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Doc. 8168

9 July 1998

Energy co-operation in the Baltic Sea Region

Report

Committee on Science and Technology

Rapporteur : Mr Sören Lekberg, Sweden, Socialist Group

Summary

      All types of energy are available in the countries of the Baltic Sea Region, from coal, oil and gas to renewable and nuclear energy. The means of utilising energy, as well as energy efficiency, vary considerably in these countries, which means that each one is at a different starting point for the next step in its development.

      These differences can be absorbed by intensified co-operation in the field of energy, leading to the installation of transport and distribution grids for gas and electricity around and across the Baltic Sea.

      The report stresses the importance of this co-operation and suggests in particular the increase of investments in the infrastructures required by regional energy co-operation, the increased use of natural gas to replace oil and coal for electricity production and the upgrading of environmental standards of coal, oil and oil/shale power plants. It encourages also the further development of renewable energy sources and the transfer of well-proven energy saving technologies for production, transport and use of energy.

      One of the particular issues raised is the safety of nuclear installations.

I.       Draft resolution

1. The Baltic Sea is a European inland sea. The bordering countries of the Baltic Sea are very varied in geological, historical and economic terms and also have considerable differences amongst themselves as far as energy is concerned.

2. All types of energy are present in the bordering countries, from coal, oil and gas to renewable energies, from hydro to nuclear.

3. Energy use and efficiency, with their consequences on the environment and the economy, also vary in these countries, which means that each one is at a different starting point for the next step in its development.

4. The differences can be partly absorbed through the installation of transport and distribution grids for gas and electricity around and across the Baltic Sea.

5. Technological prospects in the energy field have an important role to play in the integration process in the region and so should be supported.

6. In this respect environmental factors are important. In some countries old fossil fuel plants are still in use but with poor efficiency causing high carbon dioxide emissions and with insufficient control of other pollutants such as dust, sulphur dioxide and nitrogen oxide.

7. Nuclear safety also deserves special attention. There are countries that have nuclear plants (Finland, Germany, Lithuania, Russia and Sweden) and others that do not. Amongst those with such plants, the differences in types and safety culture levels are quite significant.

8. The Assembly believes that an integrated energy market inside the Baltic Sea Region would pull energy prices in that region down and push industrial competitiveness up.

9. Such a market, supported by developing energy grids, in a region which is energy self-sufficient, would increase the security of supply to the whole of Europe, in particular after the coming into force of the Energy Charter Treaty.

10. The Assembly therefore calls on member governments and in particular those of the Baltic Sea Region, as well as on the European Union:

i. to work actively for closer political and economic co-operation and partnership in the field of energy in the Baltic Sea Region, involving authorities, energy entities, private sector companies and other participants;

ii. to increase and encourage investment in the infrastructure required by regional energy co-operation by :

iii. to encourage the increased use of natural gas, in particular with a view to replacing coal and oil for electricity production and the implementation of modern environmental protection systems in coal/oil/oil-shale power plants;

iv.       to gradually reduce the use of Chernobyl-type RBMK nuclear power plants and, consequently, reduce the nuclear-related risks in the whole Baltic Sea Region, while in the meantime encouraging international co-operation such as the Lithuanian activities in Ignalina to maximise nuclear safety;

v. to encourage the further development of renewable energy sources (biomass, wind, solar, enhanced efficiency of existing hydropower) with a view to increasing their contribution to the global energy production;

vi.       to consider, when there is a need to increase electrical energy production, the use of safe nuclear power in order to reduce carbon dioxide emission and fine-particle pollution;

vii.       to intensify research and development for all sectors with a view to improving energy efficiency and energy intensity as well as environmental standards, upgrading or replacing old and inefficient equipment, in particular in Estonia, Latvia, Lithuania, Poland and Russia. For these countries, special attention should be given to the upgrading of district heating systems;

viii. to ensure the transfer of well-proven energy saving technologies, concerning production, transport and use of energy towards all countries in the Baltic Sea Region;

ix. to improve the gathering, dissemination and exchange of energy-related information for the interested groups, and also by fully involving the mass media;

x.       to encourage co-operation and exchange of experiences among scientists and technicians in the Baltic Sea Region;

xi.       to support financially the efforts made by Estonia, Latvia, Lithuania, Poland and Russia to adapt swiftly their energy infrastructures to western standards;

xii.       to liberalise the energy market;

xiii.       to reflect the real costs in energy prices, while taking consumer affordability and inefficiencies of energy systems into consideration;

xiv.        to ensure respect of all the provisions of the Energy Charter Treaty, with a view to finding a better solution to export/import or transit difficulties;

xv.       to assure a balanced distribution of funds for energy-related projects in all the countries of the Baltic Sea Region.

