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Investment Opportunities in Renewable Energy Resources in Lithuania

In 2009, the European Parliament and the Council adopted Directive 2009/28/EC (hereinafter Directive). This Directive stipulates mandatory targets that renewable energy sources in Lithuania achieve an overall 23 per cent share of total energy consumption by 2020. In order to implement this Directive the Parliament of the Republic of Lithuania has stipulated a new renewable energy promotion policy, which is intended to attract international companies to invest in Lithuania.
 
1.   The existing potential for the development of renewable energy in Lithuania
 
The existing potential for the development of renewable energy is one of the most important factors taken into consideration by perspective future investors as they assess investment opportunities in renewable energy resources in Lithuania.   
 
According to data provided by the Lithuanian confederation of renewable resources,1 annual electric energy consumption in Lithuania is approximately 10 TWh. It is estimated that the potential power of renewable energy resources that still might be installed to help address this demand is as follows:
  • biomass (firewood and wood processing wastes, straw, fast growing osier, other plant mass, sewage sludge) – 2,25 million tonnes of oil equivalent (or 25 TWh of energy);
  • biodegradable industrial and municipal waste – 1,300,000 tonnes (or 3 TWh of energy);
  • wind energy (generating potential) – 5,5 TWh of energy.  Currently installed only approximately 200 MW of energy;
  • solar energy (technical potential) – 2,1 TWh of energy.  Currently installed only approximately 2 MW of energy;
  • water used in hydroelectric plants could produce 1 TWh of energy;
  • biogas (technical potential) – 2 TWh of energy;
  • soil heat could produce 1 TWh of heat; and
  • biofuels' production capacity is able to produce 20% of all fuels consumed in Lithuania.
Considering the above mentioned estimates, it might be presumed that there is a high potential for the development of renewable energy in Lithuania.
 
2.   Renewable energy promotion policy in Lithuania
 
In 2011, the Parliament of the Republic of Lithuania passed a law on renewable energy resources, which determines principal measures and conditions for renewable energy promotion.    
  
According to this law, the principal measure for the promotion of renewable energy development in Lithuania is support for renewable energy purchase. Every year the National Control Commission for Prices and Energy (NCC) determines the renewable energy purchase price,2 which depends on the type of renewable energy and capacity planned to be installed. The price determined as fixed tariffs3 (feed-in tariffs) is valid for producers whose production capacity is up to 30 kW of installed power. After producers are allowed to expand the electricity generating capacity, the NCC determines the energy purchase tariff. The fixed energy purchase price is guaranteed for the producer by the laws of the Republic of Lithuania for a period of 12 years, independent of the real market price. The best example of such promotion is the country’s support for solar energy purchase. For 2012, the NCC has determined 1,80 Lt/kWh as a purchase price for the energy produced in integrated solar power plants with installed capacity up to 30 kW, while the average electric energy market price is 18,46 ct/kWh4. Hence, the solar energy purchase tariff is almost 10 times higher than the real market price.
 
Under the new regulations, the NCC will announce an auction for producers whose integrated capacity is higher than 30 kW. At the auction, the producer who offers the lowest purchase price wins, which price will be valid for a period of 12 years. The producer, however, is not able to offer a purchase price that is higher than the upper limit of the purchase price determined by the NCC for that period. There have been no auctions under the new regulation so far, as only this summer new rules were determined.
 
It is worth noting that, independent from the capacity installed by the power plant, the purchase of produced renewable energy is mandatory. Thus, the producer of renewable energy is assured that all produced energy will be sold. 
 
Another measure to promote renewable energy development is reimbursement of costs for renewable energy power plants to connect to the electricity grid. The state compensates connection costs to the electricity grid at 100 per cent for the power plants with capacity not exceeding 30 kW. The state compensates 40 per cent of connection costs for the producers with integrated capacity exceeding 350 kW and 20 per cent of connection costs for the producers whose installed capacity is higher than 30 kW, but not exceeding 350 kW.
 
The development of renewable energy is also well stimulated by the Lithuanian tax system. According to the law on excise duty, electricity is subject to an excise tax, except for electricity produced from renewable energy sources, which is exempt from the excise duty.
 
