Member Article

Energy security is ability of the State to choose how and under what conditions local 

consumers are to be provided with energy and energy resources. This ability is mainly 

determined by alternatives for usage of local energy sources, diversified imports, integrity of 

energy systems, and market-based formation of energy prices. Today the Baltic States –

Lithuania, Latvia and Estonia – do not have such ability, being isolated from the energy 

community of the rest of EU, dependent on the sole supplier of natural gas, and possessing 

limited alternatives for internal energy production.

Energy security and energy independence Energy security is one of the main challenges of 

today’s global energy policy. Energy dependence on  external factors does not only increase threats to 

national security, economic wealth, formation of internal policies, but also to daily social processes, 

which are highly influenced by increasing energy and consumption prices and decreasing purchasing 

power of consumers. Energy is one of the cornerstones of modern welfare State, based on

common system and logics of political, technological, economic and regulatory decisions.

Even if technological and economic factors should be decisive in every discussion on energy security, 

as enabling for sound evaluation of the State’s  selected energy policy guidelines, however, mostly 

due to the tendencies of geopolitical energy  influence, the energy future is being shaped by 

political decisions and implementing regulatory mechanisms. And definitely this is not only a specificity of the Baltics.

For instance, decision to suspend development of nuclear energy and to renounce any use of nuclear 

power generation capacities by 2022, as it was  made in Germany last year, was based solely on 

political causes without due attention to opposing opinions of energy and economy experts. Such decision resulted in significantly increased dependence on imported electricity produced in 

French nuclear power plants and Russian natural gas. In principle the analogous result was also 

reached in Lithuania after implementation of the EU accession requirement for decommissioning of the Ignalina nuclear power plant. Initial decision was taken hastily, without timely assurances for 

technological and financial alternatives. And at the end of the day Lithuania, and the entire Baltic region, 

faces energy deficit, energy isolation from the rest of EU, full dependence on energy imports and onesided dictate of energy prices.

This is only a couple of examples how political and regulatory decisions do influence long-term impact to 

the energy system, as well as overall economic  development of the State. Energy security is not only 

a topicality for the Baltics. The 2009 natural gas crisis in Ukraine perfectly revealed that Central 

Europe is also vulnerably dependent on natural gas imports from Russia. Energy independence from imports of fossil fuels is also one of the priorities of the presidential office of the USA. In fact most of 

energy sector decisions are inevitably related to regional or even international impacts.

Last few years in the Baltic region are very active in a sense of energy related processes: political and 

regulatory decisions are being taken to accelerate implementation of strategic energy infrastructure 

projects with a decisive influence for development of energy sector in the region during the upcoming 

decades. Strategic framework for such decisions is being drawn by national energy strategies targeted 

at long-term development of energy sector structured so as to eliminate current isolation from 

the rest of EU, dependence of energy imports from Russia, as well as to implement high-ranked 

objectives of competitive energy markets and sustainable energy development.

Energy trends in the Baltics: fight for diversified  supply

Development of the energy sector constantly remains among the top strategic priorities of national 

policies in the Baltic States. Current realities of energy isolation from the rest of EU with no westdirected gas interconnections and single electricity  cross-border connection between Estonia and  Finland make the dependence on energy imports  from Russia as a constant aspiration to establish 

effectively functioning alternatives for supply of energy and energy resources, to challenge 

excessive pricing of fossil fuels and to increase  security and reliability of supply in a sustainable 

manner. All three Baltic States may be seen as facing different priorities for development of energy 

infrastructure, varying national strategies and political interests, however, the general issue of 

energy dependence is commonly at stake.

One of the major streamlines of the energy sector in the Baltics – establishment of capacities for 

diversified supply of energy and energy resources – leads towards development of local energy 

production capacities. As the Baltic region in general is not rich in conventional fossil fuels, development 

of alternative energy generation capacities is seen as the only option to decrease the role of energy 

imports. It must be noted, however, that Estonia is exceptional from other Baltic States and within entire

Europe for its ability to ensure its energy  independence with indigenous energy source – oil 

shale. At the same time it is a CO2 intensive fuel, thus the diversification of energy mix is also an 

important trend.

To ensure the base load electricity generation the Visaginas nuclear power plant is being developed in 

Lithuania together with Latvian, Estonian and Japanese investors. The new nuclear power plant is 

expected to be launched by 2020 thus getting the Baltic region out of the pit of electricity deficit that 

deepens increasingly after decommissioning of the Ignalina nuclear power plant at the end of 2009. Also 

enhanced investments into renewable energy, especially biomass and wind, is seen as a regional 

target not only to reach the EU-determined objectives of 20-20-20, but also to exploit local 

potential of non-fossil energy sources and to have a diversified variety of independent generation capacities. Support schemes based on the state subsidies increase the attractiveness of renewable 

energy sector in the Baltics both for local and international investors.