II.       Explanatory memorandum by Mr Sören Lekberg

A. Introduction

1. The energy situation in the Baltic Sea Region and its development perspectives, tightly interacting with the general economic development, deserves full attention from the political decision-makers at a moment which marks the end of the artificial political divisions in the zone.

2. Known as a historical region of intensive economic co-operation, the Baltic Sea Region is now expected to increase in importance as an economic and technological centre. Recent developments such as the expansion of the European Union to include Finland and Sweden, the reunification of Germany, the entrance of Estonia, Latvia, Lithuania, Poland and Russia into the market economy system, as well as the planned enlargement of the European Union, have made futurologists foresee tremendous opportunities for the Baltic Sea Region to develop into a region for scientific, technological and economic co-operation of world significance.

3. The First Parliamentary Conference on Energy Co-operation in the Baltic Sea Region, which took place in Kiel in November 1997, illustrated the interest in this subject of parliamentarians, representatives of industry and bankers. The debates of the Conference, as well as the documents circulated - in particular the comprehensive study published by the Directorate-General for Research of the European Parliament in August 1997 (editor: Mr Peter Palinkas, Division of Environment and Energy & Research) – were of great help in the drawing up of this report.

4. The visit paid by the Rapporteur to Lithuania in May 1998, at the kind invitation of the Seimas, was also of great importance for the better understanding of the country’s energy situation.

B. General Overview

5. The total population of the countries in the Baltic Sea Region is about 300 million. If one considers only those parts of Germany, Poland and Russia which belong to the narrow coast region of the Baltic Sea (the “Baltic Rim”), the population is about 46 million (Appendix I : the map of the Baltic Sea countries).

6. The Baltic Sea Region is very heterogeneous from an economic point of view. A great gulf in the level of economic development exists between the European Union member states and the non-European Union states (the GDP per capita vary in a range of about 1:6).

7. The energy sector in the Baltic Sea Region is of utmost importance for the successful transformation process of these economies in transition. Efficient energy markets and security of energy supply are vital. Western Europe’s security of energy supply depends on transnational transit energy supply networks through the Baltic Sea Region (in particular from Russia towards Germany). The North Sea Region is another source of energy supply. The integration of the energy markets between the Western and Eastern countries of the Baltic Sea Region therefore plays a key role in the whole integration process of Europe.

8. From the energy point of view, among the Baltic Sea Region countries, Norway and Russia represent special cases. Both are net exporters of energy. The other countries are relatively poor in indigenous resources compared to their energy requirements (Appendix 2: the main energy indicators in the Baltic Sea Region countries). Russia has a self-sufficient ratio of 145%. The other Baltic countries are all, to a varying degree, dependent on oil and gas imports. For Poland, these represent about 25% of the total energy consumption. Lithuania is nearly 100% dependent on imports, if account is taken of the nuclear fuel necessary to the Ignalina power plant, which produces about 84% of the electricity need, and Latvia, about 70%. The import dependence of these countries, with the exception of Norway and Russia, is expected to increase in the near future.

9. Due to the drop of the energy supplies from Russia in the early 90’s, combined with price adjustments to world market levels, the energy imports of the Baltic States in economic transition were heavily affected. The oil and gas imports of the latter declined between 1991 and 1994 by almost 54%. Their economies suffered in direct proportion with the energy import decrease.

10. Energy efficiency and energy intensity (the amount of energy consumed relative to GDP) are factors which create a clear disparity between the former communist countries on the one side, and the other Baltic Sea Region countries, on the other side. In the former communist countries, energy efficiency is very low and energy intensity very high. Compared to the European Union average, energy intensity in Poland and Latvia is about three times higher, while in Estonia and Lithuania about five times higher. The main reasons for these high rates are the emphasis put on heavy industry, the poor state of the whole energy infrastructure (including the widely used district heating systems) and the production inefficiencies in planned economies.

11. More than a half of the residential buildings in Estonia, Latvia, Lithuania and Poland are connected to district heating systems, and in Russia these systems are used in most of the cities. From the energy point of view, the district heating system in those countries presents a series of disadvantages, the most important one being the fact that consumers are not aware of how much they are consuming; there is no metering for measuring the heat supplied to apartments and houses. Moreover, wall and window isolation is inadequate, hence a heat consumption per square metre of district heating systems which is more than double that in Scandinavian countries. Thus, it would be advisable for these countries to invest in the rehabilitation of district heating systems for example by the use of financial and technical aid.

