Wojciech Paczynski, expert on economics at the CASE — Center for Social and Economic Research, Poland

— Lithuania is perhaps the most likely client

The last few years have indeed seen an increase in interest in the nuclear energy option in several countries worldwide and in Europe in particular. Several factors have contributed to this. First, the electricity demand and supply outlook points to the need for new supply capacity. The combination of concerns on availability and security of supply of fossil fuels, notably natural gas and concerns on future gas prices have increased the relative attractiveness of nuclear energy. The strive to decrease the CO2 emissions is also a very important factor supporting the outlook for nuclear fuels. Finally, but quite importantly, due to a growing environmental consciousness and lack of any serious incidents involving NPPs public attitudes in several European countries have been evolving towards a somewhat more positive view (less fear) of nuclear alternative.

The Baltic region needs new electricity generation (closure of Ignalina NPP plays a role here) and in my understanding the nuclear option is indeed economically viable. However, at least in case of the Lithuania, Latvia and Estonia the nuclear option only makes sense if these countries are considered as an integrated market. It would not be reasonable to build an NPP only to serve the Lithuanian market for example. When comparing various NPP options one should keep in mind their specific cost profile. NPPs are relatively expensive to build and cheap to operate. In other words, it is not a good idea to build an NPP that will be utilized to a limited degree. Whether there is room for more NPPs in the next decade or so in the Baltic region (narrowly defined – 3 Baltic states, Kaliningrad and other regions of Russian NW, parts of Poland and Belarus) is not a trivial question. The answer will depend, inter alia, on the existence of interconnections enabling efficient electricity trade within the region and beyond it. Hence, to a degree one can speak of competition between NPP projects and there is likely a degree of “first mover advantage” in this game. However, it is not a simple race who will build an NPP first. What will matter for any given project’s viability is the physical infrastructure to deliver electricity to markets with power deficits, regulatory issues and finally the project costs and financing.

In my view confirmed interest from neighbouring countries may be an important factor in the economic viability of the Russian Baltic NPP. From the perspective of this project an ideal solution would be that these countries express their interest already now and perhaps even enter into some sort of agreement with the project investors (or even join the project). If this does not happen but the Russian Baltic NPP is anyway built and operational in the second half of the next decade there may still be external demand for its electricity. Lithuania is perhaps the most likely client, followed by Latvia, Estonia and Poland.

To remind, in late 2009 Lithuania will fulfill the EU’s requirement and will shut down its Ignalina Nuclear Power Plant. Chairman of the State Committee on Prices and Control in Energy Sector Virgilijus Poderys says that after the shut-down of Ignalina the electricity price in Lithuania will grow by 30%. The country will be forced to import half of its energy from abroad. Latvia, Lithuania, Poland and Estonia have said that they will jointly build a new Ignalina NPP but cannot yet agree on their shares in the project. Now Estonia and Poland have said that they will build their own NPPs but the global crisis can mar their plans.

In its turn, Russia is planning to build Baltic Nuclear Power Plant in Kaliningrad region. 51% of the project will belong to the state, 41% to private investors.