NATIONAL ENERGY STRATEGY Official translation SEIMAS OF THE REPUBLIC OF LITHUANIA RESOLUTION No VIII-1348 5 October, 1999 Vilnius On the Approval of the National Energy Strategy The Seimas of the Republic of Lithuania, invoking Article 9 of the Law on Energy of Republic of Lithuania (Official Gazette No. 32-743, 1995; No. 96-2425, 1997; No 34-899, 1998), h a s r e s o l v e d: Article 1 To approve the National Energy Strategy submitted by the Government of the Republic of Lithuania (attached hereto). Article 2 To propose to the Government to prepare, without undue delay and in a consistent manner, compensatory energy and social infrastructure projects so that the long-term and substantial financial assistance provided by the European Union, G-7 and other countries and international financial institutions could be used effectively for the restructuring of the energy sector of the Republic of Lithuania. Article 3 To propose to the Government to restructure the planning and design institutions of energy and economy and to prepare, by 31 March 2000, an Action Plan for the Implementation of the National Energy Strategy, with a provision to plan decommissioning Unit 2 of the Ignalina NPP; the final decision on the shut-down of this Unit will be taken in 2004 when reviewing the National Energy Strategy. The Action Plan for the Implementation of the National Energy Strategy, which is to be developed and carried out in cooperation with appropriate international institutions, shall provide for new capacities of electricity, including potential nuclear energy capacities, replacing the RBMK- type reactor units, to be built in Lithuania by 2009. When reviewing the National Energy Strategy in 2004, due account will be taken of the effective use of the international financial assistance and its ensured continuity. Chairman of the Seimas of the Republic of Lithuania Vytautas Landsbergis APPROVED BY Resolution No. VIII-1348 adopted by the Seimas of the Republic of Lithuania on 5 October 1999 NATIONAL ENERGY STRATEGY INTRODUCTION Nine years ago Lithuania regained its independence. During this period sudden political upheaval was followed by deep, very difficult changes in all sectors of economy, including the energy sector, which in many cases were unexpected. An abrupt price rise of all primary energy resources and the loss of former Eastern markets together with other factors led to a deep decline in industry and partially in agriculture. Energy demand and production have considerably decreased. Although effort was made to soften the impact of these factors, potential of the State was rather limited. Lithuania inherited rather a modern energy sector, but with a comparatively rather high energy intensity of economy (i.e. using great amount of the final energy per unit of GDP), due to the long period of very cheap energy and thereby low incentives for energy saving and energy efficiency. To reduce the high energy intensity requires considerable investments to all branches of economy, however, under current conditions this cannot be done in a short-term period. Transition from planned to a free market economy is going more slowly and harder than it was expected. At the beginning of 1994, the first National Energy Strategy, outlining the main guidelines of the Government on the restructuring and development of energy sector, was approved for a comparatively long period – until the year 2015. Later the Energy Law establishes that the energy strategy must be approved by the Seimas and has to be revised every five years. This new National Energy Strategy revises the energy development trends established in 1994. During its preparation, significant changes in economy and energy sectors have been taken into consideration, experience and information accumulated – needed for planning and forecasting of the development of separate branches of the energy sector – have been used, and changes in the energy sector and plans for energy development in the neighbouring countries, as well as world trends have been taken into account. The strategy has been prepared: 1) by making use of the experience gained from the preparation of the first National Energy Strategy approved in 1994; 2) by taking into account the economy and energy development during the period since restoration of independence and its current state; 3) on the basis of the experience of the Western, Central and Eastern Europe; 4) on the basis of the experience gained from participation in PHARE and in other international projects; 5) by applying the guidelines of the National Energy Efficiency Programme; 6) by applying the methods of modern economic planning; 7) by using the results of the studies carried out by order of the Ministry of Economy of the Republic of Lithuania and by taking into consideration the EU pre-accession actions and Acquis communautaire. The development of the Lithuanian energy sector shall be greatly influenced not only by the internal factors. The external factors shall also have significant influence, especially during the period of the EU pre-accession process. The most distinct direction of the energy sector development in the European Union and Nordic countries is an overall and free competition, open energy market within each country and among the countries. This shall essentially influence the development of the Lithuanian energy sector and its policy and shall, therefore, require thorough preparation. These factors are assessed in detail in the new National Energy Strategy and the recommendations related to restructuring of the energy sector and energy market creation are laid down therein. 