Government to Consider a New Model for Development of Renewable Energy

Date

2018 08 15

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On 10th of August, the Ministry of Energy submitted a draft Law on Energy from Renewable Sources (RES) to the Government whereby a new support model is suggested for encouraging power plants to generate energy from RES. This will enable further development of renewable energy which is one of the key goals of the national strategy on energy.

“This will be a new start for further development of the green energy to ensure an ambitious and at the same time responsible attitude towards the renewable energy. On the basis of the good practice of other countries, we propose a model for the promotion of use of renewable energy which could ensure fair and healthy competition, would correspond to the market conditions and could offer the lowest price,” Žygimantas Vaičiūnas, Minister for Energy, said.

The Ministry offers to continue allocating the support through auctions since this approach can ensure the lowest possible price to consumers. Power plants, which use different RES technology for generation of energy, could take part in the auctions.

When developing a new support model, the Ministry of Energy referred to the recommendations of the European Commission which set out the guidelines for ensuring the most productive and cost-efficient way of support for the producers that use RES.

One of its main principles is to encourage electricity producers to operate under the market conditions and bear electricity balancing costs. The new support scheme is now being coordinated with the European Commission Directorate–General for Competition in accordance with the procedure for state aid notification and will be put into practice after the approval by the Commission.

The most important criterion which will determine the winners of the new auctions is the lowest surcharge on electricity market price on the Nordic electricity exchange Nordpool. While competing in the new auctions the producers will also have to indicate the amount of electricity to be produced and will be able to get additional funds via the surcharge on the market price.

It is expected that the new procedure for RES auctions will be approved during the autumn session of the Seimas and will come into force on 1 May 2019. It is estimated that after the approval of this model, the National Commission for Energy Control and Prices (NCECP) will announce the first auction during which the quota of 0.3 TWh would be allocated.

Pursuant to the former support model, producers were paid a fixed tariff the amount of which was determined during the auction – the producer having offered the lowest tariff was recognised to be the winner of the auction.

The Ministry also suggests that electricity generated by the producers having won the auction be given priority for being transmitted, and the producers the installed capacity of power plants of which is less than 500 kilowatts be released from the balancing obligation.

Before, producers that won the RES auctions were not responsible for electricity balancing. They also used to divide electricity grid costs with the network operator. The new procedure stipulates that they will also have to cover all connection-related costs.

The distribution of quotas established in the former RES support model was discontinued from 2016. Today all constructed power plants generate energy.

The National Energy Independence Strategy approved in June stipulates that in 2025 no less than 5TWh of electricity will be generated from RES. To compare, presently all power plants which generate energy from RES in Lithuania annually produce about 2.5 TWh of electricity.

One more reason which prompted the Ministry to prepare a new procedure for electricity auctions is that the former support scheme was not adapted for operation under the market conditions and integration of producers into the market as recommended by the EC and did not reflect the advancement of the intensifying technology.

Application of these promotion measures are expected to considerably increase the capacity of local electricity generation, which, accordingly, will reduce the country’s dependence on electricity import and will enhance energy security. Auctions will be also open for electricity producers from other EU Member States which have a direct link with Lithuania and have signed bilateral agreements.

The new RES development model was drawn up after the assessment of international practice of the currently best operating models. It has been introduced and was discussed exhaustively and thoroughly with the market participants, namely, the RES developers and the NCECP.