Baltic Business Quarterly Kevad 2025

With the preliminary study of a planned corridor for transporting green hydrogen connecting the Nordic countries and Central Europe completed, the European Commission allocates EUR 6.8  million for further research

By Māris Ķirsons

Following the successful completion of the preliminary study phase of the Nordic-Baltic Hydrogen Corridor, six European gas transmission system operators — Conexus Baltic Grid (Latvia), Gasgrid Finland (Finland), Elering (Estonia), Amber Grid (Lithuania), GAZ-SYSTEM (Poland), and ONTRAS (Germany), are beginning detailed project research in each of the countries involved. Its primary activities will include a financial and economic analysis of the project, an environmental and security assessment, the planning of the route, and the development of the measures necessary for the successful implementation of the project. This research is slated to be completed in mid-2026. In addition, the participating gas transmission system operators are planning a number of cross-border studies to bolster the planning of the Nordic-Baltic Hydrogen Corridor at the level of the entire project. These studies will involve the coordination of the projects, their technical and commercial approvals, as well as the engagement of clients and other stakeholders. The cross-border studies are expected to continue until the end of 2026.

New business opportunities

‘With this project, Latvia, as well as its foreign partners, is working towards a new energy future,’ explained Uldis Bariss, Conexus Baltic Grid management board chairman. He pointed out that the hydrogen infrastructure will make it possible to transport renewable hydrogen between these six countries, a crucial factor in achieving Europe’s decarbonisation targets and fulfilling the individual energy plans that each of the countries has. ‘This also means new opportunities for local businesses that can participate in building the hydrogen economy, so we hope that this project will bring new investments in Latvia. As the project enters the next phase of its development and as in-depth analysis has started in each of the countries involved, we are working out the project details that will help us implement this ambitious project,’ Bariss said. It is worth keeping in mind that the hydrogen pipeline could send a good signal to developers of hydrogen production projects not only in Latvia but also in Estonia, Lithuania and Poland, especially given that historically, the flow of energy was horizontal, headed from east to west, but due to geopolitics, it has turned vertical, going north to south, with two flows meeting in Germany, which needs these resources. This is exactly the issue that hydrogen infrastructure would address, with Northern Europe providing the hydrogen, and would also serve as a strong incentive for its producers in the Baltics and the Nordics, thus becoming a good way to use the surplus energy generated by solar and wind. Meanwhile, the absence of a hydrogen pipeline necessitates local consumption or other transport options.

EUR 6.8 million for research

The European Commission has announced that the North-Baltic Hydrogen Corridor will receive a grant of EUR 6.8 million for further research. This decision will significantly contribute to the creation of the hydrogen infrastructure that is to link Finland, Estonia, Latvia, Lithuania, Poland, and Germany, thus laying the foundations for Europe’s green energy future. ‘We are pleased that the European Union has supported the North-Baltic Hydrogen Corridor project, confirming its strategic importance and long-term potential. This financing will enable us to continue with our in-depth research, supporting us in creating an efficient hydrogen infrastructure for the future,’ Bariss said.

Priority status

It is worth remembering that back in April 2024, the European Commission officially granted the Nordic-Baltic Hydrogen Corridor the status of a European project of common interest as part of the Baltic Energy Market Interconnection Plan. The European project of common interest status brings various advantages, such as the right to apply for EU project funding and to speed up the procedure for awarding permits.

The Nordic-Baltic Hydrogen Corridor is an initiative that envisages the integration of renewable hydrogen in six EU countries. Upon connecting the production centres in the Nordic and Baltic regions with the main centres of demand, the project will significantly contribute to the decarbonisation of energy systems, including industries that present a challenge in transitioning to renewables, and reduce carbon emissions by up to 37 million tonnes of CO2 equivalent, annually, by 2050.

By Linas Jegelevičius

Klaipėda Port, a vital driver of Lithuania’s economy, is emerging as a leader in the energy transition, spearheading the country’s switch to sustainable hydrogen energy.

One of the port’s most ambitious projects is Lithuania’s first-ever green hydrogen and electricity-powered ship, which was successfully launched at the end of January from the shipyard into the water, thereby marking a milestone in Lithuania’s maritime industry.

The vessel was commissioned by the Klaipėda State Seaport Authority, the organization responsible for managing the port.

“This project demonstrates that Lithuania’s maritime industry can be not only environmentally friendly but also proactive”, Algis Latakas, CEO of the Klaipeda State Seaport Authority, told BBQ.

Despite a challenging geopolitical landscape, the port’s cargo volume reached 35 million tons in 2024 – a 7-8% increase compared to the previous year.

