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© World Energy Council Lithuanian member committee 2016 | www.wec.lt | Twitter handle - @WEC_Lithuania

3rd WEC Baltic Sea

Roundtable Vilnius, Lithuania

22/09/2016

Hosted by


Opening words

Rymantas Juozaitis Chairman of Lithuanian Member Committee of the WEC

2


Germany

• Dr. Hans-Peter Boehm, Vice President Government

Affairs, Siemens AG

• Dr. Carsten Rolle, World Energy Council Germany

3


Sweden

• Maria Sunér Fleming, Director Energy and Climate

Policies, Confederation of Swedish Enterprise

• Birgitta Resvik, Head of Corporate Relations, Fortum

• Inge Pierre, Secretary, Swedish Member Committee of

the World Energy Council

4


Finland

• Martti Kätkä, Senior Advisor, Technology Industries of

Finland

5


Latvia

• Uldis Bariss, Member of the Management Board,

Latvenergo AS, Chief Commercial Officer

• Dr.sc.ing. Gatis Junghāns, Member of the Management

Board, AS „Augstsprieguma tīkls”, Member of the Board,

Latvian MC/WEC

• Dr. sc. ing. Ivars Scerbickis, Head of Operation unit

"Incukalns underground storage" of JSC "Latvijas Gaze",

Member of Latvian MC/WEC.

• Indra Niedrīte, Ph.D candidate, Riga Technical University

• Namejs Zeltiņš, President of Latvian MC/WEC

6


Estonia

• Prof. Arvi Hamburg, Tallinn University of Technology

• Mihkel Härm, Secretary General, WEC Estonia

7


Lithuania (1)

• Rymantas Juozaitis, Chairman of the Lithuanian Member

Committee of the WEC

• Gintaras Adžgauskas, Secretary of the Lithuanian

Member Committee of the WEC

• Rolandas Zukas, General Director at UAB "EPSO-G"

• Vidmantas Salietis, General Director at „Energijos

tiekimas“, UAB

• Aistė Krasauskienė, Head of the Market Development

Division at Litgrid, AB

• Vytautas Čekanavičius, General Director at LITGAS UAB

• Saulius Bilys, General Director at Amber grid, AB (the

operator of Lithuania’s natural gas transmission system)

8


Lithuania (2)

• Vladas Paškevičius, President of Lithuanian Electricity

Association

• Valdas Jurkevicius, Expert at Lithuanian district heating

association

• Prof. Dr. Habil. Jurgis Vilemas, President of the

Lithuanian affiliate of the International Association of

Energy Economics.

• Viktorija Petrėtienė, Director of the National Lithuanian

Energy Association

• Ugnė Bartašiūtė, Executive assistant to the CEO of

Lietuvos Energija

9


AGENDA

• Opening words by Rymantas Juozaitis, Chairman of

Lithuanian Member Committee of the WEC

• Opening words by Einari Kisel, Europe Regional

Manager for WEC

• First contribution round: Electricity market design issues

in the Baltic Sea region

• Discussion

• Break

• Second Contribution Round: Creation of gas market

around the Baltic Sea

• Discussion

10


Lithuanian MC/ WEC

11


Members forming Lithuanian Member

Committee of the WEC

1. National Lithuanian Energy Association

2. Lithuanian District Heating Association

3. Lithuanian Biomass Energy Association LITBIOMA

4. Lithuanian Power Producers Association

5. Lithuanian Wind Power Association

6. Lithuanian Electricity Association

7. Lithuanian Energy Consultants Association

8. Lithuanian Nuclear Energy Association

9. Lithuanian Hydropower Association

10.National Energy Experts Association

12

© World Energy Council Lithuanian member committee 2016 | www.wec.lt | Twitter handle - @WEC_Lithuania 13

Structure of fuel used in Lithuanian

district heating sector

© World Energy Council Lithuanian member committee 2016 | www.wec.lt | Twitter handle - @WEC_Lithuania 14

Dynamics of average price for natural gas and

biomass, Euro/ toe (with transportation, capacity and

other fees)