1. OBJECTIVES OF ENERGY STRATEGY Setting up the main objectives of the National Energy Strategy, the principal requirements and guidelines of the Europe (Association) Agreement, the Energy Charter Treaty and other international treaties and commitments, regarding the energy sector, as well as the principles of the energy policy formation of the EU and individual Member States were taken into consideration. The following strategic objectives of the energy sector of Lithuania have been formulated with the assessment of principal factors that determine energy policy: 1) reliable and safe energy supply with least costs; 2) energy efficiency enhancement; 3) improvement of the energy sector management and implementation of market economy principles in the energy sector; 4) reduction of the negative impact upon environment; assurance of nuclear safety requirements; 5) integration of the Lithuanian energy sector into energy systems of the European Union; 6) regional co-operation and collaboration. In order to implement these objectives in time, it shall be necessary to create appropriate legal infrastructure and institutions. This must be done within next three years. 2. ECONOMIC FORECAST The restoration of independence in Lithuania stipulated the principal change of economic system – transition to market relations. The transition period and restructuring of the economy according to its real laws were accompanied by a certain decline. In 1994 GDP made up 56% of GDP in 1990. The rising tendencies of the GDP appeared only in 1995, and in the recent years the GDP growth rate has exceeded 4% per annum (7.3% in 1997, 5.1% – 1998). Because it is difficult to make assessment of a long-term economy development and probable energy demands, three possible scenarios of the economic development have been chosen in the preparation of the National Energy Strategy: fast economic growth (optimistic), moderate economic growth (basic) and slow economic growth (pessimistic). Low growth rates of the average annual GDP increase (2% by the year 2010 and 3% in the 2011-2020 period) forecast in the slow economic growth scenario could be stipulated by a very slow pace of economy restructuring, small domestic and foreign investments, unexpected political and economic crises, etc. In this case the average annual growth rate of GDP for the period till the year 2020 would be 2.4%. The fast economic growth scenario forecasts a very fast growth rate of the economy in Lithuania till the year 2010 (with an average of 7.0% per annum), assuming that:
- a)the rehabilitation and expansion of Lithuanian industry is very fast;
- b)the policy of total development of the economy is very favourable to large investments intended for modernisation of the economy and acquisition of new technologies;
- c)during the pre-accession process support by the EU and its member states is rich and efficient. The GDP growth rate shall be 3% after the year 2010 and in this case the average annual growth rate of GDP shall be 5.2% in the 1998-2020 period. The basic scenario is based on the tendencies of the economic development that have been provided for in the moderate economic growth scenario prepared by the Ministry of Economy of the Republic of Lithuania for the 1998-2000 period, extending them to the year 2010. A common assumption of this and the other two scenarios is that after the year 2010, after the first stage of the economy restoration, the average of the GDP growth rate will be 3% per annum. According to the basic scenario it is expected that the average annual economic growth rate for the 1998-2020 period will amount to 4%. This economic growth scenario is considered to be the most probable. Real trends of the GDP growth will be clearer and forecast will be defined more precisely in 2004 during the next revision of the National Energy Strategy. 3. FORECAST OF ENERGY DEMAND The methodology of the energy demand forecasting is based on the most accurate determination of energy consumption in 1996 and the mutual relationship between the factors influencing the consumption and on the assumptions of their development till 2020. The model for analysis of energy demand (MAED) widely applied in Western countries in forecasting was used. It enabled to determine final energy consumption taking into consideration the impact of different factors on it. Energy consumption in the MAED model was specified not only by the economic sectors (industry and its sectors, agriculture, transport, service sector and household) but also by industrial processes, elements of the transport system, social needs of the population, etc. As social, economic and technological indicators were identified and mathematical description of their relationships with energy consumption was established, a sensitivity analysis of forecasts was carried out and the future energy demand corresponding to the most probable economic development scenarios was determined. GDP growth rate, structural changes in economy and increase of energy efficiency have the biggest impact on energy demand. The long-term final energy demand was disaggregated by economic sectors and by energy forms. In all these cases the energy conservation potential of the specific branches of economy was estimated. The assessment of energy conservation potential is based on the analysis presented in the National Energy Efficiency Programme approved by the Government of Lithuania in 1996. The total increase of energy efficiency is established by the reduction of energy intensity, i.e. the decrease of final energy consumed per unit of GDP. At the end of the planning period, the final energy demand would be the lowest and energy intensity - the highest in the case of slow economic growth. The highest final energy demand will be in the fast economic growth scenario, however, the energy consumption in this case will be the most efficient. In all scenarios the final energy demand in the year 2020 does not exceed the 1990 level. In the scenarios with high efficiency energy intensity will decrease at a rapid pace, and by 2020 index of energy intensity will make up only 44-47% of the 1990 level, and in the low efficiency case – 61%. In the case of the most probable basic scenario, energy demand in the household sector will decrease by 7.5% because of lower energy consumption for heating purposes. Energy demand of the trade and services sector, construction