Estlink connecting power markets Tallinn Indrek Aarna CEO, AS Nordic Energy Link May 9, 2006
Outline Overview of the Baltic Power System Estlink HVDC interconnector Effect of Estlink on security of supply and electricity markets EU exemption Project progress
The Baltic grid part of North-Western Russian grid Nordel IPS/UPS UCTE Estlink will be a connection between two regional electricity markets in EU
Sufficient grid connections between the Baltic States, but none with other EU countries MW, cross-border transmission capacities Finland 1300 Estlink Baltic Sates are technically strongly connected to Russian power market Baltic States have strong crossboarder interconnections Estonian network allows to import all power needed Baltic States have no connections to other EU countries Saint Petersburg 350 1000 Russia Estonia 1000 400 Latvia 600 Pskov 2400 Lithuania 700 1200 2000 Belarus Poland EU policy to increase interconnector capacity is not a driving force in Estlink project
Estlink provides clear financial and strategic benefits for Baltic energy companies Description Higher security of supply Lower dependence on Russian electricity system System ancillary services, e.g., balancing energy, black-start capability Exports and arbitrage revenues Potential exports for Baltic power producers Arbitrage opportunity Competitive source of energy Alternative competitive source for imports to e.g., Russia Opportunity to optimize seasonal/daily generation patterns
Estlink - first step to connect Baltic and EU electricity systems Exemption* was granted by EU in the end of April (Article 7 of EU Regulation 1228/2003) HVDC Light cable: Capacity: 350 MW Length: 105 km DC voltage: ±150kV Oil-free and lightweight cable Construction agreement was signed with ABB on April 29th, 2005 Connection to be established by the end of 2006 * Exemption allows for charging the users of the cable for the construction costs instead of adding the costs to the domestic tariffs of the main grids.
Ownership structure of the Estlink cable company Pohjolan Pohjolan Voima Voima 60% Finestlink Finestlink Helsingin Helsingin Energia Energia 40% 10,1% AS Nordic Energy Link ( 110 million investment 20% equity financed and bank loans guaranteed pro rata by owners) Eesti Eesti Energia Energia Latvenergo Latvenergo 39,9% Lietuvos Lietuvos Energija Energija 25% 25%
Positive impact on security of supply expected Increases grid reliability Helps prevent blackouts Gives black-start possibility on Estonian side Decreases dependence on Russian electricity system Provides alternative electricity purchase channels to cover potential deficit
Major positive impact on electricity market expected Capacity is sufficient to have significant effect on the market development in the Baltic states (25% of Estonian peak load can be covered via Estlink) Capacity is too small to have noticeable effect on the Nordic electricity market (2,5% of Finnish peak load can be covered via Estlink) Entrance of new players on the Nordic market, enlargement of market area Reference price to be provided by Nordpool also to the Baltic market Potential price level reduction for consumers in Finland in case of Swedish-Finnish bottlenecks Established trading mechanisms at the cable to motivate active trading in the Baltic region
Critical factor compliance with Article 7 in EU Regulation 1228/2003 a) Enhancement of competition b) Level of risk c) Interconnector must be owned by a separate legal person from System Operators d) Charges are levied on the users of Interconnector e) No part of costs are recovered from charges for the use of transmission or distribution networks f) Exemption is not detriment of competition or effective functioning of the internal market
Operation of Estlink is planned in two phases Decision 2004 2005 Cable ready 2006 2006 2007 Sales of ownership to national grid companies 2008 2009 2010 Commercial project 20062009 (2013) Investors are traders; Exemption valid Infrastructure project earliest 2010 (latest 2013) Investors are national grid companies Project based investment, revenues from special fee paid by Estlink users Part of domestic regulated asset base, i.e, included in the domestic grid tariffs Owners have privileged rights for capacity; use-it-or-lose-it Open access for all market participants
Auction system Owners have privileged rights for the capacity Unused capacity has to be offered to third parties through auction system NEL will organise the following auctions: 1. Year auction 2. Month auction 3. Day auction 4. Free capacity auction Capacity will be sold separately in both directions Every day 700 MW will be sold in the free capacity auction
Progress of Estlink construction Construction of converter station at Harku started in March www.nordicenergylink.com Harku March 14 Harku May 4
Progress of Estlink construction Construction of converter station at Espoo started in February www.nordicenergylink.com Espoo April 6 Espoo May 2
Progress of Estlink construction Land cable installation in Estonia started in May
Progress of Estlink construction Land cable installation in Finland started in April Finland
Progress of Estlink construction Installation of sea cable will take place in August and September Manufacturing of the first sea cable length has finished. About 50% of manufacturing of the second sea cable has been completed. Estlink sea cable will be buried to 1 m depth
Conclusions Estlink will be the first connection from Baltic States to other EU countries Estlink will increase security of supply in the Baltic States Estlink will have positive impact on electricity market development in the Baltic States EU exemption was the main pre-requisite in the project start-up Project is on schedule
Construction on schedule, aiming for completion by November 29th, 2006 For more information: AS Nordic Energy Link Laki 24, 12915 Tallinn, Estonia Phone: +372 715 2301 Fax: +372 715 2200 E-mail: info@nordicenergylink.net www.nordicenergylink.com