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3. Key market design reforms in European electricity markets

3.1 Germany

3.1.1 Summary

Germany’s power sector is marked by considerable uncertainty. Government signals on RES and grid expansion are mixed, and there is no settled approach to support firm capacity additions or long-term industrial demand. At the same time, market outcomes are interdependent and hence uncertain: demand, renewables, firm capacity, storage and interconnectors all shape each other’s costs and revenues. Key unknowns relate to the scale and timing of additions to firm capacity and renewable energy sources (RES), future electricity demand, and the expansion of interconnectors with neighbouring bidding zones.

3.1.2 Political backdrop

The governing coalition of conservatives and social democrats holds a mandate for economic reform. Many businesses and households recognise that the existing economic model is under strain: Exports of machinery and vehicles face rising competition from China, while energy costs remain high. With the next federal election three years away, the government has time to implement reforms. The government seeks to revive economic growth, while continuing Germany’s decarbonisation pathway. While it has a reform mandate, the government is bound by the need to assure an ageing electorate that pensions are safe, and the reforms will not negatively impact their livelihoods.

3.1.3 Policy overview

Decarbonisation remains a central objective, but the government has several additional goals for the power sector:
  1. Security of supply in times of low wind and solar power generation: Germany has faced several extreme weather events with high scarcity prices in recent years. As additional coal-fired units are scheduled to be decommissioned, Germany likely faces a shortage of firm capacity. The EU has signalled that it will allow Germany to subsidise around 12 GW of gas- and H2-fired power plants soon. However, the design of the capacity mechanism to support the gas-fired units and the timeline of their construction are uncertain. Germany also plans to introduce an additional capacity market, though its design is still unclear. Nevertheless, Germany will likely add significant gas-fired generation capacity in the upcoming decade.
  2. Cost containment in the power sector: The government aims to limit overall power system costs, particularly those associated with RES support schemes and grid expansion. The government, therefore, announced that it might consider reforming RES subsidy schemes to lower consumer/taxpayer costs.
  3. Stabilising power demand from industry: This goal is indirect. Industrial demand accounts for more than a third of Germany´s total net power demand, and total industrial demand has declined in recent years owing to the challenges facing German industry in its product markets. If the government is successful in strengthening German industrial performance, it will indirectly support industrial power demand. Key policy measures that will strengthen industrial demand include a subsidised industrial power price and large grid fee reductions for industrial power consumers.
  4. Continued RES expansion: The government plans to maintain substantial subsidies for solar and onshore wind in support of continued additions to RES capacity. The build-out of renewable generation capacity recently accelerated following regulatory simplifications. However, solar and onshore wind expansion faces constraints from limited grid access, public opposition and falling revenues due to cannibalisation. Offshore wind auctions are still in place but had little success in 2025 due to high costs for offshore cables, converters and turbines. The government is attempting to ensure both that future auctions result in contract awards for new capacity deployment and that past tender awards are built.
These objectives create uncertainty. Some are in direct tension, notably cost containment versus rapid RES expansion. Moreover, there is no clear legislative pathway for delivery. Key questions remain unanswered, including the size and timing of gas capacity auctions and the duration of industrial power subsidies.