and agriculture should increase by 20-30%, and in industry and transport - by 80%. In the final energy demand by energy forms, the share of solid fuel and oil products used for heating will decrease. The consumption of natural gas is predicted to increase around 2 times, and motor fuel and electricity demand - by 1.7 times. The decrease of electricity consumption in 1990-1996 was slower in comparison to other energy forms. Lithuania, however, is lagging behind the developed European countries in terms of electricity consumption per capita. Electricity consumption may increase up to 2.4 times by 2020 (in the fast economic growth scenario), and thereby approach the level of the developed countries. In any case, final electricity demand will exceed the 1990 level at the end of the planning period. If decommissioning of both Units of the Ignalina NPP was carried out, the primary energy demand would decrease approximately by 5% due to higher efficiency of other power plants. However, in this case demand of fossil fuel will increase by 30%. This increase will be basically covered by natural gas and heavy fuel oil. 4. ENERGY SUPPLY STRATEGY 4.1 Power sector Power sector development and operation of the Ignalina NPP. The main source of electricity in Lithuania is the Ignalina NPP. Over the period of the last five years it has generated 80-85% of the total electricity production and with the lowest production cost. Total installed capacity of power plants (nuclear and non-nuclear) exceeds the present domestic requirement almost three times. Future development of the whole power sector will be greatly influenced by the operating lifetime of the two Units of the Ignalina NPP. The operation period of the Ignalina NPP will mostly depend on the achieved results on its safety and reliability, as well as the economic factors of both the internal and external energy markets. Operation of the nuclear power plant, taking into consideration Western traditions and EU pre-accession process, implies high requirements for the nuclear safety which influences the operation period of the plant. In accordance with the Nuclear Safety Account Grant Agreement, the Government of Lithuania will take all necessary measures seeking to ensure that the Ignalina NPP satisfies international nuclear safety requirements. The Government commits itself that Lithuania will completely fulfil all recommendations of the Safety Analysis Report, its Independent Review and international Ignalina Safety Panel. The Ignalina NPP has already implemented the majority of these recommendations and submitted to the VATESI detailed package of documents on the safety substantiation and the application to obtain a licence for further operation of Unit 1. Having evaluated these documents according to the national nuclear safety requirements and the requirements of international organisations, in July 1999 the VATESI issued a licence corresponding with international requirements which allows to operate Unit 1. The Government of the Republic of Lithuania undertakes to continue operating and safety upgrading of the Ignalina NPP in compliance with Western European requirements and instructions. This implies a need for both technical assistance and financial support from G7 countries, EU, bilateral donors and international financing institutions, for performance of safety analysis and implementation of investment programs for safety upgrading. Cost of electricity generated at the Ignalina NPP is presently lower than at the other existing plants as well as potential new power plants in Lithuania. However, uncertainties related to future investments needed for safety upgrade of the Ignalina NPP, a forecast relatively slow growth rate of internal electricity demand and limited opportunities for profitable electricity export complicate efficient use of the full capacity of the Ignalina NPP in the future. Expected changes in the Lithuanian electricity market will also have great influence on the operation of the Ignalina NPP. The Energy Law of the Republic of Lithuania provides for free connection of new independent electricity producers to the national electricity grid together with the establishment of open electricity market. This is related to the anticipated integration into EU energy market and will lead to the inevitable appearance of new decentralised generating capacities, especially for the combined heat and power generation, and will further decrease the possibility to operate the Ignalina NPP at full capacity. A lot of efforts has been put into safety upgrading of the Ignalina NPP and good results have been achieved in approximating its level to the international nuclear safety standards, however, a certain part of Western politicians and technical experts are of the opinion that the risks of RBMK reactors cannot be removed to such an extent that they could be safe enough for long-term operation. The opinion of the international community is important for Lithuania which prepares for the EU and NATO membership. Upon comprehensive assessment of technical, economic and political factors, the following strategy for further operation of the Ignalina NPP is proposed: in line with the Nuclear Safety Account Grant Agreement, Unit 1 of the Ignalina NPP will be closed down before the year 2005, taking into consideration the terms and conditions of long-term and considerable financial assistance from the European Union, G-7 countries and other states as well as international financial institutions. The remaining operation period of Unit 1 must be used most efficiently and in particular during the implementation of the secondary shut down system at Unit 2. Actions to be taken immediately are as follows: 1) to prepare a comprehensive program – in line with international requirements – for the final decommissioning, dismantling, radioactive waste and spent fuel management, interim storage and final disposal of spent fuel (or transference for reprocessing) of Unit 1; 2) to initiate all necessary legal