The first review of Lithuania’s energy policies by the International Energy Agency (IEA) comes at a momentous time for the country’s energy sector, which is implementing significant reforms and seeing greater regional integration within the Baltic and EU energy markets. The review was carried out in the context of Lithuania’s accession process to the IEA. Over the past decade, Lithuania has seen several energy transitions: with the closure of its only nuclear power plant (the two Ignalina reactors were closed in 2004 and 2009), Lithuania has moved from its position as a net exporter to a net importer of electricity. Since then, the share of imports of electricity, natural gas, and bioenergy has increased. Today Lithuania imports more than 70% of its electricity needs, while bioenergy is playing a key role in the energy supply. Most cogeneration (combined heat and power production), district heating, and residential heat have gone from natural gas to biomass. Since Lithuania regained its independence, its energy revolution has consistently placed an emphasis on security, and the 2012 National Energy Independence Strategy, updated in 2018, reflects these key objectives.

Until 2030, policies and measures are well-identified within the Integrated National Energy and Climate Plan (NECP), adopted and presented to the European Commission at the end of 2019. The NECP sets ambitious medium-term targets and the actions needed to achieve them, while the EU Green Deal promotes new actions in favor of climate neutrality by 2050, where EU leaders have agreed to reduce emissions by 55% by 2030. By 2023, Lithuania, like all EU countries, will have to report on the progress made in implementing its NECP and provide an updated ICP by 2024, which will reflect national progress and increased climate and energy ambitions at the European level. In this scenario, the Vilnius government had reached the renewable energy target for 2020 as early as 2014 and had sold the excess credits to Luxembourg. Looking to the future, authorities aim to achieve a share of renewables of at least 45% in final energy consumption by 2030 and 80% by 2050. These levels of renewable energy will require action to manage the security and flexibility of the energy system, as well as compliance with EU sustainability requirements. Recent auctions have confirmed the interest of investors in Lithuania, favoring public purchase agreements over subsidies.

Cogeneration and heating remain the best ways to increase energy efficiency, advance renewable energy, and connect heating with electricity. Lithuania is well placed to make the most of this ‘sectoral coupling’. In support of the 100% renewable electricity target by 2050, the government is encouraged to design a long-term renewable energy strategy, analyzing end-use electrification, in particular heat, and an assessment of systems integration needs across all sectors. About 75% of the heat is produced by the combustion of woody biomass, of which the largest share is collected on the national territory, with some imports coming from the Baltpool regional platform. Imports of woody biomass from Belarus have increased due to major deforestation in that country. Modern bioenergy can play an important role in maintaining low carbon emissions, balancing variable electricity generation, mainly wind and solar, and will remain important to match peak load capacity, especially for cold winter days. Biofuels are also key to reducing emissions in the transport sector. In this case, the IEA encourages Lithuania to introduce an annual vehicle tax, create the Sustainable Mobility Fund, phase out tax exemptions (e.g. agricultural operators from the environmental pollution tax) and update excise duty rates in line with carbon content. It is precisely in this direction that the Lithuanian Government has shown leadership in the transport sector with the adoption of the Alternative Fuels Act in March 2021.

Important institutional reforms have taken place in the Lithuanian energy sector since the creation of the Ministry of Energy in January 2009, and most recently as part of its membership of the OECD in 2018; As a result of the reforms, independent gas and electricity system operators have been created, broken down by supply activities. Lithuania has made progress in gradually opening up its electricity and gas markets; However, among the security concerns, the share of state ownership has increased in recent years: this may lead, on the one hand, to barriers to entry for private operators into the gas/electricity markets, and on the other hand the state guarantee for energy companies so that they can make the necessary investments in clean energy. In this context, it is good that Lithuania has implemented a phasing out of price regulation for residential consumers in the electricity market; however, it maintains a high market concentration in the residential gas market with regulated prices. The implementation of the NECP requires around EUR 14 billion of public and private funding in the clean energy transition: Lithuania has used significant stimulus funding, or around 10% of its gross domestic product, and, to ensure the best use of EU and national recovery funds in the medium term, economic policy plays a key role in increasing investment and allowing the private sector to take control. The government could use an auctioning system for clean energy technologies (e.g. renewable energy, hydrogen, and energy storage) and encourage private energy service companies to lead the wave of restructuring. So stimulating investment in innovation in clean energy technologies would become a new and promising sector in itself.

Amid rising geopolitical tensions in the Baltic region, energy security remains crucial. At the heart of Lithuania’s security policy is a strong renewable energy strategy, based on bioenergy and wind energy, with the aim of halving electricity imports by 2030 and zeroing them by 2050. Today, even more than independence, regional integration is the basis of energy security. Lithuania is already part of the highly interconnected Baltic-Nordic electricity markets and greater integration with the EU’s energy system is a key policy objective, with the aim of full synchronization with the European continental electricity grid by 2025. One of the main challenges for Vilnius today is to ensure that no share of electricity can enter the market of the Baltic states from Belarus, where the Astravets nuclear power plant was recently commissioned. In addition, the Lithuanian liquefied natural gas (LNG) terminal in Klaipėda has significantly reduced the country’s dependence on direct gas imports from the Russian Federation, a stated political priority for the government. Not forgetting that the terminal has improved gas market integration and lowered gas prices in the region. At the same time, a Baltic gas market is emerging, linking the region’s infrastructure and countries: the Klaipėda LNG terminal in Lithuania, the storage of gas in the Baltic in Latvia (Inčukalns) with the Gas Network of Estonia and Finland through the Balticconnector gas pipeline and with Poland through the Poland-Lithuania gas interconnection by the end of 2021. Lithuania and its neighbors have the opportunity to access global LNG and use natural gas as a transitional fuel to end the use of coal and oil in the region. Finally, as an EU Member State, Lithuania has a robust oil storage system for domestic emergencies: Lithuania’s oil stocks are well above the IEA’s minimum 90-day requirement, for a total of 173 days of net imports at the end of 2020. As part of the IEA accession process, the government reviewed the national system to participate in an international crisis response through collective IEA action and a national demand containment program. The Law on State Stocks of Oil and Petroleum Products was therefore amended in June 2020 to meet the IEA’s requirement that oil demand is rapidly reduced by up to 10% in the event of a crisis.