The Parliament approves of the new model of renewable energy development

Date

2018 12 21

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On 20th of December, the Seimas approved the amendments to the Law on Energy from Renewable Sources, establishing a new support model for the promotion of power plants that use renewable energy sources (RES). Transparent, open and technologically neutral auctions will be held for this purpose.

These amendments will secure further development of renewable energy, which has been stagnating in recent years due to the absence of decisions regarding the development of RES. The new model will help to seek the strategic energy goals defined in the National Energy Independence Strategy (NEIS) and the new EU Renewable Energy Directive (RED II).

“The green light has now been given to the second wave of the renewable energy development. This will be a new quality phase based on the best European practices. We have a goal to generate the double volume of green electricity by 2025 and reduce dependence on electricity import, and we are consistently and rapidly heading this way. I am pleased to note that from the strategic RES goals adopted in summer we are now moving towards concrete laws that will make our ambitious plans a reality,” says Minister of Energy Žygimantas Vaičiūnas.

The National Energy Independence Strategy provides that in 2025 the power plants using RES will generate a double volume of electricity than they generate today (production output will increase from 2.4 TWh to 5 TWh), which will reduce the necessity to import electricity by 30 per cent.

According to the new procedure, support for RES power plants will be further allocated by way of auctions, because this method enables more efficient competition and allows to have the lowest price. Therefore, the key criteria that will determine new auction winners will be the smallest premium offered to the electricity market price in the Nordpool exchange that will be paid for the period of 12 years.

The model will be financed from the Public Service Obligations (PSOs) levy and will not demand any extra price for consumers because as of 2021 some RES producers, which are receiving support under the current support scheme, will no longer receive it, due to the end of the incentive period. Moreover, support to renewable energy from PSOs is planned to consistently decrease due to lower cost of technologies and maximum RES orientation towards operation under market conditions.

Support will be allocated by way of technologically neutral auctions, which means that power plants using a variety of renewable energy technologies for electricity production will be able to take part in these auctions and compete with one another for the market price premiums. Technologically neutral auctions will allow to select only the most economically efficient projects.

This model also includes ceilings for the premiums paid, thus ensuring that RES producers are not overpaid if electricity market prices change.

Aiming at the smallest possible market distortion, the new support model is expected to gradually integrate electricity producers that use RES into the market; therefore, they will be obliged to sell electricity on the market and assume the balancing responsibility as well as to cover grid connection costs.

The previous support scheme has not been adapted to operate under market conditions and integrate producers to the market; furthermore, it has not reflected the ever-intensifying technological advancement.

Producers have been paid a fixed rate, established during an auction, and the producer who offered the lowest rate became the successful bidder. The designated company or the grid operator had to buy electricity from these successful bidders, thus such a support scheme did not promote producers to operate under market conditions nor responded to the market needs and changes.

Moreover, the successful bidders of the previous RES auctions were not held responsible for electricity balancing, and they shared grid connection costs with the grid operator. Thus, electricity consumers directly paid for this kind of support.

The new support scheme is being coordinated with the European Commission according to the State aid notification procedures and will be applied having received approval of the European Commission.

The new procedure will become effective as of 1 May 2019. There are plans to call the first auction for distributing the quota of 0.3 TWh as soon as on 2 September. The schedule of all auctions for the following three years is planned to be approved before calling the first auction, however, the first auction will be excluded from this schedule. A clear RES development plan will provide clarity to investors and a consistent strategic approach.

Electricity producers from other EU Member States, who have a direct connection with Lithuania and who undertake to open part of their support to Lithuanian companies, will also be able to participate in the new auctions. Producers from other countries will be able to compete for a certain part of the overall quota planned to be distributed.