3.1.4 Relevant market developments

Several other developments add to the political uncertainty:
  • Increased uncertainty over plans for the build-out of offshore wind is having a knock-on effect on planned interconnector capacity. Offshore wind hubs are expected to include transmission capacity to several countries, offering both wind generation and greater interconnection with adjacent bidding zones. However, as offshore wind development is struggling, so too are plans to build additional interconnection capacity.
  • Persistent north–south grid bottlenecks remain. If delays in transmission grid expansions continue, the EU may require Germany to split its single bidding zone. Currently, all relevant political parties and most industry associations oppose a bidding zone split as they fear higher electricity prices for the industrial hubs in Southern Germany.
  • A battery investment boom is emerging, supported by strong market revenues, but is constrained by grid availability and cannibalisation effects.
Table 1 summarises the key political developments in Germany and maps them to the specific quantitative sensitivity analyses in Chapter 4, which study their impact on the Nordic markets. Column “Sensitivity chapters” points to the subchapters in Chapter 4 that describe the relevant sensitivities.
Table 1. Developments in Germany that are most relevant for the Nordics
Development
Relevant modelling analysis
Sensitivity chapters
Uncertainty level
Policy: Continued RES expansion
Renewables build-out: wind and solar build-out depend on both policies and market developments. For the impact of RES build-out on the Nordic markets. See sensitivities on renewable capacity expansion.
4.3.1
4.3.2
4.3.4
High
Policy: Security of supply in times of low wind and solar power generation
Germany intends to build-out at least 12 GW of gas-fired capacity. See sensitivities on capacity mechanisms and firm capacity build out.
4.2
Medium
Policy: Cost containment in the power sector
Cost containment has little impact per se. But it may slow down the build-out of renewables. Compare sensitivities on renewable capacity expansion.
4.3.1
4.3.2
4.3.4
Medium
Market development: Battery grid access rush
Battery storage capacity: the current grid access request wave may or may not translate into operating storage capacity. For storage's impact on the Nordics, see the sensitivity on battery storage.
4.3.4
Medium
Market development: Slow build-out of offshore wind generation and interconnection capacity
Limits to cross-border trade: a delayed offshore wind build-out may also result in delayed or cancelled interconnector projects. Compare the sensitivity on interconnector availability and capacity.
4.4
Low
Market development: Persistent north-south grid bottlenecks
If the EU and some of Germany's neighbours are successful, Germany may have to split its bidding zone. To understand a split's effects, compare the sensitivity on a bidding zone split.
4.5
Low

3.2 Great Britain

3.2.1 Summary

The GB power sector is also marked by considerable uncertainty. The current British Government has recently rejected options to introduce locational wholesale pricing and has instead opted to retain a single national price. While alternative proposals for managing congestion are still to be detailed, the direction of travel is towards a more strategic, plan-led model in which planners play a significant role in steering what new capacity is developed and where it is located. At the same time, Government policy continues to prioritise an accelerated roll-out of new renewable and flexible capacity, while retaining commitments to new nuclear. Internationally, the UK is moving towards closer alignment with the European Union (EU), with plans to link emissions trading systems to avoid the carbon border adjustment mechanism (CBAM) being applied to electricity exports from GB. Talks have resulted in plans for further discussions about a potential route back towards full participation in the Internal Energy Market (IEM), though the scope and timelines around any return remain highly uncertain, and sensitive to shifts in broader political sentiment about the United Kingdom’s relationship with the EU.

3.2.2 Political backdrop

The Labour Government remains committed to rapid decarbonisation and has anchored policy around its Clean Power 2030 plan. The plan aims to deliver at least 95% of generation from clean, low-carbon sources by 2030. This policy is being coordinated by a central Mission Control team to bring together and coordinate policy across the energy section. The Government also opened discussions about negotiating GB’s return to the EU’s internal electricity market (IEM). However, any sign of closer integration with the EU faces strong political headwinds. At the same time, “net zero” has become a more contentious goal, with opponents often framing their arguments around negative impacts on affordability. The ‘Reform UK’ party currently leads national voting-intention polling and has pledged to repeal net-zero legislation and pivot towards expanded oil, gas and coal production alongside new nuclear. The ‘Conservative Party’ (in office from 2010–2024) has also shifted away from the net-zero consensus, arguing the current framework is unaffordable. With the next general election due in 2029, a change in government could at that point trigger a step-change in energy policy. In the meantime, the Government and other supporters of ambitious decarbonisation goals focus much more on the benefits for energy security/sovereignty and lower long-term volatility in energy bills through reduced exposure to global gas prices and talk less about ‘net zero’ as an end in itself.

