Viewing cable 08VILNIUS361
Title: LITHUANIA'S ENERGY CHALLENGE

IdentifierCreatedReleasedClassificationOrigin
08VILNIUS3612008-05-14 15:16:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
VZCZCXYZ0007
RR RUEHWEB

DE RUEHVL #0361/01 1351516
ZNY CCCCC ZZH
R 141516Z MAY 08
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC 2293
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
C O N F I D E N T I A L VILNIUS 000361 
 
SIPDIS 
 
EUR/ERA:EMCCONAHA; 
EEB/ESC/IEC/EPC:LWRIGHT 
 
E.O. 12958: DECL: 05/14/2018 
TAGS: ENRG ECON LH
SUBJECT: LITHUANIA'S ENERGY CHALLENGE 
 
Classified By: Ambassador Cloud for reasons 1.4 (b) and (d) 
 
¶1.  (C) SUMMARY.  Geography, the Soviet legacy and 
governmental indecision has left Lithuania with no good 
options to respond to the shutdown of the Ignalina Nuclear 
Power Plant (INPP) at the end of next year, as mandated by 
its EU accession agreement.  Short term energy dependence on 
Russia will increase to almost 100 percent, which will be 
politically and technically difficult.  Lithuania has been 
slow to make the investment decisions and technical fixes 
that could help during the period until a new nuclear power 
plant can be built.  Lithuania is pressing the EU to allow it 
to keep Ignalina open past 2009, but most GOL officials 
recognize the effort will fail.  It is unclear if the GOL has 
a fall back strategy to gain further EU help between the 
shutdown of the old INPP and the construction a new plant. 
This telegram examines the challenges Lithuania faces and the 
various ways it can deal with INPP's closing, including by 
upgrading its electricity production, building power bridges 
to Sweden and Poland, relying on natural gas and LNG, and the 
possible role for U.S. firms in a new INPP.  End Summary. 
 
WILL THE OLD INPP STAY OPEN PAST 2009? 
-------------------------------------- 
 
¶2.  (C) According to most interlocutors, Lithuania's hope of 
keeping INPP open past 2009 has almost no chance of 
succeeding.  The current Danish Ambassador to Lithuania, who 
was involved with EU accession negotiations for Lithuania, 
says that Lithuania would be in violation of its accession 
agreement if it unilaterally decided to keep the INPP open 
past 2009.  The DG of the Ministry of Justice's European Law 
Department admitted that, although the INPP case outcome is 
not entirely clear, he does not expect the operation of the 
plant to be extended.  The only avenue available for 
Lithuania to keep the plant open without violating its EU 
accession terms and jeopardizing INPP decommissioning funds 
is for all EU members, unanimously, to vote to allow 
Lithuania to keep it open.  Lithuanian officials acknowledge 
to us that this will not happen. 
 
¶3.  (C) In spite of the near impossibility of success within 
the EU, MPs in Lithuania are proceeding with efforts to hold 
a referendum during this October,s Parliamentary elections 
on whether or not to keep Ignalina open.  The PM's advisor 
for energy issues, Saulius Specius, when asked why Lithuania 
is pursuing a referendum when the EU has final say over 
whether the INPP can operate past 2009, responded that it is 
a viable political issue for all parties in Lithuania and it 
may help Lithuania in its negotiations with the EU.  He added 
that when Lithuania acceded to the EU in 2004 energy 
relations with Russia were on a much different footing. 
 
¶4.  (C) GOL interlocutors and representatives of Lietuvos 
Energija have told us that they must order fuel no later than 
the end of summer 2008 in order to keep Ignalina operating 
after 2009.  The Chairman of the Commission on Energy Supply 
Security, Aleksandras Abisala, told us fuel from the already 
closed first reactor at Ignalina could be transferred to the 
second unit, thus reducing the amount of fuel needed for the 
plant to operate past 2009.  Abisala argues that the only 
thing that will happen at the end of 2009 is that the turbine 
will be shut down.  The nuclear reactor would continue to 
operate during the decommissioning phase.  Thus, he argues 
Ignalina could continue to produce electricity during this 
period with no additional risk. 
 
