The outbreak of hostilities in Ukraine was a wake-up call for the Baltic countries and signaled the urgent need for changes in energy policy.
“The energy crisis following the Russian Federation’s aggression against Ukraine in 2022 has certainly affected all neighboring countries,” said Andres Meesak, head of smart energy solutions at Estonian regional distribution system operator (DSO) Viru Elektrivõrgud. pv magazine.
The Baltic states of Latvia, Lithuania and Estonia have learned a lot from Ukraine’s unfortunate experience, as they also have to live in the shadow of its bellicose eastern neighbor.
“The most important positive impact is understanding the threat to energy infrastructure and the use of energy and energy infrastructure as a hybrid weapon against societies by the aggressor,” Meesak said. “The conflict forced countries to accelerate the separation of energy cooperation [with the Russian Federation] of any kind – frequency stability, fuel supply, electricity throughput.”
Circuit breakers
Most European countries were somewhat dependent on Russia for energy, but for the Baltic countries this issue has a different dimension. The three countries remain part of the Soviet-era ‘BRELL’ circuit, with Russia and Belarus relying on Russian operators to control frequency and balance supply and demand.
In 2018, Latvia, Lithuania and Estonia developed a plan to disconnect from BRELL and join the EU electricity grid by the end of 2025. The events in Ukraine forced countries to reconsider the time frame and accelerate the transition. Other steps are also needed to improve the security of their energy network.
“The war against Ukraine has clearly demonstrated the weaknesses of centralized energy supply compared to distributed generation in smaller units,” Meesak said, suggesting that the war was impacting society at all levels, from households to top officials.
In addition to the political rationale, Baltic investors have had strong economic incentives to invest in solar energy as energy costs in the region have skyrocketed. At the height of the 2022 European energy crisis, electricity consumers saw their bills increase almost sevenfold compared to the previous year.
Against this backdrop, the growth of solar energy generation in the Baltic region in the years 2022 to 2024 has exceeded even the most optimistic forecasts.
The introduction of PV has taken off in Estonia. Mihkel Annus, chairman of the Estonian Renewable Energy Chamber, said the installed capacity has doubled every year. In just five years, by the end of 2023, the total installed solar capacity reached 812 MW, compared to 39.6 MW in 2018.
According to data from the Lithuanian Energy Agency (LEA), Lithuania exceeded its 2025 solar power generation target of 1.2 GW in 2023. The country has welcomed almost 300 MW of new capacity in recent years.
In Latvia, around 300 MW of solar capacity had been installed by January 2024, says Anna Rozīte, head of business development at AJ Power Group. This figure has roughly tripled since May 2023 alone.
Solar energy saw an investment wave in Latvia and other Baltic countries, as market players mainly opted for solutions that could be implemented as quickly as possible.
“Solar panel installations are probably the fastest projects, from an implementation point of view, including the relatively short period for the technical design phase and permits, as well as the availability of the necessary equipment,” Rozīte explains.
Rising
Market players believe that the growth experienced so far could only be the prelude to a real solar explosion in the Baltics in the coming years. The PV potential of the Baltic countries is estimated at 40 GW, says Rachel Andalaft, managing director of REA Consult. She added that the green energy sector in the Baltic countries is expected to attract €150 billion in investment opportunities over the next 20 to 25 years.
The development of the solar energy sector is expected to involve the deployment and integration of battery energy storage systems (BESS), improvement of interconnections with other European countries and the necessary emergence of a power purchase agreement (PPA) market for a decentralized generational landscape, Andalaft said. And there is already a significant amount of capacity in the pipeline.
Based on official data from Elering AS, the national transmission system operator (TSO), almost 3.5 TWh of solar energy production will be added to the Estonian energy mix until 2026. Local market players indicated that this could potentially cover half of Estonia’s annual energy production. electricity usage. However, a number of major projects from 2022 have not yet gone live. The commissioning of solar power plants can take up to two years for projects with a capacity of up to 15 MW to connect to DSO level, and more than three years for projects of more than 15 MW to connect to TSO level , Gatis said. Macans, executive director of the Latvian Solar Energy Association.