3.2.3 Policy overview

The following policy objectives in GB are noted:
  1. Cost containment in the power sector: The Government is under pressure to bring down household energy costs, which are widely perceived domestically to be among the highest in Europe. In November 2025, it opted to shift a large share of legacy renewables policy costs off electricity bills and into general taxation. In parallel, it has consulted on changing the inflation indexation of legacy renewable support mechanisms to reduce the long-run burden on consumers. The Government has also weighed cutting VAT on domestic energy.
  2. Continued RES expansion: The Government remains committed to accelerating the build-out of renewables through its Clean Power 2030 action plan, with offshore wind positioned as the backbone technology. Its latest annual auction (AR7) secured 8.4GW of new offshore wind on 20-year contracts, with strike prices of around £91/MWh (2024 prices). Meeting the Government’s targets, however, would require a further step-change in annual delivery equivalent to securing up to ~12GW of offshore wind in the next annual auction round (AR8), alongside rapid parallel deployment of onshore wind and solar.
  3. Interventions to reduce renewable turn-down costs: There is increasing focus on the cost of “wasted” renewable energy—particularly in the north of the island, where transmission bottlenecks mean that wind capacity is increasingly constrained off and replacement generation (often gas) is brought on elsewhere. This was the central backdrop to a multi-year debate over whether to introduce more locational wholesale pricing to help better manage network congestion. While the Government has now opted to retain national pricing, it has signalled a package of potential alternative measures to tackle constraints. These include reforms to balancing arrangements, adding more locational features to “out-of-market” frameworks (e.g., capacity market design), and strengthening the TSO’s tools to prevent or reverse cross-border schedules which are seen to contribute to network congestion.
  4. Long-duration energy storage (LDES): The development of new LDES capacity has emerged as a key priority. In 2024, the British Government accordingly launched a new “cap and floor” scheme for long-duration storage, which is designed to provide improved revenue certainty to developers. Under the scheme, consumers will fund revenue shortfalls below a certain “floor” in exchange for payments where revenues exceed a certain “cap”. Ofgem (the GB regulator) has flagged that it intends to contract between 2.7 and 7.7 GW of new LDES capacity through the first application window of the scheme.
  5. Nuclear generation: The Government has continued to prioritise new nuclear generation. A new regulatory model was confirmed in 2025 for a 3.2GW nuclear reactor (Sizewell C) in the south of GB. The Government holds a 44.9% stake in the project and a further £36.6 billion loan will be provided from UK National Wealth Fund (NWF). The support scheme means that electricity consumers will underwrite market revenues earned by the project.
  6. Rapprochement with the EU: British and EU authorities issued a joint commitment in May 2025 to link the British emission trading system (ETS) and the EU ETS such that the carbon border adjustment mechanism (CBAM) will not need to apply to GB electricity exports. In December 2025, the British Government and the EU further committed to discussions about a potential route for Great Britain to participate in the EU’s internal electricity market, though scope and timelines around any return remain highly uncertain and sensitive to shifts in broader political sentiment about Great Britain’s relationship with the EU. Full participation would materially reshape trading arrangements across GB–EU interconnectors and would require closer alignment of GB regulation and market arrangements with EU rules and institutions. Political and technical negotiations are expected to run through 2026.

3.2.4 Relevant market developments

The British Government has decided against zonal/nodal pricing and to instead retain a single GB-wide wholesale price. However, the detailed design of “Reformed National Pricing” (RNP) and the tools that will form an alternative to locational pricing for managing constraints are still not fully specified. This generates uncertainty for developers, who need to consider whether the Government will strengthen locational signals elsewhere, such as through network charging reform.
Table 2 summarises the key developments in GB and maps them to the specific quantitative sensitivity analyses in Chapter 4, which study their impact on the Nordic markets. Column “Sensitivity chapters” refers to the subchapters in Chapter 4 that contain the respective sensitivities related to each policy.
Table 2. Developments in Great Britain that are most relevant for the Nordics
Development
Relevant modelling analysis
Sensitivity chapters
Uncertainty level
Policy: Rapprochement with the EU
Closer EU-UK ties could see GB being fully re-integrated into the IEM and the permanent removal of the CBAM from GB electricity exports. This would transform the cross-border trading arrangements that are currently in force. To assess the impact of CBAM on Nordic electricity prices, compare sensitivities on trade restrictions.
4.4
High
Policy: Continued RES expansion
Great Britain intends to accelerate the deployment of new offshore wind, onshore wind, and solar capacity by 2030 as part of its Clean Power 2030 action plan. Compare sensitivities on renewable capacity expansion.
4.3.1
4.3.2
4.3.4
Medium
Policy: Renewable turn-down costs
There is increasing focus on the cost of “wasted” renewable output in GB. One result is that British authorities may seek to prevent or undo cross-border schedules which are seen to contribute to network congestion. Compare sensitivities on renewable capacity expansion.
4.3.1
4.3.2
4.3.4
Medium
Policy: LDES deployment
GB is seeking to procure up to 7.7 GW of new LDES capacity. This capacity will compete with cross-border flows as a source of flexibility in the GB power system. For storage's impact on the Nordics, see the sensitivity on battery storage.
4.3.3
Medium
Policy: Nuclear deployment
The Government has continued to support the development of new nuclear generation units in GB and has defined an enduring role for nuclear in the future power system. See sensitivities on firm capacity build out.
4.2
Medium
Market development: Uncertainty over reformed national pricing (RNP)
The British Government has decided against zonal/nodal pricing and to retain a single GB-wide wholesale price, but the detailed design of RNP is not specified. This creates uncertainty for developers but is unlikely to have a direct impact on Nordic markets.
4.5
Medium
Policy: Cost containment in the power sector
The British Government is exploring means of shifting costs away from domestic electricity consumers. Such means are unlikely to impact market outcomes or Nordic markets.
 
