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Published: 4/27/2020. Updated:

NERC: THE AGREEMENT ON COST ALLOCATION FOR BALTIC SYNCHRONISATION PROJECT PHASE II IS SIGNED BY LITHUANIAN, LATVIAN, ESTONIAN, AND POLISH ENERGY REGULATORS


The joint agreement of energy regulators

On 27 April 2020, Lithuanian, Latvian, Estonian, and Polish energy regulators signed the joint agreement on cross-border cost allocation to implement the Phase II of the project of common interest "Integration and synchronisation of the Baltic States' electricity system with the European networks".

Taking into account the positive benefits for each country, the regulators arrived at the joint agreement that the investment costs incurred by each country will be borne by the relevant Baltic transmission system operator (TSO). The total investment costs are 1,219.86 million EUR (without financial support by the EU), of which investments in Lithuania are estimated 474.01 million EUR, in Poland –535.76 million EUR, in Estonia –110.60 million EUR, in Latvia – 99.50 million EUR.

"We are glad that national energy regulators from four countries understanding the importance of the integration into the continental European network have ensured a smooth coordination process of the project and effective cooperation. This is confirmed by the signed joint agreement on cross-border cost allocation, which ensures the successful further implementation of the project," says the Chair of the Council Inga Žilienė.

The agreement of Lithuanian, Latvian, Estonian, and Polish energy regulators is one of the requirements for electricity transmission system operators when submitting a joint application to the European Commission in order to finance part of the investment project costs.

Application to the European Union 

Under the Connecting Europe Facility (CEF), a maximum possible support intensity is up to 75%. The joint application of the transmission system operators must be submitted under the CEF no later than on 27 May.

If the project received the financial support by the EU, the investment costs of the Lithuanian TSO would amount to 118,502,500 EUR (part of it financed by the CEF –355,507,500 EUR).

Accordingly, the influence on the regulated price of the electricity transmission service would decrease:  having received the financial support by the EU due to the planned investments, the price of the transmission service in Lithuania, compared to the price set for 2020, is equal to 0.814 ct/kWh, for the period 2026–2045 it would increase by 11% on average, without the financial support by the EU it would increase by 28.32%.

In Lithuania, the transmission price in the final electricity tariff for domestic consumers (average undifferentiated price) is about 6.4%.

About the synchronisation project

The investments of the synchronisation project Phase II include the update and strengthening of the Baltic States' electricity transmission systems and the control systems required for synchronisation. In Lithuania, the construction of a new offshore connection Poland-Lithuania and the construction of the Darbėnai 330 kV substation, reconstruction of the existing transmission line and construction of a new 330 kV section to the Darbėnai substation, as well as construction of additional 2 synchronous compensators, renewal and installation of control systems required to operate in synchronous mode with the Continental European network are planned.

In the Phase II of the synchronisation project, Lithuanian and Latvian transmission system operators also included investments to funding of the Battery Energy Storage System (BESS) for the frequency regulation. Lithuanian TSO has to agree with other Baltic TSOs on future market model for the frequency maintenance reserves and automatic frequency restoration reserves  and with national regulatory authorities – on the terms of the market research to determine the scope of the service and potential service providers to develop, operate, or manage facilities for frequency maintenance reserves and automatic frequency restoration reserves services in a cost-effective and timely manner.

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The entire synchronisation project of the Baltic States is being implemented in III stages (the investments of the I stage were coordinated by the Lithuanian energy regulator on 31 August 2018, this project has been granted the financial support by the European Commission).

This is to remind that the national regulatory authorities of Lithuania, Latvia, Estonia, and Poland, understanding the importance of integrating the Baltic electricity system into the continental European network, signed a cooperation agreement in May 2019 (available here) establishing a coordinated regulatory approach and obligations to ensure smooth investment coordination including a decision on cross-border cost allocation.