclear Solar PV Rooftop Solar PV Utility Oil‐shale

Biofuels Natural gas Hydro Wind

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Figure 9: Total annual electricity supply, scenario 1, Latvia

Figure 9 shows the annual electricity supply in Latvia. The hydropower continues to have an important role with basically half of the supply demand and with a maximum of 5,2 TWh during 2025‐2030. It is today an important source and might according to this scenario remain so even in the future. By 2010 the natural gas‐fired power plants produced 2,7 TWh and this production decreases slowly to around 1 TWh by 2050. Large hydropower plants and electricity import is predicted to take over that share.

During 2012‐2015 Latvia is installing around 80‐90 MW biofuel‐fired power plants which leads to an annual electricity production of 1,2 TWh.

By viewing the trends of the net electricity import the situation does not look good. By 2025 the Latvian net import starts to grow and will do so for the rest of the time period and by 2050 half of the Latvian electricity supply is imported. Most of the imported electricity comes from Estonia, which is better than today’s dependence of Russian natural gas resources. The wind power will also remain tiny during the whole time period and Latvia went from a maximum production of around 0,3 TWh down to around 0,1 TWh by 2050.

‐2 0 2 4 6 8 10 12 14

2010 2015 2020 2025 2030 2035 2040 2045 2050

TWh

Nuclear Solar PV Utility Hydro

Natural gas Wind Biofuels

Net import Final el. demand

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Figure 10: Total installed capacity, scenario 1, Latvia

In figure 10 the Latvian installed capacity is presented. With an installed hydropower capacity of over 1,5 GW Latvia will have no problems of reaching the European Commission renewable energy targets of 2020. It has been an important generation technology and will remain so even in the future. The amount of installed hydropower capacity will go through a minor decrease and reach levels of around 200 MW lower than today’s level of 1,5 GW. The natural gas capacity has its maximum during the years of 2014‐2017 with over 1 GW. By 2045 the capacity will be around 350 MW. These two generation types, hydro and natural gas, will continue to have the most important roles in the Latvian electricity production. The hydropower will be the base of the Latvian electricity production together with a decreasing share of natural gas.

Other than that there are only tiny shares of wind and biofuels, where the installed wind power never reaches levels above 80 MW and the biofuel capacity reaches a maximum of 90 MW. What is worth mention here is the fact that the natural gas capacity decreases and accounts for 300 MW by 2050 compared to 865 MW by 2010.

0 0.5 1 1.5 2 2.5 3

2010 2015 2020 2025 2030 2035 2040 2045 2050

GW

Nuclear Solar PV Rooftop Solar PV Utility Biofuels

Natural gas Hydro Wind

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Figure 11: Total annual electricity supply, scenario 1, Lithuania

Figure 11 shows the Lithuanian electricity supply and it differs from both Estonia and Latvia when it comes to diversity. The domestic supply consists of shares of import, biofuels, wind, natural gas and hydropower. Lithuania has just like Latvia a large share of hydropower and with the predictions that it will remain so even in the future. The annual electricity production from hydropower reaches almost 3 TWh, which is about one fourth of the total domestic supply. The shares of wind power and biofuels are basically at the same level during the first 25 years at around 1‐1,5 TWh. But by 2040 a large increase of the biofuel production occurs while wind power actually decreases. The large increase of biofuel production is caused by a decreasing extraction price and after 2040 the net present value of biofuel‐fired power generation is considered as a cheaper option. From 2040 to 2050 the biofuel production increases from 2 TWh to over 7 TWh and will therefore be the most important generation type for the domestic production. Wind power production decreases from 1,5 TWh to 0,45 TWh.

Lithuania is also the only Baltic country with a share of solar PV power plants for utility scale.

0

10 20 30 40 50 60 70 80

2010 2015 2020 2025 2030 2035 2040 2045 2050

TWh

Nuclear Hydro Natural gas

Wind Biofuels Solar PV Utility

Net import LX_EL_TRANS, LX_ELTERT Final el. demand

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Figure 12: Total installed capacity, scenario 1, Lithuania

Figure 12 shows the installed capacity in Lithuania and it can easily be seen that natural gas‐fired power plants accounts for the largest share with over 70% of the total installed capacity. Even though the share of natural gas slowly decreases over the time period it is the most important generation type.

By 2050 the natural gas share has decreased to around 20%. The hydropower capacity with a beginning value of 877 MW increases to a maximum of 1,25 GW during 2015‐2035. By 2035 the capacity decreases to just above 1 GW. Wind power capacity never reaches levels above 290 MW and by 2050 that number is 95 MW and the Lithuanian wind power follows the same pattern as both the Estonian and Latvian wind power capacity. The installed biofuel power plants stay at levels of around 70 MW until 2035 when the capacity suddenly increases to over 500 MW. Even though it is a very tiny share the solar PV power plants for utility scale accounts for around 70 MW.

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

2010 2015 2020 2025 2030 2035 2040 2045 2050

GW

Nuclear Biofuels Natural gas

Hydro Solar PV Utility Wind

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3.2 Scenario 2 – 100% renewable electricity production by 2050

Figure 13: Total annual electricity supply, scenario 2, Estonia

In figure 13 the electricity supply in Estonia is shown. This graph shows the Estonian path to 100%

renewable energy by 2050. The oil shale production with 9,4 TWh of produced electricity by 2010 will be phased out by 2048. After 2048 Estonia will only produce electricity from renewable energy sources.

The natural gas production is basically not worth mention. With a maximum of 0,3 TWh it will completely be phased out before 2045. Biofuel and wind power will be the base of the Estonian electricity production. The biofuel production is very tiny at the beginning of the time period but increases strongly and accounts for more than half of the production by 2050 with a maximum production of 7,7 TWh. The wind power production remains at a level just above 1 TWh basically all the way until 2040 when the production suddenly increases. After 2040 the production reaches levels of 5,5 TWh.

One important matter in this result is the change in net import. Estonia has due to its large oil shale resources been a consistent net exporter but it changes by year 2035. At that point the oil shale enters a major decrease, which forces Estonia to cover up the demand with imported electricity. Despite the fact that the biofuel and wind power production increases it will not be enough to cover the demand, which is why Estonia is forced to import.

‐2 0 2 4 6 8 10 12 14 16

2010 2015 2020 2025 2030 2035 2040 2045 2050

TWh

Nuclear Biofuels Natural gas Hydro

Oil‐shale Wind Net import Final el. demand

Energy Security Scenarios in the Baltic States