Low

3.3 Netherlands

3.3.1 Summary

The Netherlands is decidedly pro-nuclear and pro-renewables. However, recent successes in building out solar and wind have strained the grid and cannibalised revenues for solar and wind investors. There is significant uncertainty as to whether the grid can be strengthened fast enough to handle more renewables and more connections to neighbouring countries. It is also unclear whether the country’s unstable political system can achieve meaningful reforms to enable the build-out and integration of renewables.

3.3.2 Political backdrop

The Netherlands currently has a minority government dominated by pro-renewable energy (RES) and pro-green transition parties from both the left and right of the political spectrum. There is broad public support for expanding the country’s nuclear capacity. However, uncertainty remains over whether the government can achieve its objectives, as it lacks a parliamentary majority. The previous administration, led by far-right and anti-RES parties, collapsed after just eleven months in office, triggering elections in November 2025 and ushering in the current government in early 2026.

3.3.3 Policy overview

In the Netherlands, the government has set the following priorities:
  1. Accelerated grid build-out: To enable a faster build-out of wind and solar, the Netherlands needs to build out its distribution and offshore networks. The previous government had planned to remove some legal barriers to accelerate the grid build-out. Whether the new government will be able to follow through on these plans is unclear. The Netherlands is densely populated and, therefore, finding space for new grid infrastructure can be challenging. The Netherlands' ability to increase its transmission capacity with neighbouring countries is also dependent on its ability to strengthen its internal grid.
  2. Change in RES subsidy system: The Netherlands plans to replace its SDE++ subsidy system for RES with a contract for difference (CfD) system. Its plans are intended to implement EU policy regulation supporting the use of CfDs. The details of the new RES support scheme, as well as its expected impact, remain uncertain.
  3. Reduced offshore wind targets: Dutch offshore build-out is slowing down. The Netherlands has reduced its offshore wind targets to 30-40 GW of installed capacity by 2040. Key auctions have also been postponed due to limited interest from investors. However, some build-out is still to be expected: A new auction design offering higher subsidies will soon be implemented.
  1. Nuclear expansion plans: Across the political spectrum, the Netherlands sees nuclear power as necessary and relevant. New plants with a combined capacity of 2 to 3.2 GW will come online in the 2030s. The new capacity will raise total Dutch nuclear capacity even if older plans are decommissioned.

3.3.4 Relevant market developments

Several other developments add to the political uncertainty.
  • As in Germany, greater uncertainty over the build-out of offshore wind is having a knock-on effect on planned interconnector capacity. Offshore wind hubs are expected to include transmission capacity to several countries, offering both wind generation and greater interconnection with adjacent bidding zones. However, with offshore wind development struggling, so too are plans to build additional interconnection capacity.
  • Solar build-out has boomed in recent years but is now slowing down. 2025 saw capacity additions that were 40% lower than in 2024. The rooftop solar segment was especially hard hit, as grid access and subsidies both dried up. Commercial and industrial installations also decelerated, harmed by a rapid decline in solar capture rates.
  • A battery investment boom is emerging, supported by strong market revenues, but is constrained by grid availability and cannibalisation effects.
Table 3 summarises the key political developments in the Netherlands and maps them to the specific quantitative sensitivity analyses in Chapter 4, which study their impact on the Nordic markets.
Table 3. Developments in the Netherlands that are most relevant to the Nordics
Development
Relevant modelling analysis
Sensitivity chapters
Uncertainty level
Policy: Grid expansion
Wind and solar build-out, as well as international transmission capacity, depend on internal grid build-out. For the impact of RES build-out and transmission build-out on the Nordic markets, see sensitivities on renewable capacity expansion and transmission capacity.
4.3.1
4.3.3
4.3.6
High
Policy & market development: Change in RES subsidy system
A change towards CfDs has little impact per se. But it may slow down the build-out of renewables in the short term. Solar build-out is already slowing down, albeit mostly due to other factors. Compare sensitivities on renewable capacity expansion.
4.3.1
4.3.2
4.3.4
Medium
Policy & market development: Slow build-out of offshore wind generation and interconnection capacity
A delayed offshore wind build-out may also result in delayed or cancelled interconnector projects. Compare the sensitivities on wind build-out and on interconnector availability and capacity.
4.3.1
4.4
Medium
Market development: Battery grid access rush
The current grid access request wave may or may not translate into operating storage capacity. For storage's impact on the Nordics, see the sensitivity on battery storage.
4.3.3
Medium
Policy: Build-out of nuclear power
The Netherlands intends to build out at least 2 GW of new nuclear capacity. See THEMA Base scenario.
4.2
Low

