Poland supports energy market integration with Baltics

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Responding to a claims from Nato expert Dr Ar?nas Molis that Poland is against cross-border energy links with his country, Lithuania, three Polish authors have told EURACTIV that the large central European nation in fact supports energy market integration with the Baltics.

Kinga Dudzi?ska, is an analyst at the Polish Institute of International Affairs; 

Aleksandra Gawlikowska-Fyk is head of Energy Project at the Polish Institute of International Affairs;

Agnieszka Smole?ska is s Energy Policy Advisor to MEP Jacek Saryusz-Wolski (EPP, Poland).

In the network-bound industries, such as gas and electricity, market integration providing welfare gains in terms of increased security, improved operation and competitive prices, requires the existence of physical routes. After joining the EU for the poorly interconnected Central and Eastern European countries, addressing this issue became a priority, and is especially pressing for three Baltic States, often defined as an ‘energy island’, despite the fact that the power bridge between Estonia and Finland already exists, and three other links with the EU are under construction.

So far it has been a complex and drawn-out process, fraught with numerous regulatory, political and funding brakes. For Central and Eastern European countries, however, given their heavy dependency on single external supplier, the rents extracted by Russia due to its monopolistic position in their markets, EU market integration is high on their energy agenda.

Since its institution at the EU level by 8 Baltic Sea Region countries, BEMIP (Baltic Energy Market Interconnection Plan) has been oriented at including all regional projects under one, common umbrella. For nearly five years it has been facilitating market developments within three Baltic States and the process of integration with the EU, notwithstanding the fact that it were the Member States (transmission system operators, ministries and regulators) that, long before, worked bilaterally on particular projects.

The European dimension, reinforced under European Commission’s Communication on Long-term infrastructure vision for Europe and beyond should act as a catalyst. The list of Projects of Common Interest (PCI), published along with the Communication on 14th October 2013, being oriented at ensuring physical integration of energy markets in Europe, is an important part of the process to remedy their predicament. Numerous interconnection projects which the Baltic Sea Region countries have been pursuing under BEMIP, having been designated as PCIs, stand to benefit from regulatory incentives as well as the newly established Connecting Europe Facility, with funding of up to EUR 5.85 billion on offer.

In this respect Polish-Lithuanian interconnectors – both in electricity and gas – are crucial. It is therefore to be highly welcomed that the Commission’s PCI list includes, as a matter of short-term priority, both the LitPol electricity link as well as the Poland-Lithuania gas pipeline (‘GIPL’).

The power bridge between Poland and Lithuania is already under construction. LitPol Link has a strategic significance in the region as it will allow Lithuania, Latvia and Estonia to diversify energy supplies (away from Russia), enhance operational security and enable exchanges of electricity with continental European states. Yet it is also very important for Poland, especially considering that its northeastern part has an energy generation deficit and the link with Lithuania could be a an additional source of electricity during peak hours (in 2015 it will allow for import to Poland of 500 MW and in 2020 for a bidirectional flow of 1000 MW).

Potentially, the LitPol Link will also offer access to cheaper electricity (hydro or nuclear currently from Nordic market) as is now the case with Swedish-Polish interconnector. It should not, however, be overestimated as the overall capacity of the links is smattering of Polish needs.

However high-ranking the LitPol Link is, nowadays the ultimate goal of Baltics is to integrate electricity systems to the European Continental Network for synchronous operation, still functioning under the post-Soviet UPS/IPS system. Such a complex endeavor (from a technical, financial and political point of view) requires preparation and careful weighing of numerous factors, also pertaining to Poland. Feasibility study is an indispensable requirement, and is expected later this year. It will serve as a basis for further substantive discussion.

As far as the construction of a gas interconnector is concerned, last year Poland and Lithuania signed an agreement to perform the feasibility study. Provided that financing is secured (prominent share of EU funds is indispensable, though – with PCI status – likely), it will be built. This should be also seen from the regional perspective as a Polish-Lithuanian pipe interrelates with other projects in the region, requiring commitment and cooperation between Lithuania, Latvia and Estonia. So far there has been competition among Baltics in certain areas (LNG terminal or a notable example of NordBalt cable, which caused tensions between Lithuania and Latvia) or a lack of commitment in others (nuclear power plant in Visaginas). At first sight it is difficult to launch many energy projects at once, mainly due to high investment costs. Therefore it should come as no surprise that any partner country, such as Poland, cannot commit itself to vague projects.

The idea of an internal energy market is deceptively simple yet its implementation is fraught with difficulties, including political ones. Physical energy infrastructure is a condition sine qua non for a competitive European energy market. Putting it in place is, however, commitment and capital intensive. In Central and Eastern Europe and the Baltics, BEMIP is in the making and advancing, showing a good template for cooperation. For Poland, which does not have enough interconnectors with its EU neighbours, both in electricity and gas, new links with Baltic States are justified by their significant impact on security of supply, market integration and increase of internal competition.

However, to ensure that the strategic aims of BEMIP are achieved, more transparency and honesty among partners is needed. The European Commission has a critical role as a facilitator in this regard, including through its support in terms of regulatory incentives and funding, as part of the PCI implementation process.  

As long as the countries in Central and Eastern Europe remain vulnerable to the whims and the political pressure of Russia, leverage achieved through energy policy conducted at European level is indispensable. It is not by coincidence that both Poland and Lithuania have put energy policy high on the agendas of their respective presidencies of the Council of the EU.

There is a congruence of interests between the two countries in terms of the gains to be achieved from completion of regional energy infrastructure projects, wider integration of energy markets across the EU and a strong external energy policy. The approval of the PCIs as well as Commission's action against Gazprom's uncompetitive behaviour in CEE energy markets strengthens the stance of all gas importers in the region bringing the countries closer to achieving adequate supply and reserves.

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