Intel Brief: Power Plant Politics

An hour before midnight on 31 December 2009, Lithuanians turned off the last reactor of the Ignalina nuclear power plant, in order to comply with conditions of EU membership. It is a decision that could have significant ramification for Lithuania's energy security, economy and foreign policy at least for the coming decade.

The closure of its only nuclear plant has left Lithuania with a sudden huge drop in energy generation capacity, and to compensate for the loss, the country will be forced to start importing significantly higher volumes of energy supplies from neighboring countries, particularly from Russia. The development has raised fears that the country's increased energy dependence on Russia will enable the latter to exercise political pressure on Lithuania.

While potential long-term benefits outweigh the drawbacks of the decision, in the short term it will likely result in slower economic recovery, while increasing Lithuania's dependence on Russia for energy supplies.

In the long term, the decision to close the last nuclear power plant has the potential to accelerate Lithuania's modernization of its energy grid and possibly its external pageintegration with Polish and Swedish networkscall_made. Lithuania's energy sector will likely become more environmentally friendly if increased use of clean sources of energy is encouraged. A new, safer nuclear power plant will likely be constructed in the next decade.

Energy

The plant's output accounted for approximately 70 percent of Lithuania's energy needs and had allowed the small Baltic state with modest natural resources relative energy independence. Now it will have to turn to its neighbors, namely Estonia, Belarus, Ukraine and Russia, for energy.

Even before the closure of Ignalina, Lithuanian power stations had used Russian gas and fuel. Imports from Russia account for almost 90 percent percent of the country's gas needs, and Russia supplies the Lietuvos Elektrine plant, which produces 65 percent of Lithuania's electricity, with gas necessary for its operations.

With increased imports from Russia, the latter will gain growing influence over Lithuania's energy sector for at least the next few years. While the external pageLithuanian government assurescall_made the public that the country could diversify its imports with gas, electricity or fuel oil, depending on prices, Russia will be able to manipulate the prices of all these supplies.

The current energy situation facing Lithuania has created a window of opportunity for the country to develop alternative energy sources or a new, state-of-the-art nuclear power plant. The government is currently considering a number of potential energy projects; but these would not be realistic for years.

external pageLithuania has been negotiatingcall_made with Poland, Latvia and Estonia about the possibility of constructing a new nuclear power plant since 2006. The project has experienced a number of delays due to economic problems as well as lack of external pageagreement over power distributioncall_made. Even if the parties agreed on the terms of the project, the plant would not become operational before 2018, or even 2025.

Another project in the works is concerns Lithuania’s electric grid. While Lithuania is not yet integrated in the grid linking Scandinavian states with continental Europe, plans are underway to make this a reality. The network of electricity connections connects Lithuania, Latvia, Belarus, and indirectly, Russia. The external pageproject to connect electricity networkcall_made of Lithuania with that of Poland and Sweden, however, will likely take years to complete.

Politics

The Kremlin has manipulated its gas or oil supplies as a political tool in dealing with its neighbors in the past, and will likely do so with Lithuania. While Russia is likely to exploit Lithuania's dependence on energy imports, it is improbable that it will be able to exercise political pressure to the extent it has in Ukraine or Belarus in the past, due to Lithuania's membership in the EU and NATO.

In January 2009, a dispute between Russia and Ukraine resulted in Russia cutting off gas shipments transiting though Ukraine. The dispute affected a number of Balkan and Eastern European states largely dependent on Russian imports for heating and electricity generation.

external pageIn 2007call_made, following a row between Belarus and Russia over the taxes charged for the transit of oil and gas, Russia temporarily withheld supplies on the Druzhba pipeline destined for Germany, Poland, Ukraine, Hungary, Slovakia and the Czech Republic.

In 2006, external pageRussia cut off the crude oil supplycall_made leading to the Lithuanian city of Klaipeda, quoting a minor technical incident as an official reason. The Moscow Times, however, indicated that the real cause of the stoppage could have been the purchase of a Lithuanian refinery by a Polish state-owned company, which defeated Russian offers.

The closure of the plant will likely result in foreign policy changes at least in the short term, as Lithuania will be forced to strengthen its ties with Russia. Lithuania has strongly opposed to Russia building a Nord Stream gas pipeline under the Baltic Sea. The Lithuanian government has also rejected an external pageoffer from Russian Prime Minister Vladimir Putincall_made to construct a new joint nuclear power plant. The country's bargaining power will now likely decrease and the government could become more cooperative and lenient towards Russia on such controversial issues.

Economy

The energy situation could have a significant impact on the state of Lithuania's economy. Lithuania was among the states hardest hit by the global financial crisis, and its external pageeconomy contracted by 15percentcall_made in 2009 alone. A major increase in energy prices will likely bring rising inflation and put economic recovery in jeopardy.

In January alone, the plant closure external pageincreased consumer prices by 1.3 percentcall_made and external pageelectricity prices by 33.3 percentcall_made nationwide. Heating costs escalated, resulting in public demonstrations. On 27 February, between 3,000-5,000 people demonstrated in Visaginas, to protest the fact that their heating bills external pageincreasedthree tofour timescall_made since the nuclear plant had been closed.

While Lithuanian authorities acknowledge the rise, they blame ineffective heating systems and have failed to offer any financial relief. Furthermore, energy prices in the country external pagecould increase even by 70 percentcall_made. The nuclear plant closure could cause further damage to the local economy, virtually eliminate the country's electricity exports (until recently constituting 1 percent of Lithuania's GDP), as well as an increase in unemployment.

Ignalina, located in the town of Visaginas in northwestern Lithuania, was the country's only nuclear power plant. Despite Lithuanian officials' assurances that the Soviet-era plant could safely function for another 20 years due to extensive upgrades in recent years, the EU was not willing to negotiate its closure fearing that the reactor could face similar catastrophe as the one in Chernobyl in 1986.

The Ignalina power plant played a significant role in external pageLithuania’s modern historycall_made, helping to boost the country’s economic potential following independence in 1991, and thereby allowing it greater autonomy from Russia.