Belarus' new nuclear power plant will change the energy balance in the Baltics

Construction of Belarus’s new Astravets nuclear power plant is almost complete. Under a deal signed in 2007, Russia’s Atomstroyexport is building the controversial $11bn plant that is 90% financed by the Kremlin, and the first reactors of the 2.4GW plant are due to go online in December 2019 with the power station fully operational year later.

Belarus’s neighbours have been against the plant from the beginning, especially Lithuania and Poland.

Located in the western Grodno region, near the border with Lithuania, the plant is only 60km from the Lithuanian capital Vilnius, less than the 100km from populated areas the International Atomic Energy Agency (IAEA) recommends following the nuclear disaster in Fukushima in Japan in 2011, raising concerns about the safety of those close to the plant.

At the same time the neighbouring EU members are also concerned the Russian-sponsored energy project will end up being another energy sector foreign policy cudgel that the Kremlin can use to threaten the former Soviet vassal states.

But even putting those concerns aside for a moment the size of the power plant will significantly alter the balance of energy supplies and Lithuania in particular could find its own power sector in a difficult position with most of its domestic utility companies unable to earn a living.

Belarus in the grip of Russian energy

Belarus is a deficit energy producer and almost entirely dependent on Russia for its fuel and energy needs. The total installed capacity of power plants in Belarus is circa 8.4 GW, according to the IAEA, of which the vast majority is gas burning.

With no significant hydrocarbon resources of its own and only a little biogas and hydropower installed capacity, Belarusimports about 82% of its energy from Russia, according to the IAEA.

While Belarus is connected to the Soviet-era “IPS/UPS” regional power sharing system, it is largely reliant on its own generators for its own power.

The total electricity generation of 29.92bn billion kWh from its 22 gas fired plants met 90% of domestic demand in 2007, the last data available from the IAEA, with another 9.406bn kWh imported mostly from Russia and 5.062bn kWh exported.

However, Belarus is a major transit route for Russian energy on its way to Russian customers in western Europe and Russia plays a big role in the Belarusian economy. Traditionally most of Russia’s gas travels through Ukraine’s Druzhba (Brotherhood) pipeline on its way to the west. Russia has already built a new northern route called Nord Stream and controversially is in the midst of expanding this pipeline, doubling its capacity. At the same time a southern route through Turkey, the so-called Turk Stream pipeline, is also under construction. But less well known is the Belarusian transit pipeline; Belarus exports 99% of the gas entering the country and earns handsome transit fees from Russia in return.

In addition, it has two of the most modern oil refineries in the Commonwealth of Independent States (CIS) that were built shortly before the collapse of the Soviet Union. Russian companies send significant amounts of crude to these refineries and Belarus then re-exports 90% of the production to customers in the west, again to make a tidy profit.

The Kremlin uses the price it charges for gas and the duties and fees it charges Minsk in the oil operations to bind Minsk to Moscow. The two sides are constantly bickering over these prices, but at the end of the day Moscow heavily subsidises the Belarusian economy by keeping them low compared to prices in the rest of the region.

When the Astravets nuclear plant comes online, the amount of gas Belarus needs to burn will be significantly reduced, allowing it to earn a little extra from re-exporting more gas. While this will be a significant saving for the Belarusian budget, the overall volumes of gas transiting the country will not be greatly impacted and so will have little affect on the regional or European markets. The really big affect will be one on the regional power markets.

Belarus becomes a regional powerhouse

Compared to its neighbours Belarus is a major producer of power. When Astravets comes online Belarus’s installed capacity will rise to 10.8GW compared to Lithuania’s 3.6GW, Estonia’s 2.7GW and Latvia’s 2.6GW. Belarus will be generating a surplus and will be in a position to export enough cheap nuclear power to meet most of the demand in all three Baltic states. For example, while Lithuania has 3.6GW of installed capacity and access to another 1.3GW via the LitPol and Nordbalt interconnection links with Poland and Northern Europe, its average consumption is 1.1GW, rising to a peak of 2.3GW in winter, according to Eurostat.

