Supporting the energy transition across the Baltic states

The Baltic states’ energy transition is being driven by two reinforcing aims: to decarbonise in line with European Union (EU) climate objectives, and to strengthen energy security following decades of structural vulnerability that was intensified by Russia’s invasion of Ukraine in 2022.

Although Estonia, Latvia and Lithuania have made substantial progress in expanding renewable generation, the pace of decarbonisation slowed after 2020 due to capacity constraints in terms of the grid and energy storage. Renewable deployments were outpacing investments in enabling infrastructure, making grid connection queues the biggest obstacle to low-carbon electricity growth, rather than a shortage of capital or project sponsors.

Infrastructure limitations were further exposed by Europe's 2022 energy crisis, with rapid electricity price shocks due to constrained interconnections between the three countries, insufficient balancing capacity and insubstantial storage. While the Baltic states have since completed synchronisation with the continental European grid, reducing their operational dependence on Russia, their grid resilience remains exposed to physical and cybersecurity risks concentrated in a small number of interconnectors.

The EBRD’s activities are addressing physical system constraints and financial market failures in the Baltic states. This is delivering enhanced renewable energy capacity while helping to develop a sustainable and resilient enabling environment for continued decarbonisation.

Between 2022 and 2025, EBRD‑supported projects in the Baltics are projected to contribute to an estimated increase of 2,200 MW in renewable capacity, primarily through onshore wind and solar. Investments have supported the rollout of large-scale solar and wind projects as well as battery energy storage systems (BESS) across all three countries, while technical assistance and policy dialogue have helped institute stronger governance standards and spread the use of green financial instruments. The Bank is backing some of the biggest renewable energy investments ever undertaken in the Baltics – including large-scale wind capacity in Estonia, Latvia and Lithuania – helping to deliver immediate climate benefits while strengthening regional energy independence.

While construction of some of these projects is still under way, they have already demonstrated commercially viable investment models that are helping to embed market-based pricing signals and to create credible frameworks that are attracting private capital.

To strengthen the energy market’s capacity for private investment, the EBRD has taken minority equity stakes in private developers such as Green Genius and Sunly. These investments strengthened balance sheets at a time when other shareholders had limited capacity to invest and unlocked substantial follow on debt capacity. This multiplier effect proved particularly important in helping these developers evolve away from develop-and-sell business models and move towards becoming independent power producers (IPPs) – a status that requires substantial balance sheet capacity to hold operating assets and manage merchant revenue exposure.

By pairing investment projects with advisory work, the EBRD has fostered the implementation of corporate governance action plans aligned with international standards, including for supervisory boards, audit and risk committees, internal controls, and environmental, social and governance policies. Improved governance has also helped attract private investment in energy development, notably crowding in private subscription for initial public offerings (IPOs) in companies including Lithuania’s Ignitis Group and Enefit Green.

Policy engagement has strengthened government capacity to incentivise renewable investment and decarbonisation. The Bank has provided advisory support to Estonia’s Ministry of Climate on renewable investment support schemes, technical cooperation on EU Green Taxonomy implementation in Estonia and Latvia, and assistance with developing national sustainable finance roadmaps. The EBRD and the European Commission (DG Reform) supported the Sustainable Finance Roadmap for Estonia and Latvia in 2023, while in Lithuania the Bank supported the Sustainable Finance Strategy and Action Plan.

Looking forward, efforts to strengthen the stability and independent functionality of the Baltic power system are under way, with the first of two 100 MW BESS that will make up the Baltic Storage Platform near Tallinn already operational, and construction of the second unit progressing. Both are financed by the EBRD, Edmond de Rothschild Asset Management and the Nordic Investment Bank. Rather than relying on long-term, fixed-price contracts, the projects will run on a fully merchant basis without reliance on government support schemes, demonstrating a commercially viable model for such developments while introducing more sophisticated risk allocation.

Building long-term energy security and sustainability, the EBRD has contributed to a shift in how the Baltic energy sector is financed, governed and operated.

Following the 2022 energy crisis, the Baltic renewable energy market moved decisively away from its traditional reliance on state-supported utilities and towards private sector equity and project finance. The EBRD’s engagement has supported the development of private and independent energy companies to further enhance energy markets. Its minority equity investments have helped unlock financing capacity that would not otherwise have materialised, enabling developers to retain and operate assets under more competitive merchant conditions. The Bank’s early anchor role in IPOs has also facilitated the entry of international investors, although some outcomes proved reversible where government commitment to partial privatisation weakened.

EBRD supported transactions have also contributed to market diversification beyond state utilities, including strengthening IPPs as part of a shift towards corporate power purchase agreement (PPA) models that enable predictable revenues without relying on state subsidies. The growth and scaling up of corporate PPAs in the Baltics since 2020 has shown that new projects can be financed at or below conventional generation costs, even with subsidies – a significant shift in the market. By providing support to strengthen the governance and balance sheets of IPPs such as Green Genius and Sunly, the Bank has enhanced IPPs’ capability to engage in PPA-based financing.

First of their kind investments in standalone BESS with subsidy free financing and based entirely on merchant revenue marked a shift in financing structures, demonstrating their bankability in a high risk environment. These projects have since informed lender risk assessments and supported replication by other market participants. Renewables investments that replicate the market-based revenue model have continued across the Baltic states, signalling a shift towards commercial financing and reduced reliance on state subsidies.

EBRD technical cooperation on sustainable financing instruments and EU taxonomy implementation has improved policy credibility and coordination in the region. Rather than introducing new regulation, these efforts have helped translate established EU energy and climate objectives into bankable investment pipelines, aligning public and private incentives and strengthening the enabling environment for private investment by reducing residual policy uncertainty.

The strong enabling environment in the Baltic states – including EU regulatory alignment, credible climate commitments and mature legal institutions – provided a foundation for market based solutions. The added urgency around energy security from 2022 increased the political momentum for reforms and investment in system resilience.

Flexibility around the financial instruments deployed – equity, project finance and corporate lending – helped the EBRD respond to different market gaps and stages of developer maturity. The Bank’s willingness to engage in higher risk segments during periods of market dislocation helped sustain investment momentum when private capital was constrained.

Strategic partnerships also played a key role. InvestEU guarantees enabled first loss risk coverage for BESS projects in Estonia and onshore wind development in Latvia, while co financing with other international financial institutions and institutional investors helped scale impact. Close coordination with ministries, municipalities and transmission system operators ensured consistency between investments and policy objectives.

Key lessons learned included

• Equity is critical to unlock scale where developers transition to IPP models. The EBRD’s equity investments with Green Genius and Sunly supported their debt-financing capacities.
  
  
• Standalone battery storage requires risk sharing beyond commercial bank capacity. While the capacity market was just opening in the Baltics, the EBRD financed the Baltic Storage Platform, one of largest battery storage facilities in the region.
  
  
• Developing capital markets requires sustained political commitment. Baltic energy production has historically been dominated by state utilities, so the partial privatisation of Ignitis and Enefit Green required a political decision in terms of the IPOs, but also around the development of regional capital markets to sustain momentum in building up the private market.
  
  
• Governance improvements add value but must remain proportionate to company size. EBRD investments always integrate governance elements – by helping to improve the corporate governance of investee companies, the Bank creates positive demonstration effects by expanding good-governance principles across sectors.