Opening words

Einari Kisel Regional Manager for Europe

WorldEnergyCouncil

15


Electricity market design

issues in the

Baltic Sea region

First contribution round

16


LITHUANIA

Aistė Krasauskienė

Head of the Market Development Division at Litgrid, AB

17


LITHUANIA

Vidmantas Salietis

General Director at Energijos Tiekimas, UAB

18

Challenge No 1 – motivation of power producers

Challenge No 2 – different regulatory approaches


GERMANY

21

Dr. Hans-Peter Boehm

Vice President Government Affairs, Siemens AG

Dr. Carsten Rolle

World Energy Council Germany


SWEDEN

22

Maria Sunér Fleming

Director Energy and Climate Policies, Confederation of

Swedish Enterprise

Birgitta Resvik

Head of Corporate Relations, Fortum

Inge Pierre

Secretary, Swedish Member Committee of the World

Energy Council

Baltic Sea Roundtable 22 September 2016 Vilnius Sweden

World Energy Council

Production and flow in the Nordic/Baltic market

24

Total export / import

Export Sweden 1 709 MW

Import Denmark 2 277 MW

Export Norway 3 635 MW

Import Finland 2 542 MW

Export Estonia 233 MW

Import Latvia 303 MW

Import Lithuania 465 MW

Picture of 2016-09-21 at 10.00

The agreement on Swedish energy policy raises some questions

• The Green certificate scheme will continue post 2020

with an additional 18 TWh until 2030

• A political vision of 100% RES power system in 2040

– How to ensure a controlled transition to the fully renewable

system without destroying profitability of the generation which

require extensive investments now

• The tax on nuclear in Sweden will be lowered

– And most probably 6 reactors will fulfill the requirements of

independent cooling and still be running 30 years?

• Also tax on hydro will be lowered

• Can the “oversupply” be exported?

25

Regeringen, Moderaterna, Centerpartiet och

Kristdemokraterna presenterar en överenskommelse om

Sveriges långsiktiga energipolitik 10.6.2016

http://www.google.fi/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjZtKTIuYbPAhUBniwKHfdmCpAQjRwIBw&url=http://www.klimatupplysningen.se/2016/06/19/energioverenskommelsen-ohallbar-pa-sikt/&psig=AFQjCNHEjwns28If_xKY80Tf35GZVgk2Jg&ust=1473653588611249

-50

0

50

100

150

200

2015 2020 2025 2030 2035 2040

TW

h

Electricity mix in Sweden with 100% RES power system in 2040

Net exports

Other

Wind

Solar

Hydro

Biomass

Fossil

Nuclear

Realised figures

Increasing wind power production will be largely exported to neighbouring countries

The system will stay in constant oversupply which may undermine the

profitability of market based generation

26

0

20

40

60

80

100

120

Nuclear Gas Coal Wind onshore

Wind offshore

Solar Hydro Woodchips

€/MWh

Indicative ranges for different production type LCOE's

Onshore wind in the north and solar in the south are becoming the least expensive alternatives when investments in new generation are necessary

Upper part with

actual load factor

in 2015, lower part

for base load

Onshore wind

is the least

expensive

Nuclear costs

have inflated in

the past years

due to new safety

requirements

Solar is expensive

and does not fit well

in the Nordic demand

profile but very

competitive in the

southern countries

Disclaimer: The presented figures do not represent

Fortum’s own view on the levelised costs of electricity

*Data from: World energy council 2013, Cost of energy technologies / European PV Technology Platform Steering Committee, PV LCOE working Group: PV LCOE in Europe

2014-30, Final report / IRENA: Renewable power generation costs in 2014 / Fraunhofer: Levelised cost of electricity, Edition November 2013 / Elforsk report: Electricity from new

and future plants 2014 /Lazard’s Levelised cost of energy analysis 9.0. Calculations are made assuming the cost of capital 7%.

27

Onshore wind and solar PV breaking records with PPA contracts

28

28

Germany 69,4 €/MWh

United States 58,0 €/MWh

Chile 26,0 €/MWh

India 57,7 €/MWh

Jordan 54,5 €/MWh

UAE 26,7 €/MWh

South Africa 58,0 €/MWh

1. Sources: announcements by the investing companies and IEA report ”Renewable Energy Medium-Term Market Report 2015” for US, Brazil, South Africa, Australia and Jordan. Values reported in nominal EUR, 1 EUR = 1,12 USD, 1 EUR = 75,3 INR, 1 EUR = 9.48 SEK. United States values calculated excluding tax credits. Typical contract lengths are 15-25 years. The prices indicate levels with which investors have been willing to invest, however, they may not describe the actual comparable costs as the bid prices may be reduced by preferential land prices, site exploration cost, targeted low-cost loans etc.