¶5.  (C) Lithuania recently formed a "national investor," Leo 
Lt, to build a new INPP.  Leo Lt's formation was cited by the 
Power System Director of Lietuvos Energija, Vladas 
Paskevicius, as supporting the argument to keep Ignalina open 
past 2009.  Lithuania has shown progress in its plans for 
building a new INPP, with the formation of a national 
investor, he argued, so why not allow Lithuania to keep the 
existing plant open longer to prevent undue reliance on 
Russian natural gas until a new INPP is built? 
 
BUILDING A NEW INPP 
------------------- 
 
¶6.  (C) The decision to build a new nuclear power plant 
awaits the completion of an environmental study, which will 
determine the size of the plant.  Lietuvos Energija and the 
Lithuanian Energy Institute expect that this portion of the 
environmental study will be finished by August 2008. 
Estimates of the cost of building a new INPP run between 3.2 
and 5.1 billion Euros.  The plant, (as is sometimes publicly 
acknowledged), is unlikely to be completed by its target date 
of 2015.  Financing, plant size, management structure, and 
ownership percentages still need to be agreed upon among the 
expected owners:  Estonia, Latvia, Lithuania and Poland.  In 
addition, no order for a reactor pressure vessel has been 
made, a key bottleneck in NPP production.  The Lithuanians 
are also concerned that Russia is seriously considering 
building NPPs in Kaliningrad and Belarus.  If that were to 
happen, financing for the new INPP might be difficult as 
viable electric supply competitors for the INPP would exist. 
 
 
THE INTERIM BETWEEN NUCLEAR POWER PLANTS: 
GAS TURBINE GENERATION 
----------------------------------------- 
 
¶7.  (SBU) Seventy percent of Lithuania's current electrical 
needs are met by the one operating reactor at INPP.  In 
total, Lithuania presently has installed generating capacity 
of 4900 MW with demand of approximately 2000 MW.  Even after 
Ignalina is shut down, Lithuania is forecast to maintain a 
comfortable surplus in installed generating capacity. 
Lithuania's challenge is not generating capacity 
post-Ignalina, but the prospective cost and reliability of 
fuel supplies for generators, according to Jurgis Vilemas of 
the Lithuanian Energy Institute.  In addition, as Lithuania 
increases its use of fossil fuels to generate electricity, it 
will increase its green house gas (GHG) emissions.  Hence, 
Lithuania may encounter difficulty meeting its EU quotas, 
which are based on Lithuania's 2005 GHG emissions, i.e., 
pre-shutdown of Ignalina. 
 
¶8.  (C) Between the shutdown of the old INPP and the 
construction of a new one, Lithuania plans to rely on the 
Elektrenai natural-gas fired turbine plant located halfway 
between Vilnius and Kaunas.  The Soviet-built plant dates 
from the 1960s.  A natural gas burning 400 MW turbine is 
planned, but installation will not be completed before 2012. 
According to Abisala, Lithuania will thus face its greatest 
energy challenge from the close of INPP on December 31, 2009 
through 2012.  The plant will have to depend on pipelined gas 
from Russia to fuel the turbine.  Abisala also questions 
whether the pipeline system in Lithuania is adequate for the 
needs.  Stored gas might be an option but, according to 
Abisala, underground gas storage was considered for the 
Klaipeda area but a technical evaluation determined this area 
was not suitable. 
 
¶9.  (C) Lithuania may seek electricity from Russia and 
Ukraine in the interim after the old INPP shutdown.  Abisala 
said that Lithuania's desire to import up to 600 MW of 
electricity might be frustrated by Russia's change from a net 
exporter to an importer in its northwest region this year. 
Lithuania could seek electrical power from Ukraine, but is 
concerned about the reliability of transit of this power 
through Belarus. 
 
SWEDISH POWER BRIDGE 
-------------------- 
 
¶10.  (SBU) Lithuania is also seeking access to Swedish 
electrical power via an energy bridge.  The feasibility study 
for the project is complete, and Lietuvos Energija and 
Krasneft representatives continue to discuss the project. 
(An undersea cable that would provide approximately 1,000 MW 
and cost an estimated 500 million Euros.)  During a recent 
meeting in Riga, Krasneft officials indicated only one cable 
to the Baltics will be possible from Sweden.  However, there 
has still been no decision as to which Baltic state the 
connection will go.  Permits still need to be finished on the 
Swedish side as well as the definition of financing terms for 
both parties. 
 