12. The environmental problems, inherent everywhere in almost any energy production, transformation and consumption, are exacerbated in Estonia, Latvia, Lithuania, Poland and Russia by the high rate of energy intensity, in correlation with the insufficiency of the facilities for removing SOx, NOx and dust. High coal production and consumption makes Poland the fourth largest emitter of SOx in Europe. The use of oil shale made Estonia in 1990 the highest per capita SOx emittor in Europe. The effects of these emissions extend of course to all neighbouring countries. Nuclear energy is also a factor of concern because of the two RBMK type power plants in Ignalina (Lithuania) and St Petersburg (Russia). Their level of safety is considered unsatisfactory from a Western point of view. The Rapporteur had the opportunity to see the improvements made at the Ignalina NPP and he took note of the attention paid by the Lithuanian authorities to nuclear energy. He was informed that several Western experts consider the safety level of Ignalina NPP to be comparable to that of Western NPPs. On the other hand, he also takes account of the documents of the European Commission which, quoting AGENDA 2000, indicate as a main objective "to secure the definitive closure on the basis of a realistic and agreed timetable" of "the reactors of Soviet design which cannot be upgraded at a reasonable cost"- Ignalina reactors included.

13. Renewable energies represent a significant share of the total primary energy supply in the Scandinavian countries (Denmark 6%, Sweden 13%, Finland 15%, in 1994). Considerable efforts are now taken in the other countries in the Baltic Sea Region to increase the proportion of the renewable energy sources (biomass, firewood, wind, energy from waste), which could contribute substantially to an environmental friendly energy supply.

14. Recent developments in European Union legislation are supposed to accelerate the ongoing deregulation process in the field of energy markets. The standards for a new legislatory framework inside the European Union will be developed on the basis of two Directives: on electricity (already entered into force) and on gas (under discussion). The former communist countries in the Baltic Sea Region are however facing, for several years, the challenge to adjust the old frameworks of energy systems to the new requirements of market economies. In view of their future accession to the European Union, some of them have to speed up the restructuring process and to achieve, as soon as possible, competitive energy prices reflecting real economic costs.

C.       Energy co-operation and its prospectives

15. Four mainly separate grid systems intersect today in the Baltic Sea Region: the former Soviet Northwest Interconnected Power System (IPS), which is the present power system of the CIS countries; the UCPTE network (“Union of Companies for the Production and Transmission of Electricity”, a Western organisation of interconnected electricity system); the NORDEL network, which consists of the Nordic countries (Finland, Sweden, Norway, Denmark); CENTREL, a new established power union of Poland, Czech Republic, Slovakia and Hungary.

16. As a part of the all-European plans of economic integration, the gradual creation of a unified energy market is to be materialised in the Baltic Sea Region by the “Baltic Ring Project”, elaborated by the European Union. It is the very first project of this type and in this area: its aim is to provide the technical prerequisites for an efficient power exchange between Denmark, Norway, Sweden, Finland, Estonia, Latvia, Lithuania, Germany, Poland, the Russian Federation and Belarus. The basic idea is to realise gradually a common electricity market in the Baltic Sea Region. The electricity supply systems in the Nordic countries are well interlinked through cables. By linking, through the Baltic Ring Project, the systems in countries with water-based electricity production, such as Norway and Sweden, with the systems in countries with thermal power-based electricity production, such as Finland, Denmark, Germany and Poland, the total production resources will be used more evenly and effectively. Negative environmental effects of power production will also be considerably reduced.

17. The main problems seem to be the large over-capacity in the area, as well as some missing links including those between Estonia and Finland, Scandinavia and Poland, as well as between Lithuania and Poland and, finally, the linking-in of the Kaliningrad area.

18. The integration projects on the larger scale require an intensified energy co-operation on the smaller regional scale. Regional co-operation structures, linking countries with traditional ties, already exist. The Council of Baltic Sea States includes Denmark, Norway, Sweden, Finland, the Russian Federation, Estonia, Latvia, Lithuania, Poland and Germany. Co-operation should be strengthened in particular between Estonia, Latvia and Lithuania.

19. The geographical position of the Baltic Sea Region, situated as it is between major gas reserves in the North Sea and in Russia, makes the supply of gas from these two areas possible. This is indeed favourable from both an economic and a safety point of view. Natural gas is also environmentally important as it is the cleanest of the fossil energy resources. A development of an integrated gas grid would therefore provide for increased diversification and security of supply and would improve the environmental situation throughout the region.

