Europe's Energy Strategy Close-Up: Baltic Interconnection and Gas Market Transparency

Baltic Interconnection

The overall aim of the European Commission (EC)'s draft Green Paper strategy is threefold. First, it aims to ensure that energy networks help, rather than hinder, the switch to more renewable, efficient and low-carbon energy. Second, it promotes a fully interconnected network, including cross-border and regional links and the integration of decentralised generation into the wider picture. Thirdly it aims to make the best possible use of the European Union (EU) funding that is available.

The EC notes that the third internal-energy-market legislative package encourages investments in infrastructure, notably cross-border infrastructure. The EC highlights the development of a Baltic interconnection plan, which would better link the region with the rest of the EU, improving the security and diversity of its energy supply, and enabling solidarity. The Baltic states are poorly interconnected with the rest of the EU and heavily dependent on Russia.

The EC proposes prioritising the projects already under way to achieve better connection for the Baltics, as well as suggesting further attention to this region. The Baltics, already collectively opposing the planned Nord Stream pipeline that would deny them transit fees, are looking for security of supply. Two gas pipeline projects—the Baltic Pipe and the Balticonnector—are both still at the discussion stage, with neither likely to be making deliveries before 2011. Electricity transmission is limited, with the Nordic and Baltic grids connected for the first time as recently as 2006, through the Estlink from Estonia to Finland. However, the NPS Baltic Project—a working group of utilities and authorities—announced in mid-2008 that the Nord Pool power exchange was to be expanded to the Baltics by July 2009, at the earliest estimate. The primary task of the NPS Baltic project is to create a separate price region in the southern part of the Estlink cable, allowing Estlink to be used "more efficiently" in the future, with a greater market orientation. Yet these efforts are overshadowed by the disagreements over the future of the share-out of electricity between Estonia, Latvia, and Poland on a planned regional nuclear power plant (NPP) that would be located in Lithuania, the fact that the single source of the region's gas is Russia, and the lack of storage facilities. The future NPP debate is linked to the closure or otherwise of Lithuania's Ignalina NPP, which had been a major power exporter for the region.

Oil and Gas Security

The EC said that the current Community mechanism was not sufficient to provide a "timely response to a crisis which goes beyond the level that industry and national measures can mitigate". Further, the EC said the lack of transparency on security of gas supply data and measures prevents the assessment of the real-time gas supply situation and potential responses within the EU.

Member states, according to the EC, were inconsistent in defining the roles and responsibilities of various market players and the range of the protected customers. In addition, the security of supply standards vary among member states, so there is a different level to which each member state is able to maintain adequate gas supplies to the defined customers by its own means under extreme circumstances such as supply disruptions or extreme climate conditions.

For oil, the EC said it was seeking an updated directive to strengthen the system of emergency oil stocks in the EU and the mechanisms for their use in case of a crisis. It pointed out that states have implemented different mechanisms: some rely on government-held stocks, others have established special stockholding agencies, and others rely on stocks held by industry. "The current system has proven effective to deal with disruptions to date, but can certainly be improved," the EC said.

The EC also stated that it wanted to publish weekly data on the level of commercially held oil stocks in EU countries. This was welcomed by the International Energy Agency (IEA), which said discussions had been under way for a year on strategic stockpiling policy.

Outlook and Implications

The EU's Trans-European Energy Networks (TEN-E) instrument and its budget were conceived and developed when the EU was considerably smaller and faced energy challenges of a different dimension compared to today. The EC's Green Paper suggests developing the grid along the lines of ensuring security of supply, while at the same time encouraging use of renewables in line with its 20/20/20 framework and its third liberalisation package. There has been an attempt to tie up these ends in this strategy paper.

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