Energy - It Depends!

Brian Hicks

Updated May 30, 2006

We've talked a great deal in Wealth Daily about energy independence and what it means for the 21st century energy economy. The idea is that each country should be able to stand on its own two feet in order to gain the fuel to grow. But here in the Baltic States, the major players want to be interdependent as well, joining grids to power everyone's future.

Last week in Riga, Latvia, I met with representatives of the Latvian department of energy, which is housed within the ministry of economics. The department has hatched a long-term energy strategy that is now in its beginning stages, with the end result that Latvia will have a diversity of supply options in terms of source and method alike

Over the next 10-15 years, Latvia will turn to clean coal power generation, to be operated by the Latvian national energy company Latvenergo. This will add to an energy mix that is currently dominated by hydroelectric power.

Currently, all three Baltic States are anxious to diversify, even though each has a dominant (and presumably stable) domestic supply. Of course there is more than meets the eye when we assess the current energy mix of Estonia, Latvia, and Lithuania.

The Baltics have been served since Soviet times by a major nuclear power plant in Lithuania, which produces 70% of Lithuania's electricity. By 2009, this plant will be closed. What does this mean for domestic supply?

Estonia's oil shale industry, one of the most advanced in the world despite the country's diminutive size and low consumption, provides part of the answer.

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Part of the Viru Keemia oil shale complex in Estonia

The Missing Link

I spoke today with Sandor Liive, the CEO of Eesti Energia, Estonia's national energy company.

He tells me that for every 1% of GDP growth in Estonia, the country experiences half a percentage point in energy consumption growth. Compare that to China, where energy consumption is outstripping growth because the kind of growth the Middle Kingdom is experiencing is far more power-intensive than that of Estonia, and spread over a greater population and land area.

Though it would be silly to compare China to Estonia, which is about the size of Delaware, there is an important lesson in planning for the future and maintaining rapid expansion with a mind to sustainability. Keeping up Europe's highest growth also implies cooperation with neighbors, and Estonia is paving the way for all three Baltics to do just that.

The Estonian government and Eesti Energia are working intensively with the Finnish government in Helsinki, just a ferry ride away from me here in Tallinn. Their cooperation is on cultural matters (the Finns and Estonians share a common ethnic heritage and language group), but in practical reality, the countries are hooking their fates together as twin cities known locally as Tallsinki.

The Estlink electricity connection is the first major step in linking the Baltic States to Nordpool, the Nordic power grid that supplies most of Scandinavia with juice throughout frigid and dark winters.

The cooperation among the Baltics and in turn between the Baltics and Scandinavia extends to stockmarkets (the OMX exchange system operates in all of these countries except Norway), and now to a precarious energy picture where Russia is the major gas supplier and all of Europe is striving to augment their routes for gas, electricity, and other needs.

The first part of the Estlink will channel 350 megawatts under the sea between Finland and Estonia, continuing on into the Baltics and upper Scandinavia. This phase is to be completed in November of this year.

The next stage will increase Estlink capacity to 1000 MW, allowing all countries involved to achieve better peak regulation as well as base load power.


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Filling the Energy Gap

Of the Baltic energy mix projected for 2016, 54% is up in the air. It will probably be something like 14% from Latvian hydroelectricity, 13% from Estonian oil shale, and 19% from Russian gas. Today, the shale and nuclear contributions are far greater, but Estonia hopes to increase oil shale production and output by 3x in the next 4 years.

What will fill the void? Cooperation can find solutions better than isolation and searching in the dark individually.

Lower power tariffs will also help the situation, by keeping supplies cheap to produce and allowing more money to be channeled into research and development. Estonia's energy taxes are currently the third lowest in the EU, and Lithuania's are the second lowest.

Non-conventional fossil fuel production in places like Canada's oil sands and Estonia's oil shale reserves present a certain opportunity, but a finite one just like traditional hydrocarbon production.

So Latvia is also pursuing biodiesel production from rapeseed (canola), in order to provide an alternative fuel source in addition to the non-conventional.

The question facing all of these countries, and all of Europe, is how regulation and cross-border tariffs will impact the easing of technology and power sharing. It benefits all countries to explore possibilities together, while maintaining and developing profitable native industries and encouraging cooperation that benefits the public good and reasonable pricing.

As more projects like Estlink take form and start moving power undersea and overland, a diversified energy mix and strong innovation will be a boon to all those involved.

-Sam Hopkins

For more on Sam's time in the Baltic States, head over to

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