What are the main challenges facing solar deployment in the Baltics?

Key hurdles include competition for grid connections, capacity constraints that prevent Estonian micro‑producers from selling to the grid, limited sunlight at high latitudes, suitable land not being well connected to the grid, limited investment and financing, and evolving regulations that complicate grid connection.

What incentives and policies support solar in Estonia, Latvia, and Lithuania?

Estonia offers a premium tariff for renewable producers; Latvia provides a feed‑in tariff for solar power; and Lithuania has a net metering scheme allowing households and businesses to sell excess solar back to the grid. Lithuania also lifted a previous 2 GW cap on solar parks.

Why is the Baltics’ exit from the BRELL agreement significant for the power system?

Exiting BRELL and synchronizing with the Continental Europe Synchronous Area reduces the risk of Russian disruption to electricity supplies and enhances energy security, though it increases exposure to Nordic and Central European price fluctuations.

How are Baltic power prices and solar capture prices expected to evolve through the 2030s?

Prices are expected to drop in all three states until 2030 as gas markets rebalance, with growing renewable build‑out. Solar capture prices will decline until the 2030s, then improved system flexibility will reduce the discount to baseload prices; similar dynamics apply to onshore wind.

What are banks and investors looking for in Baltic solar project financing?

ESG is a major driver of funding, but lenders are focused on how low power prices can go. PPAs are becoming more complex and priced lower, with more merchant exposure, so banks want accurate pricing models and more predictable cash flows.

Solar Opportunities in the Baltics: Key Takeaways from Solarplaza Summit Baltics 2023

The Solarplaza Summit Baltics 2023 highlighted that despite challenges such as limited sunlight, grid capacity constraints, and competition for network connections, the Baltic states—Latvia, Estonia, and Lithuania—are poised for significant solar energy growth driven by geopolitical shifts like exiting the BRELL agreement, synchronization with the Continental Europe Synchronous Area, and policy changes including Lithuania lifting its 2GW solar cap, although substantial investments and infrastructure upgrades remain necessary to fully realize the region's solar potential.

While the Baltics is not traditionally the brightest spot on the global solar industry map, the situation is expected to change soon. Participants of the Solarplaza Summit Baltics 2023, held in Vilnius, Lithuania, identified significant challenges and possibilities in the region.

General Overview of the Baltic Renewable Energy Market

The solar industry in the Baltics (Latvia, Estonia, and Lithuania) is strongly influenced by unique geopolitical and geographical factors. One of the most critical steps for the Baltic countries is the planned exit from the BRELL agreement in 2025, which currently includes Belarus, Russia, and the Baltics.

The Baltic states are synchronized with the Continental Europe Synchronous Area (CESA), making them more vulnerable to Nordic and Central European electricity price fluctuations. However, this synchronization will prevent Russia from disrupting critical electricity supplies and promote energy security.

Lithuania recently had a government-imposed cap on solar installation projects, limiting the total power of solar parks to 2GW. After much debate, this cap has been lifted.

The Baltic countries face several challenges in adopting and implementing solar energy:

Large competition for available connections to distribution and transmission networks.
In Estonia, micro-producers cannot sell their electricity to the grid due to capacity issues. Grid investments would require €300 million, with construction taking 3-5 years. Transmission construction is more challenging than renewable energy resource build-outs due to regulation, land ownership, engineering complexity, supply chain, and other issues.
Limited sunlight: The region's high latitude means less sunlight compared to countries closer to the equator, making solar energy less effective. However, solar energy is becoming more competitive than wind.
Land is not always connected to the grid: Good land for build-outs is often used for agriculture or recreation and is not well-connected to the grid.
Lack of investment: Solar adoption is still in early stages, with limited investment and financing. Lithuania has regulations for remote solar power plants, which is a positive development.
Regulatory barriers: The regulatory framework is still developing, and connecting solar installations to the grid can be challenging, discouraging investment.

There is positive momentum as Baltic governments have implemented policies and incentives to promote renewable energy, including:

In Estonia, renewable energy producers can receive a premium tariff.
In Latvia, the government offers a feed-in tariff for solar power producers.
Lithuania's net metering scheme allows households and businesses to sell excess solar energy back to the grid.

Additionally, Lithuanian energy company Ignitis purchased a 200 MW hybrid solar-wind project in Latvia, increasing operational solar capacity. Under the European Regional and Development Fund (ERDF) and the Cohesion Fund, 839 million euros will be invested in renewable energy sources between 2021 and 2027 to increase Latvia's energy security, efficiency, and climate resilience.

Baltic Power Market Outlook and Expected Revenues

Alexander Esser of Aurora Energy Research presented an optimistic view of the Baltic power market. Key takeaways include:

Prices will drop in all three Baltic states until 2030 as gas markets rebalance. Renewable build-out will decrease Lithuanian prices relative to Estonia and Lithuania until 2030. Most current demand is covered by local generation and imports from Nordic countries.
Due to upcoming electrification of transport, industry, and heating, the Baltics will need 14TWh more electricity by 2050.
Solar production is rapidly increasing, and electricity production will also rise.
Solar capture prices will decline until the 2030s, after which increased system flexibility will reduce the discount to baseload prices. Onshore wind will face similar trends. Solar prices start below onshore but will rise above them in the 2030s. Additional solar build-out in the late 2040s and 2050s will counteract the impact of increased flexibility.

Market Opportunities and Challenges in the Baltics

Panelists in the discussion on key market opportunities and challenges, moderated by PVcase R&D specialist Algirdas Ducinskas, identified further issues:

Lithuania faces grid absorption issues for projected capacity, making smaller-scale solar projects more viable. However, the government aims to generate 9GW of additional renewable power by 2030, which cannot be met with small-scale solar alone. Achieving this requires a clear regulatory framework, especially given inflation, supply chain issues, and the fact that 65% of electricity is imported.
In Latvia, since April 1st, developers must pay a deposit to reserve grid capacity, which should clarify additional grid requirements. Latvia faces demand for a further 5GW of electricity and plans to convert many projects into solar/wind plants.
Rytis Kevelaitis, CEO of Energy Unlimited, emphasized the need for energy independence due to the ongoing energy crisis, with renewables being a key path forward.

Bankability and Investment Landscape for Solar Projects in the Baltics

Environmental, social, and corporate governance (ESG) is a major driver for banks to fund renewable projects. More than half of the European Investment Bank's investments are related to climate action. While returns on renewable energy were excellent in the past, banks are now concerned about how low electricity prices can go.

Power Purchase Agreements (PPAs) are becoming more complex, with expectations for accurate pricing modeling before project development. There is a trend toward lower PPA pricing and more merchant projects. The solar industry must improve to guarantee more predictable cash flow for banks, which remains their top priority. Tools like PVcase Yield provide accurate estimates on generated KWH and KW, helping to optimize designs, improve CAPEX and OPEX ratios, and enhance the LCOE (Levelized Cost of Energy), a key KPI for energy assets.

Summary

The challenges faced by the Baltic states are similar to those in other European markets, though on a different scale. Major obstacles include grid capacity and flexibility, supply chain issues, slow permitting procedures, and a lack of consistent legislative frameworks, incentives, and tax credits. Additionally, Russia's invasion of Ukraine has created a more urgent need to accelerate renewable project development.