proceedings for the decommissioning of Unit 1 and to harmonise appropriate Lithuanian legal acts; 3) to evaluate and clarify the costs required for decommissioning of Unit 1 and identify the sources of financing, taking into consideration foreign technical and financial assistance; 4) to prepare a development program for the Visaginas Region, taking into account the re-qualification of employees and restructuring of the sphere of industry and services; 5) to prepare a detailed program for the restructuring of the whole power sector comprising the period before and after closure of the Ignalina NPP; 6) to prepare a method for the deductions from electricity sale revenue designated for the Fund for Decommissioning of the Ignalina NPP, and radioactive waste and spent nuclear fuel management. Due to the age difference between Unit 1 and Unit 2, the issue pertaining to the conditions and precise final date of the decommissioning of Unit 2 shall be solved in the updated National Energy Strategy prepared in the year 2004, when more detailed information on the operation of Unit 2 will be available. When preparing the conditions for further operation of Unit 2 of the Ignalina NPP and before making the final decision on its decommissioning, it shall be necessary: 1) to carry out new safety analysis; 2) to prepare a new safety improvement investment program; 3) to issue a new license for operation, in compliance with the requirements of Western Europe; 4) to conduct an updated least cost analysis of the power system development, taking into consideration the development of the national and international energy markets, as well as operation and decommissioning costs of Unit 2; 5) to prepare a programme of the development of infrastructure (administrative, supervision, scientific-technical support, staff training) necessary for safe and effective operation of the Ignalina NPP. During the preparation of this Strategy, preliminary costs of the decommissioning and dismantling of the Ignalina NPP, the costs of replacing the Ignalina NPP with other power plants, as well as the impact on macroeconomics were calculated. The costs of the final decommissioning of Unit 1 and management of all waste are evaluated to approximately Lt 10.4 billion. The costs of management, storage and disposal of waste and spent fuel accumulated by the year 1999 (about Lt 8 billion) are expected to be financed from international funds and the costs from the year 2000 to be covered by increasing electricity tariffs and improving efficiency of the whole power sector. Investments in modernisation of the power sector due to the decommissioning of Unit 1, would amount to approximately Lt 2.8 billion by the year 2020. Financing should be carried out from international loans which are repaid from electricity sale revenues. The impact of restructuring of the industry and labour force of the Visaginas region is not yet specifically evaluated, but possible financing from EU structural funds combined with some financing from the State Budget is estimated to be capable of covering the expenses of creation of new working places, investments and economic development in the region. The total negative consequences of the decommissioning of Unit 1 on the national economy preliminarily estimated by using various macro-economic models, may make up to Lt 40 billion. Assessment of this calculation is expected to be clarified in the nearest future, using the more comprehensive initial information. Possible financing through credits, grants and soft loans has already been announced by the EU, international funds, international financing institutions, bilateral donors and commercial investors. Depending on available financing from G-7 countries, EU, international funds and other financing sources, the total impact of decommissioning of Unit 1 on the national economy may be reduced considerably. The further operation of Unit 2 of the Ignalina NPP would also help to gradually accumulate more funds necessary for the final decommissioning of the power plant. Therefore all necessary costs needed for the further operation of the Ignalina NPP, decommissioning, waste management and their final disposal, and investments in new power plants must be calculated in accordance with anticipated pricing principles. Capacity balance. Upon decommissioning of Unit 1 of the Ignalina NPP, the existing capacities will meet the national demand up to the year 2020 in all cases of internal demand growth only if the Lithuanian Thermal Power Plant (TPP) is maintained and refurbished, and the part of its units upgraded to the combined cycle gas turbine technology. In this event the balance of generation and demand in the year 2020 would be positive, ensuring export potential of 3-5 TWh. Modernisation of existing combined heat and power plants and construction of new ones would further increase this potential. Use of the existing capacity. In addition to the Ignalina NPP, Vilnius CHP-3, Kaunas CHP (combined heat and power operation mode) and the existing hydro power plants will be operated. With at least one Unit of the Ignalina NPP in operation, and with limited profitable export available, the Lithuanian TPP will serve only for meeting demands of reserve capacity and manoeuvre capacity. It is also expedient to keep the Kruonis HPSP not only in a regime of daily regulation but also in a regime of weekly regulation, however, its role in the Lithuanian power sector will depend on the course of implementation of other international projects (the Baltic Ring, electricity transmission line to Poland, etc.) and the volume of electricity export. Future power plants. Performed technical-economic analysis shows that should new capacities be required, CCGT CHP, small CHP with gas-fired internal combustion engines or gas turbines and a new combined cycle gas turbine (CCGT) would be the cheapest source of electricity generation after the refurbishment of available thermal power plants. Taking into consideration the situation in fossil fuel