3.4 Poland

3.4.1 Summary

Poland’s energy policy is politically turbulent, shaped by a push–pull between a pro-transition government and a more conservative presidency that can block or delay reforms. The system faces an urgent need to both reduce reliance on coal and, at the same time, strengthen energy security amid geopolitical risks. The core challenge is how to accelerate the green shift—especially through offshore wind, grid investment, and nuclear—while managing coal’s legacy and public affordability. The political situation creates persistent uncertainty around the pace of coal’s phase-down and the scale and speed of further renewables build-out, with veto power and contested legislation slowing progress on key reforms.

3.4.2 Political backdrop

Poland’s energy policy is shaped by a persistent political divide between liberal, pro-European forces and parties emphasising national sovereignty and the protection of legacy industries. While successive governments have signalled a commitment to the energy transition through renewables expansion, grid investment and large-scale low-carbon projects, policymaking remains fragmented and contested. Renewable deployment has accelerated, but key enabling reforms—particularly for onshore wind—remain politically sensitive. Recent vetoes underline uncertainty over the pace of further RES build-out. Coal continues to sit at the centre of political and social tensions, with strong mining unions and regional dependence constraining a clear and credible phase-out path. As a result, energy policy is often shaped by short-term political considerations. Long-dated targets and flagship investments are used to signal ambition, but the most disruptive reforms are deferred beyond the electoral cycle, leaving the underlying structural challenges of decarbonisation, security of supply and market design unresolved.

3.4.3 Policy overview

Ensuring a just transition and energy security are the two main objectives of Poland’s energy policy:
  1. Managing the coal transition while maintaining adequacy: EU climate policy and market signals point toward a continued reduction in coal generation, but coal still contributes to near-term adequacy. Poland is therefore using the capacity market as a bridge. A key recent development is that the European Commission granted a derogation in 2025 allowing coal units to remain eligible for supplementary capacity auctions until end-2028. A supplementary auction is held when the level of generating capacity offered under the main auction (and any earlier supplementary rounds) for a given supply year is insufficient.  The supplementary auction for delivery year 2026 was held at end-2025, and additional auctions for delivery year 2027 are expected to take place during 2026, depending on whether the system operator deems additional capacity necessary.
  1. Scaling wind as the main near-term decarbonisation lever: Offshore wind is moving from policy ambition to delivery and is becoming a core pillar of the future system. The first competitive CfD auction in December 2025 awarded support to more than 3 GW of offshore wind capacity, strengthening investor confidence and setting the stage for further rounds. Onshore wind is also central to decarbonisation efforts because it is typically the cheapest new generation capacity available. However, additional onshore wind capacity will depend on permitting reform and political follow-through, which has proven inconsistent over time.
  2. Nuclear is important for security and decarbonisation: Nuclear remains the government’s key option for large-scale, low-carbon baseload power supply and energy security, with a stated target of 6–9 GW by 2040. However, the programme carries significant delivery risk and the market increasingly assumes that the first power will arrive in the late 2030s. In December 2025, the European Commission approved, under EU state-aid rules, an aid package to support the construction of the first nuclear power plant in Poland. However, Poland's nuclear power program has experienced a significant shift in its timeline, with the commissioning of the first reactor now pushed back by approximately three years, from the original target of 2033 to 2036.
  3. Resolving grid bottlenecks: Grid capacity is becoming the binding constraint for both renewables and storage deployment, so policy is shifting towards enabling network build-out and smarter access rules. The 2025–2034 network plan prioritises new lines and substations and supports stronger north–south transfer capacity to help integrate offshore wind and northern generation. In parallel, proposed connection-rule changes aim to reduce “queue blocking” and improve network utilisation through higher upfront commitments, shorter validity periods, more flexible connection arrangements, and wider use of cable pooling.
Overall, the policy mix focuses on efforts to ensure a just transition and security of supply. Persistent delivery risk, grid constraints and policy fragmentation mean that actual outcomes will be driven as much by success in execution and coordination as by stated ambitions.

