Lithuania

Lithuania’s updated strategy presents an ambitious vision for the long-term development of the energy system until 2050. It includes fulfilling climate targets at an accelerated pace, reducing energy imports and developing a new export industry based on hydrogen produced from abundant access to renewable electricity. Despite the many detailed targets in the strategy, major uncertainties remain, particularly related to the development of the international hydrogen and derivatives markets. In the main scenario, electricity demand in 2050 is projected to increase sixfold, nearly half of which would be used for hydrogen production. This requires extensive co‑ordination between demand, supply and an infrastructure buildout. However, hydrogen market development is slower than expected and the 2030 targets seem difficult to achieve. To reduce the risk of making costly and inefficient investments, Lithuania should identify and prioritise actions that clearly reduce emissions and replace energy imports. Actions should be supported by comprehensive impact assessments for costs and affordability implications for Lithuanian consumers and regional markets. In doing so, the government should engage closely with relevant stakeholders in the country and the region to build on existing knowledge and expertise and enhance social awareness. At the same time, Lithuania should monitor market development and adjust policy when required. Industrial development should be supported through pilot projects and regulatory sandboxes to assess innovative technologies. This will showcase projects for the market, which is crucial to derisk investments and to build up towards complex integrated systems. Lithuania should also assess the need and availability of a skilled workforce to manage the transition.

Lithuania has successfully channelled private capital and EU funding into energy efficiency renovation programmes. However, the renovation rate is not in line with Lithuania’s targets and many people still live in energy poverty and in inefficient buildings with poor comfort levels and high energy costs. When updating the Long‑term Renovation Strategy, Lithuania should adopt a neighbourhood approach for renovation and pursue cost-efficiency gains from using economies of scale. The work should be done in close collaboration with municipalities and industry and integrate plans for refurbishing and developing district heating and cooling. Furthermore, the current requirements for decision making in multi-apartment buildings presents a barrier to energy efficiency renovations. To address this, Lithuania should change the rules to simplify decision making while redirecting support to those who cannot afford the necessary investments in renovation from its current support scheme on bills to protect vulnerable consumers. Lithuania should also expand regional co-operation with countries with similar experiences and building stocks to exchange best practices, harmonise approaches and develop regional supply chains.

District heating accounts for around half of household heating supply in Lithuania and the infrastructure is an important asset for the energy system. Through a rapid and commendable switch from imported natural gas to domestic bioenergy, Lithuania reduced emissions, imports and cost, not only for heating companies but for end‑users as well. In the government’s analysis, district heating will maintain or strengthen its position on the heating market, and the supply is planned to increasingly come from waste heat streams in combination with power-to-heat solutions to improve the overall efficiency of the energy system. Existing financial support schemes for investments in efficient fourth-generation district heating technology should be maintained and, if needed, strengthened to support this development. Furthermore, the legislation that gives building owners responsibility for the heating substations that connect to the district heating network should be revised. District heating companies need to have ownership of the substations to be able to make necessary adjustments and modernisations of the equipment that enables efficient operation of the system. 

The National Energy Independence Strategy envisions massive growth in electricity generation, mainly renewables. Wind and solar power are increasing rapidly, facilitated by efficient permitting processes. However, uncertainties remain, particularly for the offshore wind market. To keep up the pace of renewables expansion, it is important to closely monitor progress and create stable policy and regulatory frameworks that provide sufficient predictable market conditions and revenue certainty for investors across technologies. This should include measures that strengthen domestic and regional offtake so that new generation is met by demand. Regional co-operation should be further explored to increase market liquidity, including for PPAs. Lithuania is also considering the deployment of advanced SMRs by the late 2030s, with a decision expected in 2028. If pursued, this would build on Lithuania’s nuclear experience, regulatory framework and safety authority. In the current exploratory phase, it is essential to ensure an informed decision while also preparing the conditions for a successful rollout if the decision is positive. To enable this, Lithuania should establish an independent nuclear co-ordination body, mandated to oversee stakeholder engagement, public outreach and international co-operation; define technology selection criteria and, together with the nuclear safety authority, identify necessary regulatory and licensing framework adaptations needed to efficiently regulate and license advanced SMRs.

With increasing electrification and rapid growth in power generation, network capacity must increase to enable new connections. While Lithuania has taken important steps to improve permitting processes, including by giving the transmission infrastructure the status of special national importance, the total construction time for new grids remains long compared to investments in new generation or consumption. Therefore, a forward-looking approach for grid expansion, including on the distribution level, is needed to avoid grids from becoming a bottleneck for the transition. The government should ensure that the regulator has the mandate to look at the whole energy transition beyond cost minimisation of individual projects to create a regulatory framework that allows anticipatory investments into new grids based on projections for future demand for connection capacity. The price regulation for network operators should also encourage a more effective use of existing grids, including by reducing underused capacity and incentivising investments in flexibility and grid enhancement technologies at these locations. 