market, the construction of the cascade of hydro power plants on the Neris river and on the middle track of the Nemunas river may be justified. However, environmental, land ownership, monument protection and other requirements will restrict the possibility of constructing these hydro power plants. In addition, the total capacity of these hydro power plants is only 170 MW, therefore, their impact on the capacity balance is not significant. The Lithuanian TPP is designed to burn various kinds of fuel (gas, heavy fuel oil and partially orimulsion), and it does not depend on any single source of fuel. Therefore, the Lithuanian TPP will, within the next ten years, serve as a reliable source of half-peak energy, capacity reserve and in the future as a source of basic energy too. The final choice of generating source replacing Unit 1 of the Ignalina NPP will determine a revised least cost analysis and evaluation of other economic, financial and environmental aspects. Development of national electricity grid. Integration of Lithuania into the European Union and closer co-operation with other Baltic, Western and Northern European states require changes in the structure of the national electricity grid, especially in developing systems of dispatch monitoring and modern departmental communications. It is important for the Baltic States to prepare a new scheme of the high voltage grid and to plan a sequence of actions and financing sources. Electricity export. Taking into account the economic significance of efficient utilisation of all available capacities the following options are important: 1) in the nearest future it is economically expedient (ensuring payment) to maintain traditional electricity export via available transmission lines to the North and the East; 2) the electricity export from the Lithuanian TPP in the future may be economically expedient during half-peak and peak energy demand; 3) the construction of an electricity transmission line westwards is necessary for the connection to the European electricity grid and integration into the European power market. In order to ensure the reliability of electricity supply, the following measures are necessary: 1) maintaining the existing potential of the power plants at the required technical level, gradually adapting it to the requirements of the market economy, and introducing instant measures for balance regulation; 2) reconstructing and updating physically and morally obsolete electricity transmission and distribution networks to meet the increasing demand as well as reliability and quality requirements of electricity supply; 3) continuous improvement of safety and reliability of the Ignalina NPP in accordance with international requirements; 4) expansion of the spent fuel storage; 5) accumulation of nuclear fuel reserves for the Ignalina NPP; 6) co-operation with neighbouring countries to ensure the reserve capacity; 7) creating a possibility to accumulate bigger amount of energy in the upper basin of Kruonis HPSP (completion of heightening of the basin walls); 8) construction of a powerful connection with Poland to integrate into the power system of Western European countries, thereby ensuring reliability of the Lithuanian power system operation and gradually reducing dependence upon the Russian power system; 9) strengthening of the co-operation with the Baltic and Northern European states, creation of a common electricity market, reducing dependency on Russian power system and optimally utilising the power potential of the countries; 10) preparation in conjunction with Latvia and Estonia of the new high voltage grid scheme of the Baltic states, more adopted for the integration into the grid of Western and Northern Europe and allowing better utilisation of available generating capacities for the satisfaction of the demand of the three countries. Least cost power supply for Lithuania would be obtained by: 1) optimal utilisation of the Ignalina NPP and Kruonis HPSP capacities and rational use of Vilnius and Kaunas CHP plants in a combined heat and power regime; 2) optimal co-operation with Estonia and Latvia, and, as provided, integration and co-operation with Western European power companies; 3) implementation of active electricity export and transit policy; 4) improvement of the pricing system; 5) immediate (by the year 2001) completion of the restructuring of power sector, preparing it for the operation in the free market conditions and separating the activities of electricity generation, transmission and distribution. 4.2 Heat Supply Sector The heat supply sector is facing serious economic and technical problems. They can be solved efficiently only in the context of the general strategy of the Lithuanian energy sector. When solving the problem related to the supply of heat for Lithuanian consumers, the main strategic guidelines in the field of technical policy would be the following: 1) district heating systems using natural gas must be gradually equipped with combined heat and power plants capable to generate electricity, the price of which could be competitive with the cost of electricity produced by the Ignalina NPP; 2) in case of the accumulation of large quantities of combustible waste, such waste should – provided it is economically feasible – primarily be used for the generation of heat to diminish fuel imports and to solve waste storage problem. Possibilities of using it for the combined heat and electricity generation must be separately assessed in each specific case; 3) metering equipment must be installed in all sections of the district heating system, enabling accurate assessment of the heat production volumes, the transmission and distribution losses and the amount of heat supplied to the final consumer; this should change behaviour of heat consumers; 4) to upgrade steadily the district heating systems, to provide the consumers with possibilities to regulate their heat consumption; 5) to promote modernisation of the existing district heating systems and to justify