3.4.4 Relevant market developments

Several developments are shaping near-term market conditions and adding uncertainty:
  • Investment interest in battery storage systems has risen sharply, supported by subsidy schemes. The December 2025 subsidy scheme was heavily oversubscribed, suggesting a strong pipeline. However, delivery will still depend on grid access, permitting, and project execution.
  • Household electricity prices have been repeatedly frozen in recent years. Measures have been approved to extend the freeze through end-2025 by setting a cap of 500 PLN/MWh for household electricity prices. It is currently unclear whether the cap will not continue into 2026 or whether an alternative price control scheme will be implemented.
Table 4. Political developments in Poland that are most relevant for the Nordics
Development
Relevant modelling analysis
Sensitivity chapters
Uncertainty level
Policy: Nuclear
Nuclear would replace coal plants as firm capacity.  See sensitivities on capacity mechanisms and firm capacity build out (chapter).
4.2
High
Policy: Coal phase-out schedule
The speed of Poland’s coal phase-out and adjustments to the capacity mechanism might impact both base and peak prices in the Nordics. See sensitivities on capacity mechanisms and firm capacity build-out (chapter).
4.2
Medium
Policy: Wind capacity expansion
Poland aims to expand its offshore and onshore wind capacity. To analyse the effect of increased renewable capacity on the Nordics, see the sensitivities on renewable capacity build-out (chapter).
4.3.1
4.3.2
4.3.4
Medium
Policy: Grid expansion
Internal grid expansion in Poland affects trade volumes, congestion rents, and prices in the Nordics. See our sensitivities on interconnectors and trade restrictions (chapter).
4.4
Low
Market development: Battery.
The speed of the expansion of Polish battery capacity depends mainly on whether grid connection problems can be overcome. To understand the impact of higher battery capacity on Nordic prices, see our sensitivity on battery capacity build-out (chapter).
4.3.3
Low
Market development: Household cap
The household electricity price cap in Poland will likely have a negligible impact on Nordic prices. 
 
Low

3.5 Baltics

3.5.1 Summary

Recent geopolitical developments have exacerbated the Baltics’ already strained relationship with Russia. The three countries were quick to ban gas imports after the Russian invasion of Ukraine and fast-tracked the process of desynchronising from the BRELL ring shared with Russia and Belarus. Efforts continue towards ensuring security of supply, while balancing EU-wide green transition ambitions.

3.5.2 Political backdrop

All three Baltic countries have seen changed government coalitions within the last two years, due to internal conflicts within the coalitions and allegations of conflicts of interest. The new coalitions are generally large—2, 3 and 4 parties make up coalitions in Estonia, Latvia and Lithuania respectively. This, along with increasing uneasiness surrounding geopolitical issues, could make it harder to make significant reforms in support of a green transition. As an example, in Estonia, an onshore wind support scheme has been effectively held up since June of last year by one of the two coalition parties, which believes that a different support scheme should be finished first. As a general trend, the governments of the Baltic countries currently put a strong emphasis on national security and increased defence spending, and favour cutting taxes, tariffs and state spending to help improve the economic situation.

