The National Centres of Competence in Research (NCCR) are a research instrument of

1. The EU-Russia Energy Dialogue: The Challenges in the Electricity Sector Karolis Gudas Kaliningrad, Russia 26 March 2015 The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

2. Structure Historical Background Legal Basis Regional Cooperation Legal Challenges Conclusive Remarks The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

3. Historical background The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

4. Historical background (2) • Integrated (IPS/UPS) covers the territory of fifteen countries. The roots of the IPS/UPS concept are found already in 1920 • The expansion of electricity generation and transmission systems development was Commission for Electrification of Russia (GOELRO) • The power system was interconnected within the change of borders of the Soviet Union after World War II based on regional planning principles Power System/Unified Power System planned by the State The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

5. Historical background (3) • The synchronous grid of Continental Europe (UCTE) dates back to 1900s. It has evolved from local to national grids, having reached in a regional dimension • The first proposal to build a Europe-wide electricity network was made in 1929. Interconnectivity of the electricity networks in Europe mainly increased after World War II to make efficient use of energy resources • Before merging to ENTSO-E in 2009, UCTE generation capacity was 631 GW. It represented 34 transmission system operators of 21 countries The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

6. The legal basis • The legal basis for cooperation between the European Union and Russia are set in the Partnership and Cooperation Agreement (PCA), adopted in 1994 • It stipulates a range of areas of cooperation, which include improvement of the quality and security of energy supply, formulation of energy policy, improvement in management and regulation of the energy sector, modernization of energy infrastructure and interconnection of electricity networks • The preamble of the PCA confirms the attachment of the EU and of Russia to the aims and principles set out in the Energy Charter Treaty and Lucerne Declaration of 1993 The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

7. The legal basis (2): • The EU – Russia Energy Dialogue has been established at the sixth EU-Russia Summit in 2000. In the course of the EU- Russia Energy Dialogue: o Discussions have been held on the electricity link between Russia and the synchronous area of mainland Europe o A joint understanding was reached, placing cooperation on grid development plans among the priority plans of the EU and Russia o Cooperation pathway was discussed towards increased electricity trade between the EU and Russia The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

8. The legal basis (3): • In 2009, Russia has issued a decree declaring Russia’s rejection of the Energy Charter Treaty. As a consequence, the ECT framework no longer applies in the relations between Russia and the EU • In 2012, Russia became a Member of the World Trade Organization. Therefore, both Russia and the EU are legally bound by the WTO rules: GATT; GATS; SCM, etc. • Besides the WTO framework and the Partnership and Cooperation Agreement (PCA), adopted in 1994, there are no other international agreements between the EU and Russia that would govern relations in the field of energy (or, in particular, electricity) The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

9. Regional Cooperation • Transmission lines connect Lithuania, Russia, Belarus and Latvia • Kaliningrad has no direct electricity transmission links with Russia • Lithuania, Latvia & Estonia are disconnecting from the IPS/UPS system and connecting to the Continental Europe electricity system • Kaliningrad: can the electricity isolation? system function in The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

10. Regional Cooperation • Inter RAO UES, 2012 The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

11. Regional Cooperation • HVDC implemented: EstLink1 & Estlink2 (Estonia – Finland), LitPol (Lithuania - Poland), Sweden) • Proposed HVDC projects: Russian – Polish power link, Russian – Lithuanian power interconnector capacity extension, Russian – German power link (Inter Raoues, 2012) projects under implementation / already NordBalt (Lithuania – The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

12. Regional Cooperation. Interconnection • Interconnection of UPS/IPS with the UCTE (now- ENTSO-e) was initiated in 2002 by the Electric Power Council of the Commonwealth of Independent States (EPC- CIS of Russia). See: o Pre-feasibility study ‘Load-flow exchange between UCTE and IPS/UPS’ (2003) o Feasibility study ‘Synchronous Interconnection of the IPS/UPS with the UCTE’ (2008) o Feasibility study ‘Legislative, Requirements for EU and Russian Power Systems’ (2009) analysis for power Market and Technical The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

13. Regional Cooperation. Interconnection • Main advantages outlined in the 2009 study: “promotion of competition and efficiency at both sides of the interconnection” “existence and possible reduction of price differences between regions, which could be related to differences in fuel mix and primary resources” “increase of system reliability, whose additional gains however normally become progressively interconnections become stronger” “connecting all participants across the interconnected transmission system makes it feasible to select the cheapest generation; a firm interconnection of different markets promotes increasing of liquidity and competition” less important when The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

14. Regional Cooperation. Interconnection • Main disadvantages outlined in the 2009 study: “Investment costs can be high for building new interconnections” “Energy losses caused by electricity transmission, which depend not only on the length of the interconnection lines themselves, but also on the total distance over which electricity is transmitted” “Relatively small cross-border capacities and insufficient allocation of these capacities can lead to congestion within the EU, which could hinder electricity exchange with neighboring regions” “Interconnection capacity competes with domestic generation; therefore interconnection could lead to an increasing import dependency, which may create political resistance” “Possible opposition of citizens in the areas where the transmission and interconnection lines have to be built” The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

15. Regional Cooperation. Interconnection • Interconnection of UPS/IPS with the UCTE (now- ENTSO-e) is very unlikely due to political tensions between the EU and Russia over Ukraine The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

16. Legal challenges: EU’s framework • Restrictions related to the requirement in respect of granting access to natural gas and electricity network capacity by transmission service operators (Third Energy Package) • Justification of the renewable energy support schemes that limit access to foreign undertakings (see rulings of the Court of Justice of the EU in Ålands Vindkraft & Essent Belgium) • A legal basis to provide priority access and dispatch of electricity on the grid generated from renewable energy sources (see Art. 16 RED) • Facilitation of cooperation based on regional planning and organization principles that exclude non-EU countries (see Regulation 2009/714) The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

17. Conclusive remarks • The political tension between Russia and the European Union over Ukraine has suspended any further initiatives in the area of cooperation in the electricity sector • Baltic States’ integration into the European electricity system will adversely affect trading possibilities between Russia and the EU, provided that Kaliningrad has withdrawn the decision to connect to the European electricity system in 2014 • Few of the measures implemented by the European Union de facto limit trading possibilities Restrictions, such as the ones related to local content requirements (Essent, Alands), compliance with the WTO framework with non-EU countries. raise questions on the The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)

18. Q&A karolis.gudas@wti.org The National Centres of Competence in Research (NCCR) are a research instrument of the Swiss National Science Foundation (SNSF)