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Adjusted investment request for enhancement of the Latvia - Lithuania interconnection

In 2018 Project promoters AB Amber Grid and JSC Conexus Baltic Grid with the support of Ernst&Young Baltics and SIA «Olimps» carried out the feasibility study «Feasibility Study and Cost Benefit Analysis for the Enhancement of Latvia-Lithuania Interconnection (ELLI) », (further - the Study). The aim of the Study was to define the optimal technical capacity and solutions of the Project and provide an overview of its financial and economic profitability, prepare cost-benefit analysis (CBA) and proposal on cross border cost allocation (CBCA) decision

Based on the market analysis and gas flows modelling the bidirectional capacity of ca. 125 GWh / d was accepted as the leading case for ELLI implementation and was subject to optimization and detailed technical capacity assessments in both directions. The target ELLI capacity was identified at 130,47 GWh/d in the LT->LV and 119,5 GWh/d in the LV -> LT direction in order to come across the needs of the market and remove most foreseen bottlenecks in both directions.

Hydraulic modelling of gas flows proved that necessary capacity could be reached by using the existing gas transportation system without construction of new gas pipelines in Latvia and with the maximum utilization of the Lithuanian compressor stations. In Latvia the pipelines Rīga-Panevežys, Rīga-Inčukalns UGS I&II Pskov-Rīga& Izborsk-Inčukalns UGS, Vireši-Tallinn will have to be enhanced with the aim to increase max operation pressure to 50 bar and a new compressor unit built on the site of Incukalns UGS, and in Lithuania GMS Kiemenai capacity will have to be increased and the piping of Panevežys CS modified. Total ELLI CAPEX was set as 25.4 MEUR (LV-20.7 MEUR, LT- 4.7 MEUR), which is significantly lower than estimated before the Study.

During the Study, ELLI viability also has been assessed from the perspective of the society and Project Promoters under two Common Baltic Market Zone (CBMZ) materialization scenarios (first - CBMZ materializes in 2020, second - there is no CBMZ). The main conclusions of the assessment are:

  • ELLI Project is not financially profitable for both Project Promoters. Consequently, additional solutions need to be pursued (i.e. EU grants, tariff increase at other points) in order to increase Project viability.
  • Project is desirable from an economic point of view and contributes to the goals of the EU regional policy in all significantly impacted countries.
  • Economic profitability of the Project is very high under both scenarios related to the materialization of the CBMZ.
  • Based on the analysis of ENTSOG indicators, LV, LT, EE and FI were identified as countries “significantly impacted” by the ELLI realization.
  • In case of ELLI, all countries significantly impacted by the Project implementation reach a positive ENPV. As such, these countries have been identified as net beneficiaries of the Project under both scenarios related to the CBMZ materialization (CBMZ / no CBMZ)
  • As a consequence, CBCA monetary transfer is not applicable to the ELLI Project due to the lack of net cost bearers of the Projects entitled to receive CBCA.

On December 19, 2018 project promoters AB Amber Grid and JSC Conexus Baltic Grid submitted to the Public Utilities Commission of the Republic of Latvia (further- PUC) and National Control Commission for Prices and Energy of the Republic of Lithuania, as well as to the Finland’s Energy Authority and Estonian Competition Authority the investment request for the Enhancement of the Latvia-Lithuania interconnection Pursuant to the EU regulation 347/2013 Article 12(3).

JSC Conexus Baltic is a project promoter also for another PCI project 8.2.4 Enhancement of Incukalns Underground Gas Storage. After completion of the Study on ELLI project, in particular, based on the choice of technical solution where a compressor unit on the site of Incukalns UGS is required, JSC Conexus Baltic Grid specialists analyzed the possibility of using the same compressor unit for increase of the pressure in Latvian gas transmission system and compression gas extraction from the storage. The conclusion was that it is a viable technical solution and using the same compression unit is a significant contribution towards saving of the costs in Latvian gas infrastructure. When preparing the proposal for submission to the EC under CEF 2018 2nd Call for Proposals, JSC Conexus Baltic Grid included procurement and installation of the compressor unit into the scope of the project Enhancement of Incukalns UGS and on January 23, 2019 received information from the EC that PCI 8.2.4 is selected for funding.

On January 29, 2019 during the meeting with PUC, JSC Conexus Baltic Grid representatives informed PUC regarding decision of the EC on funding of PCI 8.2.4 and suggested to update the Investment request submitted on December 19, 2018.

Adjusted Investment Request for Enhancement of Latvia-Lithuania Connection (ELLI) is elaborated pursuant to the PUC letter No.2-2.80/465 of 07.02.2019 and is addressing the following issues:

  • Update of ELLI TOTEX (CAPEX and OPEX) for Latvian part
  • Recalculation of the Project results
    • Financial performance indicators
    • Economic performance indicators
    • Value of ELLI related CBCA compensation between the significantly impacted countries
    • Value of the CEF grant for which the Project may be eligible
    • Tariff impact resulting from ELLI implementation in Latvia
  • Updated recommendation for CBCA decision
  • Technical description of the ELLI project and assessment of the risks

You can find full document text HERE.