economically the selection of heating mode and fuel used. In the field of management and pricing policy, the main guidelines are as follows: 1) independently of the form of ownership of the heat supply systems, the main indicator of efficiency of the activities and the source of profit must be the reduction of losses and increase of quality of the services provided rather than the increase of heat generation; 2) to promote the establishment of energy service companies; 3) to create conditions stimulating the interest of consumers to improve the heat sector and giving them the possibility to influence its technical and economic policy; 4) the policy of the heat tariff and pricing system must stimulate the modernisation process in the heat sector; 5) first of all to define the pricing principles for energy produced at CHPs and to establish the electricity purchasing procedure for these plants. Taking into consideration local area specifics, small consumers situated at some distance from district heating systems and gas pipelines, where connection to the said systems is not economically justifiable, would use: 1) oil products; 2) fire wood, wood waste, straw and peat; 3) coal; 4) electricity. The relative share of these energy sources will depend on their market prices, purchasing power of consumers, prices of heating appliances, etc. The State will promote competition between fuel suppliers, also between producers and suppliers of heating appliances. 4.3 Natural Gas Taking into consideration the existing technical means of gas supply in Lithuania and the environment protection requirements, natural gas is the most progressive kind of fossil fuel. Natural gas use in Lithuania is not limited by supply both at present and in the nearest future. As it is the most likely that the natural gas will be supplied from a single source (Russia) during the next 5-10 years, in order to ensure the reliability and safety of supply, the following measures will be taken: 1) promotion of the development of gas transmission network and gas transit via the territory of the country; 2) further investigation and later the construction of the underground gas storage; 3) preparation with the other two Baltic States and implementation of the project for interconnection with the gas networks of Poland and Finland; 4) promotion of natural gas as environmentally sound fuel replacing the high sulphur HFO. The modernised district heating systems and combined heat and power plants are the most prospective consumers of natural gas. The natural gas network will be developed taking into account: 1) balances of consumed primary energy resources; 2) environmental situation in a specific locality; 3) economic justification; 4) guarantee of reliable supply; 5) economic expediency to increase the consumption of natural gas. Consumers with low fuel demand are recommended to use liquefied gas as an environmentally sound fuel. In order to assure the reliability of liquefied gas supply, modern technologies are to be introduced and the reserves of liquefied gas are to be accumulated by enterprises that are responsible for supply and import of liquefied gas. In the natural gas sector costs related to the supply, transmission and distribution of natural gas must be separated. 4.4 Oil and Oil Products The sector of oil and oil products will be further dependent on the import of oil and partly of oil products. It is forecast that: 1) the share of oil products consumed for production of other kinds of energy will decrease and at the end of planning period will make up about 20-25% in the primary energy balance; 2) oil products will remain as the main reserve fuel for the thermal power plants and large district heating systems; 3) the consumption of light fuel oil will mainly increase in the transport sector and in the year 2020 will amount to about 2.0 million tonnes per year. The demand for light fuel oil will be entirely satisfied by the infrastructure of transportation, processing, storage and distribution. Indigenous oil resources are not rich. It is being recommended to carry out the exploration of indigenous oil by attracting the funds of investors. In the coming years, it will be attempted to keep the oil production level of 0.3-0.5 million tonnes per year by organising oil production tenders and state supervision for oil production. The following projects will be implemented which will enable the use of alternative sources for the supply of oil and oil products: 1) completion of reconstruction of the Klaipeda oil terminal and completion of construction of the Butinge oil terminal; 2) projects enabling supply of oil products by railway through the territory of Poland. A reliable and safe storage of oil product reserves is one of the most important aspects of oil sector activities. The capacity of storage reservoirs, already existing or under construction in Lithuania, is sufficient in order to assure stable and reliable operation of light fuel oil and heavy fuel oil market and to store the state oil reserve. In order to diminish the dependence upon a single fuel source and to increase diversification of fuels, the use of middle distillates by small consumers will be promoted. For this purpose the excise duty will not be applied to middle distillates. The quality requirements for oil products will be gradually made stricter; the permissible sulphur content in the heavy fuel oil of domestic usage will be reduced. From the year 2005 the production and use of oil products, which do not meet the standards of the European Union, will be terminated. The promotion of environmentally more sound fuels utilisation – low sulphur HFO in industry and energy sector, middle distillates in the household and service sector, will be promoted by introducing and improving taxes on natural resources and environmental pollution. Seeking to ensure reliable supply of oil products for the national economy, a 90-day stocks of oil products will be accumulated. The procedure for accumulation and usage of stocks will be changed in stages. Necessary legal acts will be prepared. The enterprises engaged in oil production, import and wholesale of oil products will have to join the process of stocks formation. The following measures are foreseen in the formation of the state stocks of oil products: to impose the reserve duty or to enable the enterprises to accumulate reserve on their site. To fulfil the function of national defence, oil stocks financed by the State will be accumulated. The State will establish the procedure for the regulation of oil product market in the emergency cases. A competitive and free market will be further developed in the oil sector. 