As for natural gas sector, the current Gazprom import monopoly and excessive price dictation forces 

to look for diversification of import sources and creating a substantial regulatory background for 

competitive natural gas market. Latvia and Estonia are rushing for the EU support among different regional LNG projects; Lithuania already started development of the LNG terminal in the Klaipeda sea 

port based on local investments. Feasibility of constructing the natural gas interconnections is 

being investigated as well. And finally, formation of national or even regional natural gas trading platforms, together with future alternative supply capacities and gas storage abilities, is expected to 

increase liquidity and competitiveness of the natural gas markets. Possible extent of the shale gas potential is intensively under investigation – shale gas exploitation tender in Lithuania is planned 

already this year and well-known international companies have already expressed their interest.

Another streamline, mainly pushed forward by implementing the EU third energy package, is 

liberalization of energy markets via unrestricted energy trading options and unbundling of vertically 

integrated electricity and natural gas monopolies. All three Baltic States took a different gear to progress 

with opening of energy markets, however, at least for electricity trading this year are planned as Nord Pool 

Spot’s final entrance into the Baltics thus integrating local power markets into the Nordic market. The 

Baltic Energy Market Interconnection Plan, approved by the European Commission and the Member States around the Baltic Sea, focuses on full EU integration of the Baltic energy markets by 2015.

Development of alternative power generation capacities, construction of new cross-border 

interconnections with Finland (from Estonia), Sweden and Poland (from Lithuania), investments 

into renewable energy sources, diversified supply of natural gas, as well as EU-directed integration of 

energy markets and systems are seen as the main  trends shaping the regional energy market in the 

Baltics and defining the core standpoints to be reached at various levels of energy policy, infrastructure and regulatory background.

LAWIN active in regional energy shift 

LAWIN, with its offices in all three Baltic States, is constantly involved into major regional energy infrastructure projects and commercial transactions. Our experience was built in different fields of energy sector, including nuclear, electricity, gas, oil, oil shale, heat and renewables, by providing assistance in making the most important decisions forming the energy future in the Baltics. As the biggest law firm in the Baltics we assure that the most difficult projects are realized with the high level services provided by the best specialists particularly practicing in energy and utilities and other specialized areas. Our constantly growing team of Industry & Regulatory experts advises on multidisciplinary industry sectors and participates in all the biggest and strategically significant energy and infrastructure projects in the Baltic region and offers every kind of specialized legal services. The LAWIN 

Energy & Utilities team’s consistent involvement in major regional energy projects and initiatives 

resulted in thorough knowledge, expertise and competences in the sector. This enables LAWIN to 

assist the world’s major trans-national and top national companies in complex and innovative transactions.

Currently LAWIN has the biggest team of lawyers and the only integrated pan-Baltic team, which is 

daily involved in energy projects and transactions throughout the region. Our regional energy deal 

highlights may be illustrated by top projects and transaction in each particular energy sector. Just to 

name the few of past energy sector projects and transactions, we were involved in privatization of the 

Mazeikiai oil refinery and Latvian Gas company, several reforms of electricity and natural gas sectors 

in all three Baltic States, transposition of the EU renewable energy regulation into the national 

legislations, development of the very first renewable energy power plants in the Baltics, construction of 

the first and so far the only EU-linked electricity interconnection between Estonia and Finland, 

construction of electricity reserve power plant in Estonia, reconstruction of thermo-power plant TEC-2 

in Latvia, establishing power exchange in Lithuania,  assisting for integration of local power markets to the 

Nordic market, and others.

Having in mind their overall dimension and profile, energy and infrastructure projects do remain one of 

the top priority targets for our law firm. It is not only a professional challenge to be at the cutting edge of rapidly developing energy law and business practices, but also a social responsibility to share our 

knowledge and expertise in making right decisions under appropriate circumstances. Energy 

independence of the Baltic region is still a long way to go and thus any incentive requires for due 

understanding between and joint actions by public authorities, energy companies and lawyers.

Post scriptum

Impartial observer could hear continuous discussions in each of the Baltic States and at very 

different levels of society, knowledge and interests, whether the region has to be structured as based on 

nuclear energy, renewable energy sources or diversified natural gas supply. Very often these 

discussions lead to open opposition towards one or another source of energy or even escalation of the 

inborn evilness of certain energy projects in progress. Economic value of such projects, 

magnitude of commercial interests and geopolitical influences once again tend to strike the energy 

independence future in the Baltics.

However, such discussion leading to set-off against separate energy sources is very much perverse in 

itself; this is not a time for demarcation between different energy sectors, but for creating integral 

diversified systems of self-sufficient and flexible satisfaction of the consumer’s needs. The future 

belongs to energy based on alternatives, which should ensure the State’s ability to choose safe, 

reliable and economically sound ways for shaping its energy balance. The entirety of energy projects in 

the region and their intensity allows declaring general understanding of this strategic guideline, 

however, further efforts, regional integrity and international awareness is still needed to foster 

current incentives in the Baltics.

We live in a global world where conventional energy sources are expiring, new technologies are 

expensive, but the number of people and their needs are increasing tremendously. It could be hardly expected for the energy prices to decrease, but today’s political and regulatory decisions will determine whether the Baltic States would remain the EU-level energy player and would sustain sufficient abilities for choosing its energy future and thus – the course of their economic development.

 

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