2. The price level at which investors can hedge their renewable production for the next 4 years: average of 2017-2020 electricity (LUL) + elcertificate futures with 29.8.2016 closing prices. This low price levels still result in continuation of investments in onshore wind in Sweden.

Peru 42,9 €/MWh

New world-record

Mexico 31,7 €/MWh Peru

33,1 €/MWh

United States 42,0 €/MWh

Marocco 26,8 €/MWh

Brazil 43,8 €/MWh

Netherlands 73 €/MWh

Australia 61,6 €/MWh

Solar PV

Onshore

Offshore

Lowest recently announced long-term PPA contract prices and auction results,

without subsidies1

South Africa 45,5 €/MWh

Sweden2

36 €/MWh

Denmark 63,8 €/MWh

As wind and solar have become mature generation technologies, the market will continue bringing RES investments w/o subsidies when and where needed

• One cannot assume the Nordic power market to continue

ensuring security of supply

– if massive investments in weather dependent generation continue

happening irrespective of the signals given by the market,

– if the consumer prices continue being five-ten times higher than

the wholesale prices,

– and if the power grid remains incapable of transferring the

oversupply of renewable power to the centers of consumption

• Several actions required to keep the efficiency of the Nordic

electricity market:

– Gradually abolish subsidies for mature RES

– Steer decarbonisation through efficient carbon pricing

– Clear energy bills from taxes and subsidy costs to reveal

the real price of electricity

– Regional capacity adequacy assessment and grid

development

– Development of the after-spot markets to engage all

balancing resources in the market

29

The overcapacity in summer will be the real challenge

2016-09-28 30

Capacity

(MW)

2030 cold winterday, no wind 2030 summerday, very windy

Hydro 13 568 3 000

Nuclear 6 390 3 000

Wind 1 430 11 000

CHP 6 300 0

Total capacity 27 688 17 000

Demand 24 000 - 28 000 8 000 - 12 000


FINLAND

31

Martti Kätkä

Senior Advisor, Technology Industries of Finland


LATVIA

32

Uldis Bariss

Member of the Management Board, Latvenergo AS, Chief

Commercial Officer

Dr.sc.ing. Gatis Junghāns

Member of the Management Board, AS „Augstsprieguma

tīkls”, Member of the Board, Latvian MC/WEC

view on

functioning and developing

of Baltic gas and electricity

markets

Uldis Bariss

Vilnius 21–September–2016

35% of Baltic gas consumption goes to energy sector

Total Baltic gas consumption in 2014 was 46.2 TWh

• 7 % households

• 58 % business clients

• 35 % energy sector

7%

58%

35%

households

business clients

energy sector

pence/therm EUR/MWh SPOT SPCTNBPQFR1

Corelation between gas prices and electricity prices

Factors (Measurment Units) Correlation value

Hydro Balance NO+SE - 64%

Coal Index (Front Month) - 21%

NPB Gas (Front Month) 27%

Brent Oil (Front Month) 34%

Nord Pool Consumption 40%

CO2 EUA, (Front Year) 48%

Natural gas price volatility

Natural gas market prices appear to be at least as volatile as those in power markets

Day-ahead prices are highly correlated in Europe’s major gas delivery points, andare

likely to have an impact on the price direction in the Baltic region

Dutch TTF price volatility during the last three years has been 24%

British NBP price volatility during the last three years has been 26%

Both indices have demonstrated a correlation coefficient of 96%

Front year calendar contracts have demonstrated correlation with European power

prices and followed their general tendencies

Distribution of NBP day-ahead price chages Distribution of TTF day-ahead price changes