POLISH POWER BRIDGE 
------------------- 
 
¶11.  (SBU) On February 12, 2008, Lietuvos Energija and PSE 
Operator signed an agreement to establish a company for the 
development of a Lithuanian-Polish power bridge, a 1,000 MW 
connection between the two countries at an estimated cost of 
600 million Euros.  The bridge will connect Alytus, Lithuania 
to Elk, Poland -- a 154 kilometer stretch.  The formation of 
the firm covers only the construction of a single cable and a 
transfer station near Alytus.  The Power System Director of 
Lietuvos Energija does not believe the Polish Power Bridge 
will be commercially viable, so EU assistance will be sought 
(the power link is eligible for up to 75 percent financing by 
EU assistance grants). 
 
¶12.  (C) Abisala expects construction of this bridge by 2012, 
but emphasized a point we have heard in meetings with 
Lietuvos Energija as well as the GOL: the power grids in 
Northeastern Poland and Lithuania need to be reinforced to 
handle increased transmission from the West.  Abisala said 
the GOL might appeal to the EC for funds to address this 
upgrade.  Once a new INPP is constructed the reinforced power 
grids could be used for electricity exports to Poland and 
elsewhere.  The ultimate goal of the GOL (and the other 
Baltic nations) is to strengthen the connection with Poland 
to allow synchronization of the Baltic electricity system, 
currently connected to the Eastern European and Russian 
IPS/UPS system, with the Western European UCTE grid.  On June 
11, 2007 the PMs of the Baltic States signed a communique 
calling for Transmission System Operators (TSOs) from 
Estonia, Lativa and Lithuania to undertake a full feasibility 
study for this purpose. 
 
NATURAL GAS AND LNG 
------------------- 
 
¶13.  (C) Lithuanians, including GOL representatives as well 
as energy industry officials, are concerned about Lithuania's 
100 percent dependence on Russian natural gas.  The GOL has 
considered appealing to Latvia to use gas from its large 
underground storage system, but the PM's energy advisor 
doubts the efficacy of this option, since Estonia was unable 
to use gas stored in Latvia.  USTDA consultants were in 
Lithuania from April 7 - 11 to determine if a feasibility 
study for the construction of an LNG terminal at the 
Lithuanian port of Klaipeda should be conducted.  The 
Lithuanian Minister of the Economy, whose portfolio covers 
energy issues, visited the U.S. in early March 2008 and met 
with these consultants to discuss the project. 
 
¶14.  (C) A natural gas pipeline to Poland may be one option 
for Lithuania to wean itself from dependence on Russian gas. 
However, a feasibility study is not planned until 2009 and 
according to Abisala, construction would take 4 years. 
Lithuania has enough theoretical capacity in its natural gas 
pipelines to supply its future needs, even with increased 
demand from the Russian enclave of Kaliningrad, which is 
supplied from the same pipeline as Lithuania.  Present demand 
from Lithuania and Kaliningrad totals approximately 4.3 
billion cubic meters according to Abisala.  Abisala estimated 
that Lithuania and Kaliningrad will need 7.4 billion cubic 
meters in 2010.  Present capacity of the Lithuanian pipeline 
from Belarus is 6 billion cubic meters with an additional 1.6 
billion cubic meters available via a connection with Latvia. 
Others dispute whether this capacity is real: Lithuanian 
experts estimate that approximately 450 million USD would be 
necessary to upgrade Lithuania's pipeline system to handle 
the nation's increased future demands.  Abisala echoed this 
in his concern that the present pipelines would be inadequate 
for increased demand. 
 
U.S. COMMERCIAL INTERESTS 
------------------------- 
 
¶15.  (C) Embassy has been in touch with both GE and 
Westinghouse as potential bidders on a new INPP.  They have 
both completed advocacy forms and we await Washington's 
decision on advocacy.  We understand GE is a subcontractor 
for SNC Lavalin, a Canadian firm, that has bid the natural 
gas turbine for the Elektrenai upgrade. 
 
COMMENT 
------- 
 
¶16.  (C) The GOL has recognized for a decade that it will 
face serious energy challenges with the closing of INPP. 
However, that understanding has not yet generated a sense of 
urgency for near- and long-term investments.  Lithuania needs 
to work with its neighbors, the EBRD, and the EU to help 
develop its path to energy security. 
CLOUD