Electrification of end-use sectors will provide opportunities for more demand-side flexibility, both from aggregation of small users and from large industrial consumption. The potential for small-scale demand-side flexibility is supported by the smart meter rollout and the energy hub that make end-use data available for aggregators; Lithuania should ensure a speedy deployment of this technology. To stimulate electrification in industries, Lithuania could support companies in identifying opportunities for electrifying more of their processes and providing flexibility to profit from using electricity when supply is high. In addition, clearer price signals that incentivise flexibility and grid services are needed. The recent development of new balancing markets is positive, and participation on the markets should be accelerated by reducing the 1 MW threshold for market entry. Furthermore, the regulatory framework for network operators should allow network companies to introduce dynamic grid tariffs to incentivise flexibility from existing and new consumers.

Through dedicated policy support, the number of self-consumers participating in the electricity market has rapidly increased. The growth in self-consumption is important for increasing renewable electricity generation and public participation in the energy market. Most self-consumption is distributed solar PV installations that benefit from the net-metering system. While this drives growth in solar PV capacity, it also creates inefficiencies and costs for the electricity system. To avoid overloading local grids, the distribution system operator is increasingly restricting the connection of new solar PV systems in areas where the capacity cannot accommodate additional production, deterring wider adoption of self-consumption. To enable continuous growth of self‑consumption without causing grid congestion problems and additional costs, the government should gradually phase out the current net-metering model or reform it into a system that provides incentives for solar PV owners to support grid stability and system balancing. The new system could be linked to the support for domestic storage systems designed to increase the share of self-consumption in distributed solar PV systems. A version of the net-billing model, which is already used for commercial self-consumption, could also be applied for households.

Lithuania is one of few countries in the European Union without annual ownership taxation for cars, and has comparatively low taxation for fuels, particularly diesel. The car stock continues to grow while sales indicate constantly increasing vehicle sizes. Also, Lithuania has one of the oldest, and inefficient, car fleets in the European Union. With transport accounting for vast majority of oil demand and half the energy-related greenhouse gas emissions in the country, and road transport completely dominating transport activity, there is a strong case for taxation to play a more important role in driving electrification and modal shifts. The recent development of adding a CO₂ component in fuel taxation is a good step in the right direction, and the European Union’s ETS2 system will further increase fuel prices. Therefore, the main opportunity lies in introducing a CO₂-based annual vehicle taxation. To increase the efficiency of newly registered cars, Lithuania should also consider increasing the current CO₂‑based car registration tax, lowering the maximum of non-taxable emissions factor, and including a weight-based component. Due to Lithuania’s relatively high social and mobility poverty, it should consider making the tax progressive, protecting the most financially vulnerable car owners. Both ownership and registration taxation can be implemented as part of a bonus-malus scheme to provide additional support for EV investments. Taxation could also incentivise a shift to public transport and provide revenues to fund affordable and attractive public transport and infrastructure or be used to further support people suffering from mobility poverty. 

Ongoing electrification of rail lines and subsidised urban bus passes are commendable efforts. However, additional policy measures are needed to change the trend of increasingly higher dependency on private cars and road freight, especially in the context of Lithuania’s energy security targets, mobility poverty, ageing population and the need of vehicle taxation changes. Introducing additional multi-modal intercity tickets and new bus lines with more frequent service would improve public transport opportunities in rural areas. Expanding the paid road network for trucks should be pursued to incentivise a shift to rail, capitalising on its network capacity availability and further supporting the growing length of electrified tracks. Furthermore, the government should strengthen its collaboration with municipalities and public transportation companies to enhance incentives for modal shifts in urban areas, including initiatives to raise social awareness of public transport benefits. The use of congestion fees and low- or zero-emission zones should be expanded across Lithuanian cities, while rising parking fees with temporary exceptions for EVs should be explored. Newly gained funds can be dedicated to subsidising public transport passes and infrastructure. These policies should be implemented alongside strategic financial support to enhance public transportation, prioritising the expansion of bus routes, the passenger rail network and service improvements. Expansion of walking and cycling infrastructure in cities should be continued, while also introducing park‑and-ride hubs in the largest city outskirts.

Electrification will be the main technology to reduce emissions and dependency on oil imports for the large road transport sector. Electromobility also aligns well with the expansion of renewable electricity generation and creates new electricity demand. Due to limited access to private charging, as a large share of the population lives in multi-apartment buildings, the successful public charging infrastructure policy should be maintained. However, the main challenge for electrification is the high purchase price of EVs. A large share of car sales in Lithuania is second hand vehicles, and EVs are not yet available at scale on the used car market. However, other segments can be promoted and lead the way for electromobility in Lithuania, like publicly owned vehicles and corporate cars. Setting binding electrification targets while further promoting electrification of the corporate car fleets, like the currently used purchase grants and value-added tax deduction, could help kick-start a second hand EV market in the country and drive transport decarbonisation in a more affordable way. Public procurement targets for zero-emission vehicles by 2026 and 2030 are steps in the right direction. Government fleets could also leverage leasing and shared mobility to reach their targets. For private vehicles, Lithuania should consider re-introducing the successful trade-in scheme, promoting electric, active or shared mobility as a substitute for old polluting cars. The government could also introduce a social leasing scheme for electric cars targeted at the most vulnerable households.