Global gas derivatives’ market fundamentals

Forward prices in global gas markets are typically driven by seasonality factors

The price volatility in delivery stage require instrument depth and liquidity in certain

calendar product types

Without a well-functioning financial market, the market players are forced to take on

exposure in seasonal gas consumption and price volatility, when hedging a standard

gas consumer

Oct-YR16 13.27

Nov-YR16 15.18

Dec-YR16 15.18

Jan-YR17 14.99

2017 15.00

2018 15.55

2019 15.60 0

5

10

15

20

25

30

Dutch TTF front year price

Gas capacity is not utilized

Current entry-exit tariffs gives incentives for long term capacity products not favorable for

electricity market

More emphasis should be on rolling day ahead capacity products

There are no transmission grid congestion in the Baltic grid

In 2014 on the GetBaltic exchange 2.5% of total Baltic demand were traded

Kotlovka

325GWh

Klaipeda

47GWh

Kiemenai

67GWh

Paneriai

33GWh

Kursenai

17GWh

Panevezys

29GWh

Kaunas

43GWh

Karksi

74GWh

Varska

42GWh

Narva

32GWh

installed

capacity

GWh/day

Installed Capacity

(mil m3/day)

Average usage

(% of installed)

MAX used

capacity

(% of installed)

RUS-EE (Narva) 3.00 3% 3.3%

RUS-EE (Varska) 4.00 5% 32.5%

LV-EE (Karksi) 7.00 14% 35.7%

LT-LV (Kiemenai) 6.40 3% 9.4%

LNG-LT (Klaipeda) 4.46 28% 64.1%

RUS-LT (Kotlovka) 30.68 36% 69.4%

RUS-LT (A. Paneriai) 3.07 15% 70.7%

LT (Kaunas) 4.00 7% 45.0%

LT (Kursenai) 1.60 12% 56.3%

LT (Panevezys) 2.70 7% 11.1%

Thank you for your attention!

Contact information

[email protected]

http://www.latvenergo.lv

AS „Latvenergo”

Pulkveza Brieza iela 12, Riga, LV-1230, Latvia

Baltic power market challanges

3rd WEC Baltic Sea Roundtable

22nd September 2016 in Vilnius

40

Dr. sc. ing. Gatis Junghāns, Member of the Management Board, AS „Augstsprieguma tīkls”,

Member of the Board, Latvian MC/WEC

Baltic power market at a glance

• Annual demand 25 TWh, production 19 TWh.

• Baltic market model largely based on Nordic market model.

• 100% liberalized, 90% deregulated.

• Implemented day-ahead market (Elspot market share >90%) and intra-day market (Elbas).

• All interconnections 100% allocated to market players via Nord Pool implicit auction.

• Highly competitive retail market in non-household segments.

41

42

Baltics increasingly integrated into European market 2006 2016

In 2016 total installed capacity of Baltic external interconnections exceed Baltic

peak demand.

700 MW

1000 MW

500 MW

Uneven playing field with 3rd countries

• Lack of reciprocity in market opening (import/export monopoly from 3rd countries).

• Unequal access to interconnection capacity (3rd country importer does not pay congestion rent).

• Unequal treatment of CO2 emissions in EU vs 3rd countries.

43

Fragmented Balancing Market

Needed developments in the future:

• Common Baltic harmonized imbalance settlement model.

• Common Baltic harmonized balancing market.

• Integration of Baltic balancing market and imbalance settlement model with the Nordic market.

44

Undeveloped Financial Market

• End-users predominantly prefer fixed-price contracts, typically 1-3 years long. Suppliers are exposed to volatile spot price.

• Nasdaq OMX listed EPADs are not liquid;

• Prohibitively wide bid-ask spread.

• FTR Options could be possible solution, but currently auctioned only on one interconnection (EE-LV).

45

72%

31%

75%

5%1%

78%

30%

64%

1% 2%

System SE4 HEL (FI) SYTAL (EE) SYRIG (LV+LT)

Use of local EPADs, as % of underlying consumption

2015 2016

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

SYRIG SE4 HEL

Eur/

MW

Average spreads in EUR/MWh, June - August 2016

Monthly products Quarterly products Annual products


ESTONIA

46

Prof. Arvi Hamburg

Tallinn University of Technology

Mihkel Härm

Secretary General, WEC Estonia

© World Energy Council 2016 | www.worldenergy.org | @WECouncil

Key points of electricity market design

1. Wholesale and retail markets have to be market based and regional

• Technology neutrality

• Subsidy phase-out

• Scarcity pricing

2. More cooperation is needed to enhanced security of supply

• Synchronization to EU

• Regional generation adequacy assessment

• Wait with capacity mechanisms

3. Closer regional cooperation

• Level playing field with 3rd countries

• More joint task forces

47


Discussion


BREAK

49


Creation of gas market

around the Baltic Sea

Second contribution round

50


LITHUANIA

Rolandas Zukas

General Director at UAB “EPSO-G”