With so much excess generating capacity, there is no danger that Russia, using Belarus as a tool, can put itself in a position to turn off the lights in Vilnius so the Astravets power plant can’t be used as an overt foreign policy tool in the same way as Gazprom’s gas supplies to Kyiv have been used as a club on several occasions in the past. However, the cheap power Astravets produces will upset the economics of the power sector and have led Vilnius to fiercely resist the construction of Astravets.

Power in Lithuania is expensive, making it the most vulnerable of the countries in the region. After it closed its only nuclear power plant at Ignalina in 2010, consumers experienced a 33.3% increase in electricity rates, and of its 3.6GW of generating capacity 2GW burn gas that has to be imported, which is expensive.

To break its dependence on Russia, the government invested some half a billion dollars into the Klaipeda floating liquefied natural gas (LNG) terminal launched in 2014. The trouble is that LNG costs some 30% more than piped gas and is not competitive with the other sources of power available to Lithuania. Consequently the Klaipeda terminal is currently working at 20% of its capacity and the government has been toying with forced purchase orders of LNG to keep it functioning. If a new supply of even cheaper Belarusian power comes onto the market then Klaipeda will be even more unprofitable.

Currently electricity prices in the region are so low burning gas to generate power costs more than importing powerfrom Lithuania’s neighbours. In 2017 Lithuania imported 80% of its power, mostly from Sweden and Poland, largely ignoring its domestic utilities.

From this perspective an addition 2.4 GW of Belarusian power on the regional market would drive electricity prices down even further. Lithuania’s utilities would be priced out of the market and useless in pure economic terms.

All three Baltic states have been trying to diversify away from traditional fossil fuels to renewables to improve their security and indeed Lithuania already produced 178MW from wind power in 2016. But the other two Baltic states have progressed much further and already reduced their exposure to risks from a boost in Belarusian power generation or Russian games with gas supplies.

In Latvia hydropower production leapt by 73.2% in 2016 and wind power was up a healthy 17.1%. Over the last ten years the share of gas fuelled power has fallen by 5% to reach just 23.4% in 2017, with the share of renewables overtaking gas to make up 32.9%. Fuel wood makes up another third.

Estonia also managed to break its addiction to gas by exploiting local shale gas rocks. Already in 2007, more than 90% of its power was generated from oil shale. The Estonian energy company Eesti Energia owns the largest oil shale-fuelled power plants in the world, the Narva Power Plants.

BRELLixt

The difference in the energy profiles of the Baltic states has divided their interests and left Lithuania in the corner trying to protect its energy sector. Its bet on LNG has not paid off and its renewable sector has not grown far enough, leaving it currently dependent on imports.

So politicians in Vilnius have been working hard to stymie the Astravets power plant. The first line of attack has been to question the safety of the plant, which is uncomfortably close to the capital.

Ironically, even the EU has signed off on the safety of the Russian-made reactor. The Astravets plant successfully passed EU-designed stress tests peer-reviewed by the European Union Safety Regulators Group (ENSREG), which examined the facility on the basis of its preparedness for earthquakes, flooding, heat sink, and other severe accidents. IAEA experts have also certified the Astravets plant to be capable of withstanding "the worst credible external event." The VVER-1200 reactor model set for use in Belarus is also being deployed in Finland, Hungary, and Russia.

These reassurances have not placated Vilnius, where politicians insist that they will not allow any Belarusian poweronto their grid. The Lithuanian parliament passed a bill in mid-June declaring that the power plant is a threat to national security and demanded that the government come up with measures to prevent imports.

So far Lithuania has not got Estonia and Latvia on board with its boycott but Poland, which borders Lithuania and Belarus, said in March it would not import electricity from the controversial plant.

Lithuania’s preferred solution is to leave the old Soviet power sharing grid completely, but as that comes with a $1bn price tag Vilnius has struggled to get Tallinn and Riga on board.

The Soviet IPS/UPS power sharing system works under rules that are governed by the so-called BRELL agreement, signed in 2001, before the Baltic countries joined the EU in 2004.

Poland, Hungary, Czechia and Slovakia have already made the jump to the EU’s Continental Synchronous Area in 1995 and left the Soviet system. After years of debate within the three Baltic states are now moving slowly towards a “BRELLxit” and there is a plan for the Baltics to also make the switch to the European system by 2025.

