Agreement Reached on Baltic Energy Market Interconnection Plan

June 19, 2009 // Published as a news service by IHS

The BEMIP is the fruit of nine months of work at the initiative of the European Commission (EC) to look at concrete measures to better connect Lithuania, Latvia and Estonia to wider EU energy market networks.

"The signature of the Memorandum of Understanding reflects the solidarity which has driven work between the Commission and Member States on this. Since we met last October, we have agreed on a number of steps to improve energy security for the Baltic Sea Region, said EC President José Manuel Barroso. "My special thanks go to the High Level Group who, through their continuous commitment and hard work, have produced an action plan in just a few months."

EC Energy Commissioner Andris Piebalgs added, "Ending the effective isolation of the Baltic States, which still form an energy island, is an urgent task to deal with. Looking at the actions and projects the plan contains and which are now endorsed by the countries of the region, I am now confident that this objective can be achieved in a mid-term perspective.''

The signature of the memorandum launches the implementation of an action plan that aims to create a fully functioning and integrated energy market supported by the necessary infrastructures in order to strengthen energy security in the Baltic Sea region. The Swedish presidency is expected to facilitate and give high priority to the concrete follow-up to the plan.

The main conclusions of the BEMIP high-level group's final report were in the form of an action plan that covers the following three areas:

• Electricity market integration.
• Electricity interconnections and generation.
• Gas internal market and infrastructure.

Electricity Market Integration
The electricity market design has been agreed upon, based on the Nordic electricity market model. A specific roadmap, which describes practical steps on how to reach the new market model and aims at removing the barriers for a regional electricity market in the Baltic states in conformity with the EU internal electricity market rules, was proposed.

The roadmap would cover such areas as removal of regulated tariffs, separation of transmission system operation activities and roles, removal of cross-border restrictions, establishment of market-based congestion management, establishment of common reserves and balancing the electricity power market, full opening of the retail market and establishment of a common power exchange for physical trade in the Nordic and Baltic area.

Progressing on these market design aspects represents a crucial element for the integration of the electricity systems of the three Baltic states into the Nordic electricity market model.

The joint declaration signed by the prime ministers of the three Baltic states on April 27 confirmed their political commitment to pursue real market opening and integration in the electricity sector.

Electricity Interconnections and Generation
The infrastructure projects allowing the integration of the Baltic Sea region's electricity markets were identified and assessed based on a simplified methodology. There are three sets of projects:

• The Nordic Master Plan covers the projects between the Nordic countries, such as Fenno-Skan II linking Finland and Sweden, Great Belt in Denmark, Nea-Järpströmmen between Sweden and Norway, South Link in Sweden and Skagerrak IV between Denmark and Norway and others.
• Regarding the projects linking the Baltic area with the Nordic countries as well as Poland, all identified interconnections - NordBalt, or the previously called SwedLit linking Sweden to Lithuania, Estlink-2 between Estonia and Finland, and LitPol between Poland and Lithuania - are commercially viable. Strengthening the electricity grid between the three Baltic states belongs to this set of projects.
• The interconnections between Poland and Germany form the third set of projects. The main driver behind these - as opposed to market integration, which is the case for the previous ones - are the loop flows caused by wind generation in the north. Initiatives launched by the European coordinators with the so called "heptalateral" Central Eastern Forum cover these projects.

Natural Gas Internal Market and Infrastructure
Here the main driver is enhancing security of supply by aiming at a higher level of diversification of routes and sources. There is a good view on the potential projects that could satisfy this objective, which includes interconnections - new or implementation of reverse flow - liquefied natural gas facilities and the development of natural gas storage. It was agreed by the high-level group to further develop the BEMIP natural gas sector aspects.

Several of the proposed BEMIP infrastructure projects are part of the European Economic Recovery Programme (EERP). This potentially means more than half a billion euros in additional support for the energy infrastructure projects in this region.

Background
The idea for the BEMIP was initiated by Barroso in October 2008. Soon after, a high-level group was set up with members from the eight Baltic Sea states - Denmark, Estonia, Finland, Germany, Lithuania, Latvia, Sweden and Poland - plus Norway as observer. The EC has facilitated the formation process and continues to monitor BEMIP implementation.

Effective interconnection of the Baltic Sea region was identified as one of six priority energy infrastructure projects in the Second Strategic Energy Review adopted by the EC in November 2008.

The BEMIP and the extension of the Nordic electricity market model to the Baltic states were also designated as flagship projects in the EC's contribution to the Baltic Sea region that the EC presented on June 10, 2009.

A first progress report for the BEMIP will be presented in December 2009.

Source: European Commission (EC).