51

Creation of Regional Gas Market: Objectives, Steps, Effects

Rolandas Zukas, General Director at UAB “EPSO-G”

3rd WEC Baltic Sea Roundtable, September 22,

2016

Strategic Objective: Well Interconnected

Competitive Baltic Gas Market

53

Demand, bcm/y 2010 2015

Finland 4.5 2.4 -46%

Estonia 0.7 0.5 -29%

Latvia 1.7 1.3 -24%

Lithuania 3.1 2.3 -26%

Total Region 10.0 6.5 -35%

Implementation:

Creation of single entry-exit zone - with liquid virtual trading point, - where market integration is served by appropriate levels of

infrastructure, - which is utilized efficiently and enabling all consumers to

benefit from secure gas supplies and effective retail competition

Regional Gas Market Integration: Infrastructure

54

Balticconnector 2019

Enhancement of Estonia - Latvia interconnection (reverse flow) 2019

Modernisation and expansion of Incukalns Underground Gas Storage 2025?

Enhancement of Latvia - Lithuania interconnection 2021?

Capacity enhancement of Klaipeda - Kiemenai pipeline in Lithuania (KKP) 2015

Gas Interconnection Poland - Lithuania (GIPL) 2019* New technical proposal from PL received, therefore slight delay possible

Regional Gas Market Integration: Common Rules

55

Single market zone

• A single entry-exit zone between LT, LV, EE can be formed immediately and with FI – when Balticconnector is built

• IPs between the Member States are commercially removed

• No capacity products are sold and booked there

Single virtual trading point

• A virtual area between all the entry points and all the exit points in the merged market zone

• All trade of gas is conducted in this area

Single balancing zone

• Harmonised balancing and settlement regime

Market area manager – one stop shop

• A joint venture of the TSOs of the merged market zone

• The company manages balancing and settlement

• Potentially: provides gas exchange services and manages capacity allocation

United tariff regime and inter-TSO compensation

• Regime that minimises distributional impacts

• Facilitates competitive gas price formation

Interim stages of market reform possible

GIPL – Key Role as Regional Gas Market Integrator

56

• Integration of the isolated gas markets of the Baltic countries (and Finland) into a single EU gas market

Effects:

• Price convergence

• Interconnection of LNG terminals in Baltic Sea – higher flexibility for LNG supplies

• Diversification of gas supply sources, routes and counterparties

• Increased security and reliability of gas supplies


GERMANY

57

Dr. Hans-Peter Boehm

Vice President Government Affairs, Siemens AG

Dr. Carsten Rolle

World Energy Council Germany


SWEDEN

58

Maria Sunér Fleming

Director Energy and Climate Policies, Confederation of

Swedish Enterprise

Birgitta Resvik

Head of Corporate Relations, Fortum

Inge Pierre

Secretary, Swedish Member Committee of the World

Energy Council

Natural gas in Sweden

M Hedgran

Swedish gas grid

Gothenburg

Key data

Gas system built 1985 – 1988

Supplied by Danish sources during the whole period – the only supplier

3% of end-use energy in Sweden

Customers: 45 % industry, 35 % CHP

First connected biogas plant late 1990 - today 8 plants

The development of the CNG market for transportation is based stand-alone filling stations outside the grid area. Southern part of Sweden is covered.