4.5. Indigenous, Renewable and Waste Energy Sources Following the guidelines of the European Union and seeking to reduce the volume of fuel import, to use local resources as much as possible, as well as to create new working places, Lithuania will seek to further increase utilisation of indigenous energy resources by: 1) economic, legal and organisational measures promoting the use of wood, municipal and agriculture waste and other kinds of indigenous fuel; 2) a wider utilisation of other energy resources (hydro, waste energy, biogas, municipal waste, wind, solar and geothermal energy), on the basis of the experience gathered and generalised in pilot projects supported by the State as well as funded by foreign investors; 3) seeking that energy generated by renewable resources will by the year 2020 form a share corresponding to the directives of the European Union. 5. IMPROVEMENT OF ENERGY EFFICIENCY Because available indigenous energy resources are not sufficient, the efficient use and conservation of energy resources are the basic elements of the National Energy Strategy. When implementing and periodically revising the National Energy Efficiency Programme, the main directions of the activities shall be as follows: 1) improvement of legal and statutory acts; 2) introduction of modern technologies and energy conservation measures; 3) introduction of a pricing system stimulating energy conservation; 4) creation of favourable conditions for investments in the energy conservation field; 5) strengthening of scientific, informational and educational activities. To implement the energy resources conservation goals, an Energy Conservation Law has to be prepared in the near future. The established Energy Conservation Fund, local and foreign investments and foreign donations should be efficiently used for the financing of energy efficiency programmes, for the implementation and development of measures related to use of indigenous, renewable and waste energy resources. In order to achieve these goals, the following is necessary: 1) regular accumulation of assets for the Energy Conservation Fund, ensuring the targeted use of the assets; 2) better utilisation of additional possibilities arising from investment allowance; 3) promotion of the domestic production of energy saving devices; 4) preparation of specific programmes of actions for each branch of economy with concrete financing schemes. 6. ENVIRONMENTAL PROTECTION Lithuania will follow the requirements of international environmental conventions, the Fifth EU Environmental Action Programme, the Lithuanian Environmental Strategy, the Strategy for Approximation in the Environment Sector, the requirements of the National Implementation Strategy of the United Nations Framework Convention on Climate Change. The main environmental directions for the energy sector in the near future are as follows: 1) well balanced structure of primary energy supply with increasing share of natural gas and renewable energy resources; 2) safe operation of the Ignalina NPP, continuously implementing safety improvement measures which are recommended in accordance with the present and future safety analysis reports for the Ignalina NPP and by international experts; 3) improvement of radioactive waste management processes and reconstruction of storage facilities of radioactive waste in compliance with international requirements; 4) development of measures for the reduction of SO2 and NOx emissions; 5) further development of the environmental auditing system; 6) implementation of cheap emission reduction measures into energy generating sources; 7) further improvement of legal acts; 8) stimulation of the use of environmentally sound fuel and promotion of the implementation of pollution reduction measures; 9) installation of stationary pollution monitoring systems in the major thermal power plants and boiler houses; 10) introduction of measures for pollution reduction in the energy sector, taking into account the general situation of the national economy; 11) assurance of the environmental regulation in the energy sector by assigning the priority to the economic levers; 12) further improvement of environmental taxes system seeking to assign certain amount of gathered funds for the implementation of pollution reduction measures; 13) improvement of pollution control systems in industry and energy units; 14) integration of pollution damage caused by polluting oil products in the energy production costs; 15) balanced utilisation of state supported fuels taking into consideration pollution taxes. 