The future of BRELLixt remains unclear as it comes down to a question of who will pay the $1bn bill. The first stage will be to connect Poland's grid to complement the one existing Lithuania-Poland electricity interconnector, the 500 MW LitPol Link.

As the other two Baltic states have already managed to greatly improve their energy security they have become a lot more sensitive to the cost of the BRELLixt,

Estonian Minister of Economic Affairs and Infrastructure Kadri Simson has said that delinking the Baltics from BRELL will be so expensive he has questioned the economic viability of the plan. However, on the general principle of reducing the EU’s exposure to possible Russian energy aggression, the EU as a whole still supports the idea. Currently it seems that the EU appears willing to foot much of the bill for delinking.

And delinking could bring some energy savings in the long-term, but not the short-term. Experts say consumers in Latvia and Lithuania could eventually enjoy price reductions of 5-7% in power tariffs, but in the short-term utilities would almost certainly pass the cost of delinking on to customers, which means the cost of power would have to go up at first.

That has to be set against the economics of the fact that power imports from Belarus are likely to reduce energy costs even more.

For Moscow, establishing and even financing the Belarusian nuclear plant makes sense as it weakens the argument for a BRELLixt. Minsk is nominally an independent player and so the power supplies to the Baltics appear to have been diversified away from Russia to an extent, reducing the political risks.

The decision will boil down to a tussle between the economic and the political arguments. Germany’s example of choosing to push ahead with the controversial Nord Stream 2 gas pipeline, where Berlin considers the plentiful supply of cheaper Russian gas to outweigh the political objects of other European countries in the northwest corner of the union, suggests that economics will trump politics in the BRELL countries too.

Belarus becomes a regional powerhouse

Compared to its neighbours Belarus is a major producer of power. When Astravets comes online Belarus’s installed capacity will rise to 10.8GW compared to Lithuania’s 3.6GW, Estonia’s 2.7GW and Latvia’s 2.6GW. Belarus will be generating a surplus and will be in a position to export enough cheap nuclear power to meet most of the demand in all three Baltic states. For example, while Lithuania has 3.6GW of installed capacity and access to another 1.3GW via the LitPol and Nordbalt interconnection links with Poland and Northern Europe, its average consumption is 1.1GW, rising to a peak of 2.3GW in winter, according to Eurostat.

With so much excess generating capacity, there is no danger that Russia, using Belarus as a tool, can put itself in a position to turn off the lights in Vilnius so the Astravets power plant can’t be used as an overt foreign policy tool in the same way as Gazprom’s gas supplies to Kyiv have been used as a club on several occasions in the past. However, the cheap power Astravets produces will upset the economics of the power sector and have led Vilnius to fiercely resist the construction of Astravets.

Power in Lithuania is expensive, making it the most vulnerable of the countries in the region. After it close its only nuclear power plant at Ignalina in 2010, consumers experienced a 33.3% increase in electricity rates, and of its 3.6GW of generating capacity 2GW burn gas that has to be imported, which is expensive.

To break its dependence on Russia, the government invested some half a billion dollars into the Klaipeda floating liquefied natural gas (LNG) terminal launched in 2014. The trouble is that LNG costs some 30% more than piped gas and is not competitive with the other sources of power available to Lithuania. Consequently the Klaipeda terminal is currently working at 20% of its capacity and the government has been toying with forced purchase orders of LNG to keep it functioning. If a new supply of even cheaper Belarusian power comes onto the market then Klaipeda will be even more unprofitable.

Currently electricity prices in the region are so low burning gas to generate power costs more than importing powerfrom Lithuania’s neighbours. In 2017 Lithuania imported 80% of its power, mostly from Sweden and Poland, largely ignoring its domestic utilities.

From this perspective an addition 2.4 GW of Belarusian power on the regional market would drive electricity prices down even further. Lithuania’s utilities would be priced out of the market and useless in pure economic terms.

All three Baltic states have been trying to diversify away from traditional fossil fuels to renewables to improve their security and indeed Lithuania already produced 178MW from wind power in 2016. But the other two Baltic states have progressed much further and already reduced their exposure to risks from a boost in Belarusian power generation or Russian games with gas supplies.