A few LNG harbours have been built last years – for transport and industrial use primarely

M Hedgran

Outlook for gas in Sweden

• No political support for natural gas or LNG at all – rather the opposite

• Taxes for natural gas not benefiting use – eg. users pays full carbon tax (> 100 Euro/ton CO2) outside EU ETS

• Most probably only one CHP using natural gas plant in operation this winter

• Biogas production under development for transport sector, but expensive today


FINLAND

63

Martti Kätkä

Senior Advisor, Technology Industries of Finland


LATVIA

64

Dr. sc. ing. Ivars Scerbickis

Head of Operation unit "Incukalns underground storage" of

JSC "Latvijas Gaze", Member of Latvian MC/WEC

Indra Niedrīte

Ph.D candidate, Riga Technical University

Namejs Zeltiņš

President of Latvian MC/WEC

Overview of Latvia’s natural gas market

3rd WEC Baltic Sea Roundtable

22nd September 2016 in Vilnius

65

Dr. sc. ing. Ivars Scerbickis, Head of Operation unit "Incukalns underground storage" of JSC "Latvijas Gaze",

Member of Latvian MC/WEC

NATURAL GAS MARKET IN LATVIA

66

67% 64% 68% 68% 69%

14% 14% 12% 12% 12%

11% 12% 12% 10% 9%

9% 9% 9% 10% 9%

2011 2012 2013 2014 2015

CONSUMPTION BY ECONOMIC SECTORS POWER INDUSTRY

OTHER INDUSTRIES

MUNICIPAL UTILITIES

HAUSEHOLDS

1 561 1 464 1 452 1 294 1 318

2011 2012 2013 2014 2015

NATURAL GAS SALES (million m 3 )

67

2017 December 31

Every shareholder that cannot keep its share in the new gas storage and transmission company will have to consider selling its shares or stay only as Financial investor

Financial investors; Other shareholders

(without control in one or another company)

Trade and distribution

Transmission and storage

Conexus Baltic Grid

Electricity and natural gas producers and traders;

Other shareholders (without control in

transmission and storage)

Other shareholders (without control in

electricity and natural gas producing and trading)

Permitted shareholders

TRANSMISSION SYSTEM OPERATOR (TSO)

• System created in 1962 • Length of the pipelines

– 1 242 km

• Number of the gas regulation stations - 40

• Income from transit 20% - 30% of the annual income (depends on storage activity)

STORAGE SYSTEM OPERATOR (SSO)

69

12 Demand (MCM per day)

Gas Metering Station (GMS)

Cross border gas transmission pipeline Gas flow in winter

INCUKALNS UGS Storage type - aquifer Total capacity: 4,5 BCM Working gas: 2,3 BCM

Possible to increase up to 6,2 BCM Injection capacity: 17 MCM

Withdrawal capacity: 30 MCM

Possible to increase up to 40 MCM Power of GCU: 33,5 MW Number of wells: 180 pcs Deposit area: 25 km2

70

0

400

800

1.200

1.600

2.000

2.400

2010 2011 2012 2013 2014 2015 2016 2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

AFTER INJECTION SEASON

(active gas)

AFTER UTILIZATION SEASON

(active gas)

1 992

2 300 2 300 2 300 2 300

1997

1530

1280

1081 1164

1263

1240

1180

1196

REGIONAL ROLE OF INCUKALNS UGS

ACTIONS FOR BOOSTING OF THE GAS MARKET IN LATVIA AND THE WHOLE BALTIC REGION

• Creation of the single market area in the Baltic Counties;

• Creation of a simplified gas market model, which is specially adjusted to the needs of the Baltic Countries;

• Changing of the storage access rules from regulated to negotiated (at least for the 3rd countries);

• Defining of the criteria of the strategic gas reserve for the Baltic market area;

• Implementation of the new projects strictly based on their economic performance and the general needs of the region.

71

72

Natural gas market development

in Latvia

Indra Niedrīte

PhD candidate, Riga Technical University

Namejs Zeltiņš

Dr. habil. sc. ing., Professor

3rd WEC Baltic Sea Roundtable, 22nd September 2016

Vilnius, in National Lithuanian Energy Association, Juozapavicius 13

73

Latvian natural gas market

One supplier state - Russia and one market player -

AS «Latvijas Gaze».

Privatization agreement of AS «Latvijas Gaze»

determines:

exclusive rights for AS «Latvijas Gaze» on

transmission, storage, distribution until 2 April

2017 and license for sale of natural gas;

unlimited and exclusive right for AS «Latvijas

Gaze» to use Incukalns Underground Gas

Storage for the period of twenty years starting

1997.

Incukalns UGS – total volume 4.45 BCM working gas

volume 2.3 BCM .

