Joint Baltic 1GW offshore wind farm set to weigh on prices

Estonia and Latvia’s planned 1GW Gulf of Riga offshore wind farm could be Europe’s first cross-border project of its kind and pave the way for future co-operation in large-scale offshore renewable capacity. On 30 July, the Estonian economic minister Taavi Aas signed a memorandum of understanding to co-operate with Latvia on the new development, which is expected online by 2030. Adding 550MW of offshore capacity to our ICIS Power Horizon model indicates Estonian and Latvian prices would drop by EUR 2.85/MWh and Lithuanian by EUR 2.59/MWh from 2027-2030.

Joint project

  • On 30 July, the Estonian government approved the signing of a memorandum of understanding to cooperate with Latvia on the 1GW Gulf of Riga offshore wind farm. The Latvian government is expected to send their approval soon
  • The wind farm is politically strategic since it would help reduce reliance on Russian electricity imports, which accounted for 19% of Baltic consumption in 2019, according to Nord Pool exchange data
  • The three Baltic states aim to de-synchronise from the Russian power grid by 2025, switching to the frequency of the continental European network instead
  • This Estonian-Latvian offshore wind park will compete with the Lithuanian 700MW planned for 2028 to become the first one built by the Baltics
    • Out of around 22GW of EU offshore capacity, only 2GW is installed in the Baltic Sea, dominated by Germany and Denmark, according to Wind Europe
  • Moreover, it could be the first offshore development realised by two individual countries together


  • The two Baltic states’ plan to cooperate is likely influenced by new financing possibilities available through the EU’s Connecting Europe Facility
    • In the 2021-2027 phase, the EU has set aside a €7.7bn budget for energy with 15% secured for cross-border renewable projects
    • Member states could benefit from up to 50% of the costs of studying and preparing new linked capacity or 75% in situations where the project would strongly improve supply security
    • As the wind farm would have to register as a Project of Common Interest (PCI) to apply through the scheme, ministers aim to start an application for funding when Latvia has given its approval

Political developments

  • Estonia
  • Estonian authorities have recently shown renewed political motivation to support the sector
    • In 2019, the government started the permit process for three offshore wind projects
    • This includes a 1GW farm led by Estonian state-owned utility Eesti Energia under their Enefit arm. Also located in the Gulf of Riga, it could be joined to the new Estonian and Latvian development, according to the utility
    • A cable joining the Enefit and the Estonian-Latvian farms would boost their chances of being commissioned as shared grid infrastructure could be more efficient and help lower costs
  • Previously, Estonian offshore developers have come into conflict with defence ministry restraints due to potential radar interference, leaving many proposals stagnating in the permit and feasibility stages for years
  • Since the Gulf of Riga project would be under the planning of both Estonian and Latvian governments and could obtain EU subsidies, it may not receive as much resistance on security grounds, increasing its likelihood of being finalised
  • Latvia
  • The Latvian government has shown a lack of motivation to pursue offshore wind energy as a strategy, with two planned wind farms having previously faced an unfavourable regulatory environment
  • Clearing up historical overpayments to RES projects has halted the economy ministry’s drive to support new capacity growth
  • Lithuania
  • The Latvian and Estonian ministries did not specifically discuss involving their Lithuanian counterpart for the Gulf of Riga project, a spokesman for the Estonian ministry confirmed. However, EU National Energy and Climate plans highlight other chances to cooperate across their different borders
  • Lithuanian national parliament elections are due in October, and the Energy Ministry will try to progress the offshore wind legislation before then
    • Most likely, however, it will be the new government and parliament that will need to pick up the offshore wind agenda after the elections


  • In our Power Horizon modelling, we divided the 1GW offshore wind capacity evenly between the two countries: adding 50MW to a previously forecast 450MW wind farm in Estonia and 500MW to Latvia, where we previously forecast no offshore wind until 2030
  • We assumed an average capacity factor of 44%; the wind farm could produce 3.8TWh of extra renewable production, which is enough to cover 13% of Baltic consumption by 2030
  • With more renewables, Latvian gas-fired generation falls by an average 0.3TWh and it can hold on to its net exporter position from 2028-2030, whereas our June 2030 base case forecast showed it would turn to imports
    • Other production sources are unchanged in Estonia and Lithuania, as a lack of cheaper domestic supply means they are forecast to remain import-dependent
  • Cross-border trade

Source: ICIS

  • Trade dynamics within the Baltics adjust to reflect the new supply source, with Lithuania mainly benefitting by receiving an extra 1.6TWh from Latvia
  • Higher wind output lessens flows from the Nordics from 2027-2030, the model results show
    • Lithuania’s Swedish imports via the 700MW NordBalt cable would fall by an average 0.8TWh
    • Finnish supply to the region through Estonia would decline by an average 1TWh, with Finnish nuclear operating at reduced load and output down 0.1TWh by 2030
  • Prices

Source: ICIS

  • A high degree of interconnection means the Estonian and Latvian market and capture prices are forecast to stay equal. An additional 600MW link due later this year will boost cross-border capacity from the present 880MW towards Estonia and 1GW towards Latvia
  • Estonian and Latvian offshore developers could earn an average EUR 52.3/MWh from 2027-2030 under the ICIS Power Horizon base case
    • The extra low-cost generation would cause an average EUR 2.85/MWh price drop in both countries (and EUR 2.59/MWh for Lithuania)
  • As the Baltics benefit from higher domestic generation, reduced exports to Estonia mean we expect Finnish prices would fall by EUR 1/MWh

Next steps

  • Latvia is due to sign its side of the agreement in the coming weeks. The authorities can then prepare an application for CEF support, according to the Estonian ministry
  • Environmental impact assessments for the area will be finished in 1-2 years to select an appropriate site, and following that a tender will be organised

This story has originally been published for ICIS Long-Term Power Analytics subscribers on 25 August 2020 at 14:56 CET.