3.5.3 Policy overview

Lithuania has been one of the EU countries most dependent on power imports ever since it had to close the Ignalina nuclear plant in 2009. Latvia has a power system largely built on hydropower, but also uses significant gas-fired generation, for which it historically relied greatly on Russian imports. Estonia has, by virtue of its oil shale power, been more independent than its Baltic neighbours historically, at a cost of significantly higher CO2 emissions. Estonia needs to ensure that it can decarbonise without giving up its energy independence.
The Baltic countries’ energy policies are centred around the main goal of security of supply:
  1. Renewable expansion: Build-out of renewable capacity is key to ensuring sufficient power generation. Lithuania, especially, has seen a boom in installations in recent years and has significantly reduced its need for imports. RES build-out remains important in all three countries, but it is worth noting that both Estonia and Latvia have abstained from giving specific numbered targets for installed solar and wind capacities in the most recent EU NECP documents.
  2. Phase-out of oil shale (Estonia): Estonia needs to phase out power from oil shale. However, this needs to happen alongside the introduction of sufficient new flexible capacity, not just intermittent solar and wind. Currently, this is happening through a combination of batteries and gas-powered capacity. It is also worth noting that the phase-out of oil shale in the Estonian power mix is continually being delayed. When oil-shale power plants will finally be shut down remains to be seen.
  3. Grid infrastructure: Though not wishing to depend heavily on power imports, the Baltics see interconnection with neighbouring systems as key to their security of supply. They are themselves well interconnected and continue to build out transmission capacity to Finland and Poland. In addition to working on new cables, infrastructure protection has surfaced as a key part of maintaining grid infrastructure after several instances of sabotage in the Baltic Sea (notably the severing of Estlink 2 in December 2024).
  4. Affordable energy: Security of supply should be balanced with the need for affordable energy for Baltic residents, meaning the most affordable options for power generation should be the focus of new build-out. The Estonian government recently ordered Elering to prioritise lower energy prices.

3.5.4 Relevant market developments

Some recent events of note include:
  • Synchronisation with the Continental Europe Synchronous Area: The Baltic countries successfully decoupled from the BRELL system on February 8th 2025 and synchronised with the Continent on the following day. This was the result of many years’ work and is representative of the shift away from Russia. The feat required extensive infrastructure upgrades and new-build transmission projects in the Baltic countries and Poland, as well as the addition of synchronous condensers and BESS to support the balancing of the electricity system.
  • Overwhelming interest in Lithuanian energy storage procurement: In August 2025, the Ministry of Energy announced the closure of a procurement process for 800 MWh of electric storage capacity. The tender significantly exceeded expectations, resulting in the procurement of 4 GWh of storage capacity.
  • Massive price fluctuations in Baltic reserve markets could drive BESS installations: Extreme price instability was observed in the Baltic reserve markets in 2025. An expected continuation of fluctuations and high prices in these markets along with large Day-Ahead and Intraday spreads promise high yields and low payback periods for flexibility providers such as batteries. There could be a boom in installed BESS capacity in the Baltics in the next few years, but the potential to earn high profits is expected to subside over time as competition increases.
  • Fluctuating wind support scheme plans in Estonia: The previous Estonian government coalition, after much debate and back and forth, announced their plans for support schemes for up to 2 TWh of both offshore and onshore wind in January of last year. The support scheme for offshore wind was, however, cancelled within a month of plans being published. The planned support for onshore remains (though it is currently being stalled, as previously described). Offshore wind producers may instead be offered state loan guarantees.
  • Increasing interest in nuclear power in the Baltics: 2025 saw all three Baltic states discuss the possibility of introducing nuclear power to their energy systems. Estonia has the most advanced plans. The Estonian parliament passed a resolution supporting nuclear power, and the firm Fermi Energia started the site selection process for their two SRMs last year. Lithuania has historically had nuclear power and could capitalise on their experience to efficiently develop new nuclear power. Latvia, meanwhile, has stated an interest in nuclear power, but is currently leaning towards developing this in collaboration with Estonia, on Estonian land. Nuclear power in the Baltics remains uncertain, but policies are already changing to try to accommodate nuclear power. For example, Estonia has switched from a target of 100% “green” energy to “clean” energy, opening the door for nuclear power to contribute.
Table 5. Developments in the Baltics that are most relevant to the Nordics
Development
Relevant modelling analysis
Sensitivity chapters
Uncertainty level
Build-out of nuclear power
There are discussions about building new nuclear plants in all three Baltic countries to provide additional firm capacity. To study the effect of additional firm capacity on the Nordics, see the sensitivity on capacity mechanisms and firm capacity build out.
4.2
High
Renewable expansion
Baltic countries continue to build out renewables, but there remains uncertainty due to a lack of detailed targets in Estonia and Latvia and the delayed implementation of a RES support scheme in Estonia. See sensitivities on renewable capacity build-out.
4.3.1
4.3.2
4.3.4
Medium
Grid infrastructure
To understand the effect of reduced trade capacity or regulatory trade restrictions on the Nordics, compare the sensitivities on the capacity and availability of interconnectors and on trade restrictions.
4.4
Medium
Phase-out of Estonian oil shale
Estonia needs more flexible and firm generation to compensate for the phase-out of oil shale. Compare the sensitivities on firm capacity mechanisms and battery capacity expansion.
4.2
4.3.3
Low
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