Consumption of natural gas:

in 2013 – 1.452 BCM;

in 2014 – 1.293 BCM;

in 2015 – 1.318 BCM.

The natural gas system operates without congestions

(40% backup capacity).

Starting from 2015 Latvian natural gas system is

connected to the global gas market via Klaipeda LNG

terminal.

74

PJSC Gazprom – 34.00 %

Marguerite Gas I S.à r.l. – 28.97 %

Uniper Ruhrgas International GmbH – 18.26 %

LLC ITERA Latvija – 16.00 %

Other shareholders – 2.77 %

Composition of Shareholders of

JSC «Latvijas gāze» (01.09.2016)

Total number of securities: 39,900,000. Nominal value: 1.42 EUR

75

Implementation of

3rd energy package

According to the Law “Amendments to the Energy Law” adopted by the Parliament on

20 February 2014 third-party access to the Latvian gas supply system including LNG

system is granted and managed from 4 April 2014.

Law “Amendments to the Energy Law” adopted by the Parliament on 11 February,

2016. Amendments provides that:

on 3 April 2017 the existing natural gas merchant JSC “Latvijas Gaze” has to

be split up into two independent sister companies whose shareholders

composition and structure adequate to the current JSC “Latvijas Gaze”

shareholder composition and structure; and one of the sister companies is

equipped with the natural gas transmission and storage infrastructure;

unbundling of transmission system operators and storage system operator

shall be completed by 31 December 2017;

state have pre-emptive right on the assets and shares of the natural gas

transmission and storage system operator;

starting 3 April 2017 all natural gas users will have the right to freely choose

a natural gas trader. Households have a right to choose to become a market

players or receive gas at a regulated price;

unbundling of distribution system operators shall be completed by 1 January

2018.

76

Spin-off of JSC «Latvijas Gaze»

Conexus Baltic Grid will :

provide regulated services;

is planning to become leader of

the Baltic region taking advantage

of the storage and the

geographical situation.

Latvijas Gaze will:

provide regulated distribution

service;

compete with other gas traders;

till 2019 as public trader will

provide gas for households on

regulated tariffs.

77

Challenges of Latvia’s gas market

Reduced natural gas demand due to the energy efficiency measures and strong

competition with other energy recourses especially RES due to subsidies;

Maintenance of the strategic importance of Incukalns UGS:

storage represents a positive value for the system, nevertheless it is very difficult

to quantify it;

gas market expects sufficient flexibility being available at any time;

Currently, if not operated in cyclical manner, pressure of the Incukalns UGS drops to the

level of hydrostatic pressure: in case of Incukalns UGS it is ~70 bar (instead of current

max 105 bar) and total volume of gas that can be kept in the storage drops from 4.4

BCM to 3.1 BCM)

competition with other forms of flexibility including new regional infrastructure

such as Klaipeda LNG terminal, GIPL (Gas Interconnection Poland-Lithuania),

Paldiski LNG terminal and Balticconnector (Estonian - Finish interconnection);

since utilization of storage comes with high costs giving preference to other

flexibility sources in the market there could be a necessity to assess the storage

costs socialization;

security of gas supply and the necessity to impose obligation of strategic storage.

78

-6.0 mcm/d

Natural gas flow in Eastern Baltic natural gas

transmission system deliveries from Inčukalns

UGS case of interruption (baseline scenario)

- not covered demand

of natural gas per day (

million m3/day)

79

Thank you for attention!


ESTONIA

80

Prof. Arvi Hamburg

Tallinn University of Technology

Mihkel Härm

Secretary General, WEC Estonia

© World Energy Council 2016 | www.worldenergy.org | @WECouncil

Gas Market Design

• Aspects hindering gas market developments:

– Lack of common regulations

– Lack of single market zone

• Gas infrastructure that would boost Baltic Sea regional gas market:

– Infrastructure is mostly sufficient, regulation is insufficient.

Balticconnector and Estonian LNG terminal could be useful.

– Most important is to have rules and regulations harmonized.

– Lithuanian LNG terminal and Latvian underground storage need clear regional

regulation.

• How these developments would impact power markets?

– Gas will have a growing role, unless regional electricity market is properly

regulated.

81


Discussion


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