Estonia, Latvia and Lithuania, countries nestled between the Baltic Sea to the west and Russia to the east, are late movers in Europe's offshore wind build-out.

But the invasion of Ukraine in 2022 has strengthened commitments to energy independence and with it the drive to move faster on offshore wind.

Still connected to the Russian power grid, the three Baltic states have pledged to decouple in 2025.

Estonia and Latvia have both pledged to meet 50% of their final energy consumption with renewables by 2030, but Lithuania is expected to have wind turbines installed in its waters first, S&P Global Commodity Insights data showed.

The country, which borders Poland, Belarus and the Russian enclave of Kaliningrad, said offshore wind will help it reduce dependence on electricity imports and achieve full self-sufficiency in domestic renewables by 2030.

Commissioning of the first offshore wind farm in Lithuania will take place toward the end of the decade — part of a wider commitment by Baltic Sea nations, including Denmark, Poland, Sweden and Finland, to build nearly 20 GW of offshore wind by 2030.

Ocean Winds SL, the joint venture of European renewables giants Engie SA and EDP Renováveis SA, partnered with local utility UAB Ignitis Grupe to win a 700-MW offshore wind concession in Lithuania in 2023, paying €20 million. A second auction for the same capacity is scheduled for this year.

The win does not include a grid connection. Geological surveys, environmental impact assessment and wind speed measurements have been carried out.

Two 700-MW wind farms can generate around half of the current power demand in Lithuania, the energy ministry said.

'Outrageously ambitious'

Gary Bills, a British executive who took over the helm of Ignitis' renewables arm UAB Ignitis Renewables in 2022, said offshore wind will make a splash in the power mix in the region.

"The Baltic targets for the energy transition were huge, dramatic, outrageously ambitious," Bills said when asked what compelled him to take on a role in the northeastern corner of Europe. "I thought if I came here I could make a distinct difference."

The Lithuanian utility is also building a foothold in the Estonian market. Alongside partner Copenhagen Infrastructure Partners P/S, Ignitis won both of Estonia's first offshore wind tenders, with the second victory — for a site known as Liivi 1 — announced in January.

The auction for Liivi 1 in the northernmost Baltic state was won with a €1.16 million bid, and the winning developers plan to combine the site with the previously awarded Liivi 2 project.

Theoretically, the capacity of both sites is 2.3 GW, although the actual capacity is set to be between 1 GW and 1.5 GW.

Ignitis and CIP, who came together in 2023 to collaborate on Estonian and Latvian offshore wind, also plan to bid for a joint Estonian-Latvian offshore wind project known as ELWIND in 2026.

There is also strong interest in Estonian projects from other international developers, according to Cristina Fernandez, managing director for Germany and sales director for continental Europe at renewables advisory firm K2 Management.

Baltic governments are communicating their plans clearly to developers, leveraging a highly digitalized communications infrastructure with all information available in English, said Fernandez, who is advising potential bidders in the upcoming Lithuanian tender.

S&P Global Commodity Insights analysts expect 5 GW of offshore wind to be installed across the three countries by 2040.

Small market

Estonia, Latvia and Lithuania have a combined population of just over 6 million. With local power grids likely unable to absorb all of the planned capacity, offshore wind development in the Baltic states will include opportunities to evacuate the power into central European demand hubs.

In May 2023, German transmission system operator 50Hertz Transmission GmbH signed a letter of intent with its Estonian counterpart Elering AS to jointly develop the Baltic WindConnector, a submarine power cable that would support the development of offshore wind and facilitate electricity trade between the two countries. The line could go live in 2037, its proponents said.

While auction fees are lower than in markets such as Germany and the UK, the Baltic states are set up differently from those established offshore wind markets. The first wave of projects lacks the support of a contract for difference revenue stabilization and, in the case of Estonia, does not include seabed studies or grid connection provisions.

"The lack of appetite from other investors is a reflection of the fact that they're not protected," Bills said, with financing of such projects more challenging.

According to Fernandez, there are other explanations. "It's more related to the size of the projects and the expectations for the next years. ... Some companies don't see the perspective," Fernandez said.

The Baltics are a small market, and there is less visibility on upcoming auctions, the consultant added.

Criteria in the recent Lithuanian tender won by Ignitis also favored the state-owned player, potentially putting international parties off, Fernandez said.

Meanwhile, physical infrastructure such as ports and warehouses need to be developed as well. While there are several ports in the Baltic states, Fernandez sees none of them ready for offshore wind quite yet.

With the local supply chain still needing to be built up, staffing is the most challenging task given the region's lack of history in offshore energy, Bills said.