“After the renewable hype in 2022, when there was a lot of competition to book grid capacity, in 2023 we started to see newly built solar power plants, mainly connected to the distribution grid, with a capacity of up to 15 MW. However, there are much larger PV projects in development and we hope to see a number of projects commissioned in the next two years,” Macans said.
“[In 2024 and 2025]at least two to five times more solar energy parks must be built [in Lithuania] than were built in the entire period up to that point,” says Tomas Januskia, associate partner at Widen, a Vilnius law firm.
The solar frenzy can be seen at every level of the economy. Consumers will have installed twice as much residential solar in 2022 alone as in the entire previous period, Januskia says. He adds that households in Lithuania are eligible for state aid for solar installations up to a size of 10 kW, while the figure for industry is 10 kW. 500 kW. Streamlining regulations for renewable energy generation facilities has also had an effect.
“The current legal regime has actually simplified the construction of solar power plants,” Januskia said. “It does not require spatial planning documents, environmental impact assessment – except in exceptional cases – or land use changes. The introduced model of the hybrid power plant, together with wind power plants or accumulators, has significantly facilitated and made more efficient the use of electricity networks and loads.”
Overcoming obstacles
Despite the progress, challenges remain for the solar energy sector in the Baltics. Several factors could jeopardize further capacity growth, especially fears that it will be difficult to have so much solar energy in the energy mix.
“The challenge [for Estonia] is now to match production to demand,” says Meesak. BESS could play a key role, he claimed, adding that the industry can see how several renewable energy farms have grown in importance, with solar, wind and storage complementing each other.
“Although we can expect several hours in 2024 when solar energy production exceeds the total electricity demand in Estonia, it is still an unrealistic expectation to say that at least 50% of demand will be covered by solar energy in 2026 , because of climate change. relatively low capacity factor [actual output versus the theoretical maximum] and a greater demand for electricity in the darker and colder winter months,” says Annus. As a result, daytime spot prices are lower and more volatile during sunny hours, he added.
The maximum winter consumption in Estonia is about 1.6 GW. Stakeholders are looking at adding battery storage to their systems or optimizing panel positioning to increase the market capture price. Meesak said falling costs for battery storage were motivating households to install more hybrid solar systems with local storage, which provide some autonomy in the event of power outages.
“The daily supply-demand curve shows potential for affordable local storage of four to six hours – the market price for electricity is highest during the evening hours, immediately after PV installations fail, until around midnight. To balance supply and demand, and therefore the market price, storage of four to six hours at a reasonable cost is necessary,” says Meesak.
REA Consult’s Andalaft said she agreed that “storage facilities are absolutely necessary to increase the penetration of renewable energy sources while maintaining the stability of the electricity grid on the one hand and enabling new operational modes on the other. ” Andalaft also believes that there are other issues that need to be addressed to ensure the long-term growth of the solar industry.
“Demand follows policy,” she said. “During the pandemic period, we saw peak prices in both countries [capital expenditure] and in the field of electricity. The market today is still dealing with the aftermath. While implementation has faced delays and limitations during the pandemic, the lack of a dynamic PPA market today limits investment appetite and holds back the potential for a diverse and private equity-driven, competitive energy landscape.”
In Lithuania, the development of the solar industry has also faced some unexpected bureaucratic obstacles.
Janususkia explained that under the energy community model introduced in the country, consumers, energy communities and major electricity producers must simultaneously connect to limited energy infrastructure networks. For this reason, quotas have been allocated to network capacity.
“This resulted in a series of legal disputes over grid shortages for energy producers, which put a brake on solar investment,” explains Widen’s Januskia. “Currently, these problems have been partially resolved, but the intensity of investments has decreased significantly and the available projects on the market are in no hurry to be implemented.”
Despite these challenges, market players say they remain confident that nothing can derail the growth of the Baltic region’s solar industry in the near future.
By Ian Skarytovsky
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