7. TRAINING OF SPECIALISTS AND SCIENTIFIC RESEARCH Changes of management principles and ownership forms in the energy sector, introduction of the universal energy accounting, emergence of new technologies, introduction of the basically new systems of information, control and regulation require employees with quite different professional education. Their present training lags behind the rapidly changing needs of the energy sector. The reorganisation of the Lithuanian energy sector can be burdened and the reforms can be slowed down for a long time if necessary specialists will not be prepared in due time. Therefore, it is proposed to prepare the programme for education of the specialists for energy sector taking into account the experience of similar type of education gained in Lithuania and foreign countries. This programme provides for: 1) bringing of training programmes and education facilities at technological universities in line with the new demand; 2) measures for promotion of education and training of lecturers and professors; 3) optimise the amount of students in order to satisfy future demand; 4) measures for the re-qualification of older specialists; 5) financing sources for the essential renovation of the educational base. It is necessary also to have the structures of scientific research, design and consultative service institutions in order to modernise the energy sector, to utilise resources of the country, to extend services to the energy consumers and suppliers, to maintaining the potential of high education, since the services of foreign experts would be too expensive. In this field the State will promote establishment of private institutions. The priority fields of scientific research which require specific support and obligations of the Government are as follows: 1) safety of nuclear energy, reliability and durability of energy equipment, ageing of constructional materials; 2) management, storage and disposal in the deep geological structures of the spent nuclear fuel and other radioactive materials; 3) energy conservation and energy efficiency, environmental protection aspects of energy; 4) technologies of utilisation of renewable, indigenous and waste energy resources; 5) small CHP plants including electrochemical fuel elements; 6) energy economics, optimisation of the design and management of complex systems, optimisation of technological processes and their control; operation of energy systems in the competitive market; 7) operation of electricity, oil and gas sector equipment; 8) informatics in the energy sector. 8. MARKET LIBERALIZATION AND COMPETITION Further liberalisation of the market and creation of cost effective energy sector are the main instruments for the implementation of the principles of the National Energy Strategy. Legal acts related to the energy sector will be further prepared and approximated to the Acquis communautaire to make favourable conditions for the integration of the energy sectors into the EU internal market. When carrying out the legal and institutional reform policy, it is recommended: 1) to improve legal acts regulating the activities of the energy sector, to prepare and adopt laws for the separate energy sectors (electricity, gas and district heat) which would provide for the regulating structure and principles for these sectors; 2) to guarantee the establishment of relevant institutions or the reorganisation of the existing institutions which would regulate and ensure efficient management of the energy sector and the implementation of market principles; 3) to reduce Government’s influence on energy enterprises, instructing it to solve the strategic issues related to energy planning, development and regulation; 4) to continue further restructuring the energy sector seeking to increase its efficiency and reliability, reducing energy production costs; 5) in the power sector to implement immediately separate accounting system for generation, transmission (setting the transparent transmission tariffs) and distribution, gradually separating the generation, transmission and distribution; 6) to continue privatisation of energy units, to stimulate local and foreign investors to participate in modernisation and reconstruction of energy units; 7) to carry out privatisation in stages, taking into account the specific features of each energy sector and each unit, as well as the interests of the State. In the strategic energy units the role of the State will prevail; 8) high voltage electricity transmission grid with the main regime controlling devices including Kruonis HPSP, Kaunas Hydro Power Plant must remain under the State control; 9) to pursue the transparency of energy prices necessary for the creation of market conditions between consumers and producers; 10) starting from the year 1999, to gradually separate energy activities into monopolistic and competitive with the different principles of management; when it is economically expedient, to promote and maintain efficient competition in regulated energy activities; 11) to prepare and to apply pricing methodologies for energy suppliers based not only on the costs of supplier, but also on the efficiency of activities of suppliers and consumers, on the objective co-ordination of their interests, on the change of fuel prices and inflation rate; 12) to decline subsidies, to ensure that regulated prices of energy resources would correspond to market conditions and would reflect economically based costs; 13) to implement social policy through social security programmes and state institutions independent of the energy pricing and energy companies; 14) to ensure the freedom of fair competition for all market participants; 15) to introduce market permissions (concessions) for the energy generation and distribution companies; 16) to develop the co-operation between Baltic and Northern European states in the energy sector and to strive for integration into Western energy markets. FINAL CONCLUSIONS The presented revised National Energy Strategy reflects the main targets of the State and directions of their implementation by modernising the energy sector, adjusting it fully to the growing State demands and the most recent international requirements in aspects of efficiency, reliability, environmental and management improvement. Already in the first stage of implementation of this Strategy, Lithuanian energy sector will completely satisfy the requirements of the European Union and will be capable to join the common European energy structure. For the implementation of the guidelines of the Strategy, the Government of the Republic of Lithuania must prepare the Programme of Action, indicating concrete terms of their implementation, sequence of activities, their financing volumes and sources, and concrete implementing institutions.