Plans to introduce Capacity Mechanisms in Lithuania progressed

The National Energy Independence Strategy of Lithuania adopted in 2018 provides that one of the key principles of the development of the electricity sector is to reduce energy dependence on electricity import by promoting sustainable investments in the development of local, reliable and competitive capacities. New capacities should be developed in order to ensure a smooth integration of renewable energy sources and contribute to further development of the ancillary services market.

The Ministry of Energy of Lithuania held a public discussion about the long-term role of the capacity mechanisms (CRM) on 5th of February. This was the first stage of a public consultation with stakeholders which will last until 19th of February.

During the discussion, international consultancy company FTI France SAS (Compass Lexecon) presented the concept of a long-term CRM in Lithuania. The long-term CRM is a tool to ensure reliable operation of the power system, encouraging investment in the construction of new sources of electricity production, further activities or development of existing ones. Such a mechanism allows for the creation of a transparent, technologically neutral and competitive system, by which the State promotes the continuously available, flexible and rapidly activated electricity generation capacity necessary to ensure a reliable electricity supply in the country.

In developing a long-term CRM model, the most important criteria - taking into account the current situation in the country's electricity sector, the possible costs and duration of implementation- is to ensure that the model is in line with the objectives of the Lithuanian Energy Independence Strategy and is consistent with the EU guidelines on state aid.

Having assessed all the relevant criteria, the market-wide model seems to be the most appropriate for Lithuania's needs. The chosen model will help to maintain both existing generation and attract investment into new electricity generation capacity. Also, the market size model is technologically neutral, does not discriminate between different types of capacity - production, regulatory load and energy storage - and creates competition between them.

It is planned that in March 2020 the first auction will already take place, its winners have been selected and contracts signed with them. The successful alignment of the model with the European Commission is critical to the timely implementation of the power mechanism model.

In 2018 Kaunas Technology University assessed the adequacy of the Lithuanian electricity system for the next decade. The results of the study showed that in order to maintain reliable operation of the electricity system and security of electricity supply, it must be ensured that besides the currently operating capacities, new sources of reliable local electricity production should be created in Lithuania by 2025.