Renewable Energies marketing models Lithuania

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 Feed-in-Tariff

Status Quo

The Lithuanian renewable energy support system had been shaped by a fixed feed-in tariff scheme for 12 years. In May 2019, this scheme was replaced with the market premium model. The market premium is determined in auctions, which are held irrespective of the renewable energy source and are conducted for specific production volumes; this means that the lowest price wins, irrespectively of the generation technology. The market premium is added on top of the market price. As previously, this incentive will be paid for the maximum period of 12 years (if the power plant is amortised earlier, the incentive period ends earlier as well). The first auctions regarding the market premium will be held in September 2019. THe Winner was chosen in January 2020 with an annual rate of 0.3 TWh, and a market premium of 0 EUR/MWh. That is revolutionary for the european market, and shows the maturity of the lithuanian renewable energy market where the producer can exist under market conditions. Additonally, it shows the potential of renewable energy power from wind energy in Lithuania.

 

Challenges

The market premium will enable operators of renewable energy installations to re-finance their investment. However, the market premium model is less attractive than the previous fixed feed-in tariff scheme, as it makes projects relatively more difficult to plan. This means that banks will be less willing to grant financing for such projects. In addition, the incentive period is limited to 12 years or less if the power plant is amortised earlier. If the incentive period of a power plant expires, the investor has the option to either buy or sell such a power plant on the so-called secondary market (irrespective of whether the power plant has already been completed, or is still under construction or in the planning phase), provided that the power plant has already been awarded a feed-in tariff under the previous model or a market premium under the new model. In such a case, the buyer receives the incentive over the remaining period determined in the permit and, thus, earns a calculable return.

 

Outlook

After no new auctions had been held under the previous FiT-based support system in the past years, the expansion of renewable energies in Lithuania stalled. By introducing the market premium model, Lithuania has acknowledged that the development of renewable energies needs a new stimulus – in particular in view of the country's aspiration to become energy independent. The results of the first auction show that they succeeded to better position renewable energy on the market and that the developement of new renewable energy production capacities holds undiscovered investment opportunities.

 Self-consumption

Status Quo

The interest of the Lithuanian government and consumers in the self-consumption model has been growing every year. Meanwhile, the definition of a consumer has been extended and now includes not only individuals but also legal entities (for construction projects involving power plants of up to a certain capacity) that can profit from the production of energy from photovoltaics, wind and biomass plants. The number of energy generating consumers has more than doubled since August 2018. As a result, about 16.5 MW are currently generated in total. This is most greatly influenced by increasing state support, especially in the PV sector. The government plans to grant a total of EUR 20 million in fixed state incentives by 20211. This means for consumers that they can receive a one-time grant of up to EUR 322.91 per 1 kW for projects involving PV power plants2.

 

Challenges

The Lithuanian government plans to further reduce the administrative burden associated with the construction of renewable energy installations by 2021. For example, the procedure for the construction of power plants of up to 30 kW has already been simplified – it now involves fewer permits and other required documents than before. In addition, further positive developments regarding the pricing policy should be mentioned. The government is striving to create a clear and transparent price-setting mechanism that will allow for reciprocal billing, among others.

 

Outlook

State support for power plants under the self-consumption model is guaranteed by 2021. In addition, further support mechanisms are likely to be implemented also after 2021. The next deadline for enrolling in the support scheme for the construction of renewable energy installations is January 2020. In addition, new “plug & play” regulations relating to power plants of up to 10 kW are to be implemented in 2020.

 

1 Further details on the vision of the state for the future of electricity generating consumers in Lithuania by 2021 can be found here: https://enmin.lrv.lt/uploads/enmin/documents/files/ENMIN_gaminantys_vartotojai_vizija.pdf (available only in Lithuanian).

2 Further details on public auctions for the construction of PV power plants can be found here: https://www.apva.lt/norite-isirengti-saules-elektrine/ (available only in Lithuanian).

 PPA

Status Quo

Lithuania has developed its own framework for PPAs: regardless of whether a PPA is structured as an off-site or an on-site PPA, network charges apply. The Lithuanian legal framework has so far not been aimed so much at the incentivisation of PPAs as at creating legal certainty.  In Lithuania, PPAs are therefore rarely signed. Theoretically, on-shore wind would be perfectly suitable for this purpose. 

 

Challenges

An important factor that will influence renewable energy in the Baltic states and the development of PPAs is the construction of the Astravyets nuclear power plant in Belarus, near the Lithuanian border. Cheap nuclear power supplies from Belarus involve the risk that the development of renewable energy sources will be slowed down. However, such a scenario would have a chance of materialising if there was the political will for such supplies at all – and this has been clearly denied, at least as of now. In addition, despite the existing legal framework, certain legal issues are still unresolved and an active support mechanism for PPAs is not yet in sight.

 

Outlook

Alongside the new support model for renewable energies, also PPAs could play an increasingly important role – depending on how the new legal framework will be further developed in Lithuania. However, the feed-in tariffs applicable so far, the renewable energy levies, which have been relatively low compared to other EU member states, and low rates of other taxes have hindered the savings potential of PPAs and have rendered PPAs relatively unattractive. Instead, renewable electricity has been sold increasingly via the Nord Pool power exchange (https://www.nordpoolgroup.com/ ) – which is Europe's largest electricity market measured by traded volume (512 TWh in 2017) and by market share. This situation could change for the first time once the new market premium model is implemented – whether for power plants that are not eligible for the new model or for those that walk out of market premium auctions empty-handed. In recent months, numerous Lithuanian groups of interest have drawn the attention of the Lithuanian Ministry of Energy to the advantages of PPAs and have actively worked to eliminate the existing barriers.

 Leasing

Status Quo

There is no particular legal framework for the operation of leased power plants or the involvement of leasing companies. The majority of power plants to be operated for self-consumption purposes are acquired with the owner’s own funds including state support for their construction. It is, however, possible to lease small-scale power plants (especially PV rooftop systems) for self-consumption purposes.

 

Challenges

Currently, no particular challenges arise for this model.

 

Outlook

This model is the only alternative form of financing in Lithuania. The Lithuanian government is currently not planning to introduce any reductions or reliefs for the lease-based financing of renewable energy installations.

 Direct marketing

Status Quo

Direct marketing of electricity to non-corporate end customers is currently practically non-existent. Here, the focus is on the self-consumption model, especially due to the incentivisation of small-scale PV power plants of 3-10 kW. Direct marketing off the grid is basically also possible, but not very wide-spread in practice. 

 

Challenges

see PPAs.

 

Outlook

The current incentive programmes are aimed at promoting high self-consumption rates of power systems. The Lithuanian government is planning to liberalise the energy market by 2022 by creating an “incentive” for consumers to select independent electricity suppliers. This “incentive” is to be structured as follows: the state electricity supplier ESO plans to increase prices by 25% per kWh for consumers who do not choose an independent electricity supplier. This is planned to be introduced effective 2021 for large consumers (annual consumption of over 5,000 kWh) and 2022 for the great majority of electricity consumers (annual consumption of over 1,000 kWh). These legislative changes should provide the necessary stimulus for the development of direct marketing of renewable electricity in Lithuania.

 

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