20. An effective and environmental-friendly energy policy is, however, more than just the interlinking of electricity and gas supply systems. It also entails other ways of rendering energy more effective, such as reinvestment in district heating plants, new technology and the increased use of renewable sources of energy. Added to this must also be the need for financing and direct grants to these investments. An approach taking into consideration long-term developments will confirm that energy, environmental and financial reasons converge. For sustainable development, strong and efficient energy systems have to be built on an environment respectful basis.

21. It would however be a mistake to believe that market rules will be enough to make this kind of system work. If the competition between classic forms of energy production and new energies remains subject to market rules alone, new energies will never get the chance to be developed as much as they deserve. Biomass offers an interesting source of renewable energy, in particular for use in district heating systems. The replacement of heavy oil and coal by natural gas and biomass could have a major impact on the improvement of the environment in the entire Baltic region.

22. One of the main problems for Estonia, Latvia, Lithuania, Poland and Russia is to adapt their energy infrastructures to the infrastructures existing in the Western countries of the Baltic Sea Region. Huge investments are to be effected in this field, but, if a balanced development of the region is envisaged, attention has to be paid to avoiding the creation of new distortions among countries by investing in an unbalanced manner. The future enlargement of the European Union should not be a reason for creating new fences, but for supporting common projects equally favourable to all countries in the Baltic Sea Region.

23. Windfarms have proved to be a valuable supplement to conventional energies and should be promoted. Your Rapporteur is of the opinion that solar energy will experience a similar development.

D.       Conclusions

24. A well functioning and sustainable energy market in the Baltic Sea Region, made possible through increased political and economic co-operation, will undoubtedly improve the environment, force down energy prices in the region and thus increase growth and industrial competitiveness. Political decision-makers have the means and the task of developing the Baltic Sea Region into a model for other regions in Europe and in other parts of the world.

Sources :

-       European Parliament, Directorate-General for Research : « Energy co-operation in the Baltic Sea Region » (Working document, August 1997), Editor Peter Palinkas, Division of the Environment and Energy & Research;

- The First Parliamentary Conference on Energy Co-operation in the Baltic Sea Area (Kiel, 28-29 November 1997) – documents of the Conference;

- Action Plan for the Improvement of the Energy Situation in the Barents Region – Fifth Barents Euro-Arctic Council (Lulea, 19-20 January 1998).

- Communication from the Commission of the EC to the Council and the European Parliament on nuclear sector related activities for the applicant countries of Central and Eastern Europe and the New Independent States (Brussels, 31 March 1998).

Reporting committee: Committee on Science and Technology.

Budgetary implications for the Assembly: None.

Reference to committee: Doc. 7862 and Reference No. 2207 of 22 September 1997.

Draft resolution unanimously adopted by the committee on 23 June 1998.

Members of the committee: MM. Melnikov (Chairman), Birraux (Vice-Chairman), Mrs Terborg (Vice-Chairperson), Mr Tiuri (Vice-Chairman), MM. About, Ataç, Bauer, Beaufays, Brunhart, Cherep, Cherribi, Chornovil, Cioni (Alternate: Speroni), Cunliffe, Mrs Faldet, MM. Fernandez Aguilar, Frey, Ivanov, Janecek, Johansson (Alternate: Mrs Johansson), MM. Kitov, Kittis, Kurucsai, Lambergs, Langthaler, Leers (Alternate: Dees), Lekberg, Lengagne (Alternate: Mattei), Lenzer, Liiv, Lorenzi, Maass, Melcak, Molnar (Alternate: Hegyi), Mozgan, Naysmith (Alternate: Earl of Dundee), Lord Newall, MM. Niculescu (Alternate: Glavan), Niza, Olrich, Onaindia, Pawlak, Plattner, Prokes, Prusi, Raskinis, Rokos, Roseta, Ryabov, Skaarup, Steolea, Theis, Turini, Upton, Uroic, Vella, Weyts, Wittbrodt (Alternate: Luczak), Yürür, Zhebrovsky, Mrs Zissi.

N.B. The names of those members present at the meeting are printed in italics.

Secretaries of the committee: Mr Lervik, Mr Torcătoriu

Appendix I

Legend

      The Baltic Rim

      EU-Grenze: EU borders

      Quellen: sources

      Bev.: population

      Fläche: surface

      BIP/Einw.: GDP/inhabitant

      BIP Zuwachs: GDP growth

      Inflation: inflation

• For Germany, Poland and Russian Federation only the regions belonging to the Baltic Sea Region were taken into consideration.

Appendix II