In Latvia hydropower production leapt by 73.2% in 2016 and wind power was up a healthy 17.1%. Over the last ten years the share of gas fuelled power has fallen by 5% to reach just 23.4% in 2017, with the share of renewables overtaking gas to make up 32.9%. Fuel wood makes up another third.

Estonia also managed to break its addiction to gas by exploiting local shale gas rocks. Already in 2007, more than 90% of its power was generated from oil shale. The Estonian energy company Eesti Energia owns the largest oil shale-fuelled power plants in the world, the Narva Power Plants.

BRELLixt

The difference in the energy profiles of the Baltic states has divided their interests and left Lithuania in the corner trying to protect its energy sector. Its bet on LNG has not paid off and its renewable sector has not grown far enough, leaving it currently dependent on imports.

So politicians in Vilnius have been working hard to stymie the Astravets power plant. The first line of attack has been to question the safety of the plant, which is uncomfortably close to the capital.

Ironically, even the EU has signed off on the safety of the Russian-made reactor. The Astravets plant successfully passed EU-designed stress tests peer-reviewed by the European Union Safety Regulators Group (ENSREG), which examined the facility on the basis of its preparedness for earthquakes, flooding, heat sink, and other severe accidents. IAEA experts have also certified the Astravets plant to be capable of withstanding "the worst credible external event." The VVER-1200 reactor model set for use in Belarus is also being deployed in Finland, Hungary, and Russia.

These reassurances have not placated Vilnius, where politicians insist that they will not allow any Belarusian poweronto their grid. The Lithuanian parliament passed a bill in mid-June declaring that the power plant is a threat to national security and demanded that the government come up with measures to prevent imports.

So far Lithuania has not got Estonia and Latvia on board with its boycott but Poland, which borders Lithuania and Belarus, said in March it would not import electricity from the controversial plant.

Lithuania’s preferred solution is to leave the old Soviet power sharing grid completely, but as that comes with a $1bn price tag Vilnius has struggled to get Tallinn and Riga on board.

The Soviet IPS/UPS power sharing system works under rules that are governed by the so-called BRELL agreement, signed in 2001, before the Baltic countries joined the EU in 2004.

Poland, Hungary, Czechia and Slovakia have already made the jump to the EU’s Continental Synchronous Area in 1995 and left the Soviet system. After years of debate within the three Baltic states are now moving slowly towards a “BRELLxit” and there is a plan for the Baltics to also make the switch to the European system by 2025.

The future of BRELLixt remains unclear as it comes down to a question of who will pay the $1bn bill. The first stage will be to connect Poland's grid to complement the one existing Lithuania-Poland electricity interconnector, the 500 MW LitPol Link.

As the other two Baltic states have already managed to greatly improve their energy security they have become a lot more sensitive to the cost of the BRELLixt,

Estonian Minister of Economic Affairs and Infrastructure Kadri Simson has said that delinking the Baltics from BRELL will be so expensive he has questioned the economic viability of the plan. However, on the general principle of reducing the EU’s exposure to possible Russian energy aggression, the EU as a whole still supports the idea. Currently it seems that the EU appears willing to foot much of the bill for delinking.

And delinking could bring some energy savings in the long-term, but not the short-term. Experts say consumers in Latvia and Lithuania could eventually enjoy price reductions of 5-7% in power tariffs, but in the short-term utilities would almost certainly pass the cost of delinking on to customers, which means the cost of power would have to go up at first.

That has to be set against the economics of the fact that power imports from Belarus are likely to reduce energy costs even more.

For Moscow, establishing and even financing the Belarusian nuclear plant makes sense as it weakens the argument for a BRELLixt. Minsk is nominally an independent player and so the power supplies to the Baltics appear to have been diversified away from Russia to an extent, reducing the political risks.

The decision will boil down to a tussle between the economic and the political arguments. Germany’s example of choosing to push ahead with the controversial Nord Stream 2 gas pipeline, where Berlin considers the plentiful supply of cheaper Russian gas to outweigh the political objects of other European countries in the northwest corner of the union, suggests that economics will trump politics in the BRELL countries too.