Date: 14 May 2024

Navigating the Energy Transformation in the Three Seas Region: Current Trends, Future Challenges, and Emerging Opportunities

The Three Seas Initiative is a regional cooperation project that seeks to increase investment and capital flows in the region, especially in the energy sector. However, the initiative still has to overcome several energy challenges such as upgrading the outdated infrastructure, ensuring a fair and inclusive transition to a low-carbon economy, harmonizing the legal frameworks among the member states, and meeting the EU’s high climate standards. During the political transition, these countries prioritized economic and political reforms over energy challenges. In the 1990s, only the Western countries, thus those outside the Eastern bloc, made significant progress in the energy sector. The production of a unit of GDP in many countries of the Three Seas Initiative has been more costly than in Western Europe. Therefore, these states are striving to align their economic and energy policies with the EU standards. 

SOURCE: threeseaspartnership.com

The Three Seas region is a group of countries that vary in geography, climate, economy, and economic resources. Each of them uses different sources of energy and emits different amounts of greenhouse gases. To show how diverse the Three Seas region is, let us look at some of the countries in this group. Lithuania relies mainly on gas, biofuels, and renewables, and seeks to diversify its energy sources. It has no intention to build nuclear plants shortly, though. Similarly, Estonia’s parliament adopted a renewable electricity target of 100 percent by 2030. Contrary to what it may seem, Hungary’s energy system has a relatively low carbon intensity. The country relies on coal for only about a dozen or so of its energy mix. State authorities plan to increase their use of renewable energy sources and invest in new nuclear reactors at the Paks power plant. Hungary increased its solar power capacity by nearly 1 gigawatt in 2022. The Czech Republic is also phasing out coal and expanding its nuclear energy sector to secure its energy independence.

The Three Seas countries and other Central and Eastern European nations are undergoing a fast energy transition, driven by the EU’s stricter climate policy. Diversifying energy sources became more important after Russia invaded Ukraine in February 2022. As the Kremlin’s influence in the region has weakened over the past two years, energy prices have risen, especially for fossil fuels that were once largely imported from the east. One thing is certain: the region is undergoing a transformation that will involve reducing its reliance on fossil fuels.

The region has a lot of scope for developing renewable technologies, even though coal and gas have been and still are the main sources of energy for many of its economies. Offshore wind power plants are very feasible for the countries on the Black Sea and the Baltic Sea. Northern countries like Poland and the Baltic states can invest in both offshore and onshore energy, even though they use different types of energy sources. Conversely, countries like Slovenia, Romania, and Hungary, which are situated in the central-southern region of the Three Seas, are known for their significant potential in producing solar energy. The advancement of renewable energy sources is crucial for the Three Seas Initiative because it can help mitigate the continuous increase in energy costs. In the journey of energy transition, particularly for economies heavily reliant on coal, gas serves as an excellent bridge fuel. This is evident from the investments made by countries in the region, such as the doubling of the LNG terminal capacity in Croatia, the construction of the FSRU terminal near Gdańsk, and the expansion of the Polish LNG terminal’s capacity from 5 to 8.3 billion cubic meters annually.

Without a doubt, the year 2030 will be a significant milestone for Europe in terms of both political and climate-related developments. In the political sphere, there is a growing discussion within the EU forum about plans to extend the union by incorporating a country from the Western Balkans. In terms of climate and energy policies, 2030 marks the completion of certain frameworks established by the European Union. Indeed, it is important to acknowledge that within a strict framework, certain countries may struggle to meet their individual objectives. Indeed, if we expand our view beyond just the Three Seas countries, and if the economic and energy development in Central and Eastern Europe continues at its current pace, with transformations that are equitable and customized to each economy, we could anticipate a significant increase in the capacity of wind and solar power plants in this region. The capacity could rise from the current 35 gigawatts to 196 gigawatts by 2030. This increase could potentially reduce energy prices by up to a third and enable the export of up to 20 gigawatts of electricity post-2030. In 2022 alone, the total capacity of solar and wind power plants in Central and Eastern Europe saw an increase of less than 30 percent. This suggests a potential for this trend to continue, further contributing to the region’s energy development and transformation.

There is a clear political desire for transformation within the energy sector in the countries involved in the Three Seas Initiative. It is important to note that in the Central and Eastern European region, political support is significantly influenced by energy prices. This, in turn, affects the stance of individual governments towards investments in the energy sector. The Baltic states have set a goal to disconnect their energy systems from the Russian grid by 2025. Following this, they plan to subsequently connect to the continental European grid. Indeed, Latvia and Estonia are also participating in the development of offshore wind farms. Another noteworthy example is the collaboration between Hungary and Romania, along with Azerbaijan and Georgia. They have signed a memorandum to develop an underwater electric cable that will run through the Black Sea. The investment is intended to bolster the export of energy to Europe. Hungary is a country that has significant geothermal potential. As a testament to this, the first geothermal power plant was connected to their national grid in late 2017. An excellent illustration of future collaboration is the proposal by Romania and Bulgaria to construct a shared energy island. For Poland, which has an economy heavily reliant on coal, there have been numerous investments and strategies developed in recent years. The goal of these initiatives is to attain energy independence and ensure a stable supply of natural gas to the Central and Eastern Europe region. Several significant projects stand out, including the Baltic Pipe, the enlargement of the LNG terminal in Świnoujście, the introduction of a new FSRU terminal, the development of nuclear reactors in collaboration with the United States and South Korea, and the implementation of small modular reactors (SMRs).

The success of the energy transition not only relies on top-down decisions but also significantly depends on the collaborative efforts of the private sector, the public sector, and the general public. An excellent illustration of public involvement is the widespread support for the „My Electricity” government program in Poland. The initiative aimed to offer a co-funding sum of as much as PLN 5,000 for the setup of solar panel systems in domestic houses. The considerable interest shown by the beneficiaries led to the construction of close to 10 gigawatts of photovoltaic energy between 2020 and 2023.

The partnership within the Three Seas Initiative is consistently progressing and it is undeniably a framework that deserves consideration, especially in the light of the current geopolitical system. Moving forward, the significance of investments in interconnectors cannot be overstated. Such investments will facilitate the delivery of electricity, produced from offshore wind energy at sea, to areas of demand. This calls for, among other initiatives, the deployment of bridging systems and the expansion of cross-border networks to harness the advantages. In addition, the transition of many countries to nuclear energy can benefit others. This is because nuclear power stations in a particular country can have a substantial impact on the regional energy composition, especially through grid interconnections.

References:

1.     H. Fox, P. Czyżak, In it together: the road to a cleaner, cheaper CEE power system, May 15, 2023, https://ember-climate.org/insights/research/in-it-together-cee-power-system/.

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