Lietuvos Energija, the state-run power company in Lithuania, and its Polish equivalent, Polskie Sieci Elektroenergetyczne, announced that they have agreed to work toward the establishment of a joint venture aimed at connecting their power grids.
A connection between the two countries' grids would give the Baltic states access to the wider European grid and perhaps initiate a wider regional electricity market, according to officials from the two companies.
The decision to create a working group that will recommend the structure, role and financing of the new joint venture is the first concrete step in the grid connection, which will eventually result in the construction of a 140-kilometer long electricity link between Alytus in Lithuania and Elk in Poland later this decade.
The two companies' meeting was observed by the European Bank for Reconstruction and Development, a long-term advocate for the project.
The EBRD will assist in the development of joint proposals for the grid connection, which will require substantial financial assistance.
In a feasibility study prepared for the EBRD last November, the London-based energy advisory firm IPA Energy Consulting recommended that the European Union provide about 61 percent of projected costs, which amounts to 275 million euros out of a total 434 million euros.
In addition to the construction of the actual link itself, upgrades of the Lithuanian and Polish grids are included in the calculations.
Supporters of the project hope it will provide the impetus to secure the political and financial obligations necessary to upgrade the Latvian and Estonian electricity grids and provide the technical framework for any proposed Pan-Baltic electricity market.
According to Matti Hyyrynen, head of the EBRD's Vilnius office, the region has much to gain if the Polish-Lithuanian electricity market expands to include Latvia and Estonia.
"The main benefit of this project [could be] the creation of a market that encompasses Poland and the Baltic states, allowing countries to source electricity from where it is cheapest or cleanest," he said.
Hyyrynen added that the creation of a larger marketplace would provide more practical investment opportunities for the development of both traditional and alternative energy technologies – a difficult process in an otherwise small market.
"One of our main concerns will be to focus on the environmental impact – both to minimize the impact of the project itself and encourage investment in alternative energy sources," Hyyrynen added.
Construction would commence sometime in 2007, with completion planned for 2010, the year after the scheduled shutdown of the Ignalina nuclear power plant.
Talks of connecting the grids began almost a decade ago, with the first proposal to link grids made in 1995. But uncertainties surrounding the future of Ignalina and Lithuania's entry to the EU thwarted earlier attempts to move ahead with plans.
An American-led consortium's offer to begin building a temporary link two years ago – for planned completion this November – collapsed, partially due to lack of transparency.
Poland had expressed concern that Lithuania sought to use the link primarily to export Ignalina's relatively cheap electricity. This would have undermined Poland's coal-fired power plants at a time of major reconstructions within the country's mining industry.
However, last year's commitment to close Ignalina as part of Lithuania's EU entry requirements cancelled this concern and opened the way for substantive talks.
Vladas Paskevicius, Lietuvos Energija's director for energy systems, focused on the beneficial nature of a potential trade deal between both parties.
"With the closure of the [Ignalina] power plant, we will need to import electricity. According to the study, we will be able to sell peak-level electricity to Poland in return for base price electricity," he said.
President Rolandas Paksas and his Polish counterpart Alexander Kwasniewski highlighted the link's importance in the "strategic partnership" between Lithuania and Poland during Paksas' visit to Poland.
In late June, the two nation's prime ministers, Algirdas Brazauskas and Leszek Miller, sent a joint letter seeking EU assistance for the project to Romano Prodi, head of the European Commission.
Last November's feasibility study recommended that both Estonia and Latvia be included in the project in order to improve the chances that the project will obtain additional finance.
Experts predict that Lithuania has a 50 percent chance of obtaining the necessary funding, with a final decision depending upon the political situation at the time.
Speaking to The Baltic Course, Jurgis Vilemis, head of the Lithuanian Institute of Energy, said that even if negotiations yielded only 30 percent of the costs, the energy companies could finance the remainder.
Should funding be approved, there will be an open tender in 2007 and work will commence in the same year.