3.   Legal barriers to investment in renewable energy
 
When analyzing renewable energy regulation problems we are first confronted with the absence of a long-term strategy for renewable energy development. Lithuanian legislators avoided introducing long-term renewable energy development guidelines that would have enabled investors to forecast the expansion of the sector and to anticipate EU Structural Funds needed for the development of renewable energy. The opposite situation happened in Denmark, which in 2012 determined a long-term strategy for renewable energy. According to the strategy, by 2050 all of Denmark’s energy needs will be produced only from renewable energy sources. Similarly, Germany, in 2010, adopted a long-term policy, which anticipates regular renewable energy growth and estimates that by 2050 renewable energy will constitute 80 per cent of the country’s energy structure. Thus, the absence of any explicit long-term strategy for renewable energy creates legal and economic uncertainty regarding Lithuania’s long-term priorities in the sector of renewable energy.
 
Another renewable energy regulatory problem is the absence of any regulations, which are indispensable when implementing laws of the Republic of Lithuania. For instance, the law on renewable energy resources anticipates that the government, or other authorized institution, ratifies legal acts regulating the building of power plants and their exploitation in the territorial sea of the Republic of Lithuania, in the exclusive economic zone of the Republic of Lithuania in the Baltic Sea and in its coastal zone. Though none of these legal acts have been prepared so far, there is now under preparation a comprehensive plan for the territory of the Republic of Lithuania, which will also include the marine part of the territory of Lithuania. Thus, producers of renewable energy and potential investors are still waiting for utilization of the country’s unused marine part. This will become possible immediately after the adoption of necessary legal acts by the regulating government institutions.
 
Administrative barriers are considered to be another important renewable energy regulatory problem that prevents the development of renewable energy in Lithuania. According to the analysis regarding administrative barriers to wind power across EU 27, which was prepared by the European Wind Energy Association, delaying the implementation of renewable energy projects due to administrative procedures and lack of cooperation among government institutions are the pivotal administrative barriers to renewable energy projects in Lithuania.5
 
Lithuania, contrary to Denmark or Germany, has not established a “single window” principle, according to which, a person seeking to permit a renewable energy project can apply to one governmental institution to obtain final permits for the production of energy. In Lithuania, there is a requirement to obtain separately issued permits from different government institutions due to its aim to develop energy projects with installed capacity higher than 30 kW. Therefore, a large number of institutions (the Ministry of Energy, the State Territorial Planning and Construction Inspectorate, the National Control Commission for Prices and Energy, the regional environmental protection departments, the Ministry of National Defense and other institutions) and their overlapping competencies are postponing the implementation of energy projects. For instance, the implementation of wind energy projects in Lithuania, in practice, might take more than seven years.
 
To sum up, the principal renewable energy regulatory barriers or issues to renewable energy development are bureaucratic obstacles, the absence of an explicit long-term strategy on renewable energy and the lack of legal regulation.
 
4.   Conclusion
 
Currently, Lithuania is promoting the development of power plants with mainly low capacity installed (up to 30 kW). The primary measures for promoting the development of low capacity power plants are high fixed tariffs for produced renewable energy purchase, gratuitous connection to the electricity grid and facilitations to obtain permits that are necessary for the implementation of energy projects. Considering this, foreign investors are seeking to develop these smaller commercial projects in renewable energy in Lithuania.
 
Existing renewable energy projects with installed capacity that is higher than 30 kW are based on a previously valid legal framework, which does not determine the order of auctions. Although these energy projects involving higher capacity installed will now be subject to more complex procedures and regulations and lower energy purchase tariffs received at auctions, the economies of scale of these projects, together with the considerable amount of territories suitable for the development of higher capacity renewable energy, should make these projects attractive to investors. Thus, after the announcement of auctions at the end of this year, active participation of investors is expected.   
 
 
1 Lithuanian confederation of renewable resources. [http://www.ateitiesenergija.lt/EN/].
 
2 More information on Control Commission for Prices and Energy determined the renewable energy purchase prices for 2012 can be found here - http://www.regula.lt/lt/naujienos/index.php?full=yes&id=14048.
 
3 It is noteworthy that, according to an EU 2005.12.07 communique regarding the support for electric energy from renewable resources, the most effective renewable energy promotion measure is fixed tariffs determined by the state (feed-in tariffs).
 
4 More information on Control Commission for Prices and Energy confirmed average electric energy market price can be found here - http://www.regula.lt/lt/elektra/Rinkos_kaina/index.php/
 
5 The European Wind Energy Association. Wind Barriers: Administrative and grid access barriers to wind power. July 2010. [http://www.windbarriers.eu].
 
Author: Associate Justinas Poderis
 

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