Following the ship’s launch, work has commenced on installing essential engine room equipment, integrating the hydrogen system, and refining the vessel’s interior. These additional enhancements will be carried out in Estonia, ensuring the ship is fully operational and environmentally compliant.

In line with current regulations, vessels calling at Klaipėda Port must dispose of their waste before departure. The Klaipėda State Seaport Authority is responsible for waste collection and has opted for modern and eco-friendly equipment to enhance waste management services.

“The newly developed tanker will play a crucial role in this initiative, designed to collect stormwater, sewage, sludge, and garbage”, Latakas explained.

It will feature specialized tanks and a state-of-the-art rainwater treatment facility, allowing processed water to be transferred to the city’s sewage treatment plants. With a capacity of 400 cubic meters of liquid waste, the tanker will operate 24/7, ensuring efficient and sustainable waste management at the port.

The shipbuilding project is a collaborative effort between the Port Authority, Western Baltija Shipbuilding, and Baltic Workboats. Based in the Port of Klaipėda, Western Baltija Shipbuilding is responsible for constructing the hull, superstructure, and wheelhouse, as well as installing cargo systems. Meanwhile, Baltic Workboats, an Estonian company, will install the main and auxiliary machinery, harmonize ship systems, and integrate the hydrogen fuel cell system.

According to the CEO, Klaipėda Port is actively advancing multiple green initiatives beyond hydrogen-powered ships. The port is currently building two hybrid pilot boats, undertaking a quay electrification project, and developing a green hydrogen production facility.

“These initiatives demonstrate a strong commitment to reducing carbon emissions and implementing sustainable technologies in maritime operations”, said Latakas.

When asked about the impact of shifting sustainability policies in the United States on European and Lithuanian green goals, he responded: “The European Union and Lithuania have set ambitious sustainability goals that are deeply rooted in long-term strategies, such as the European Green Deal. While global policy shifts, including those in the United States, may influence discussions, the EU remains steadfast in its green transition. Lithuania continues to advance sustainability initiatives, ensuring resilience and adaptability in an evolving global landscape”.

Klaipėda Port’s leadership in green energy and sustainability is setting new standards for the Baltic maritime industry and beyond, and making significant strides toward a cleaner and more sustainable future. As Lithuania continues to embrace its green transition, Klaipėda Port is proving that economic growth and environmental responsibility can go hand in hand.

The biggest priority for Elcogen, an Estonian energy scale-up that develops solid oxide fuel cell and solid oxide electrolyser cell technology, is making the technology affordable to the market, according to Elcogen CEO Enn Õunpuu.

By Mari Peegel

Founded a couple of decades ago, Elcogen started building a factory in the Tehnopark near Tallinn last year, which will increase the company's current production capacity of solid oxide fuel cells from 10 megawatts to 360 megawatts.

"The construction work on the factory has gone completely according to plan. Based on the initial plans, we should receive the keys from the builders at the end of May. Then it will take at least six months to scale and tune the processes. The current plan is that we will be able to commence production at the beginning of 2026", said Õunpuu.

During 2026, Elcogen will monitor how the scaling is going and will make decisions on the next steps based on this.

“The plan is to build the factory building in full scale immediately, but we have currently planned two stages for investments in production equipment. In the first stage, we will install approximately a third of the factory's maximum production capacity. Since scaling always includes certain risks, such as technology and process risks, we will wait until all processes are working before making any decisions about the next stage of scaling. This will probably happen at the end of 2026, meaning that we would be able to operate at full scale in late 2027/early 2028”, claimed Õunpuu.

Since Elcogen has largely automated the work, the company is not affected by the shortage of skilled workers in Estonia.

"As the new factory scales in phases, we will need to increase our workforce by recruiting engineering and technical talent, which is challenging in this highly specialized niche. We will need to expand our searches beyond Estonia. Today, our company’s 150 employees are nationals of 20 countries, from South Korea to Brazil. As we move to the next phase of scaling, we will also require additional workforce on the shop floor. However, a significant portion of the manufacturing process is already automated", he added.

Research and development activities are ongoing at Elcogen. “I have always said that the day you finish product development is the date of the company’s collapse. We do it all the time and in large volumes both in Tallinn and in Finland, where our subsidiary is located”, said Õunpuu.

Research and development challenges at Elcogen are divided into two types.

“We don’t need to prove whether the technology works or not. The challenge over the years has been how we can make this technology affordable to the market – so that the hydrogen produced with this technology is competitive in price with fossil hydrogen or electricity produced through combustion processes”, he continued.

However, according to Õunpuu, any technology has its own evolutionary curve.

“Let’s look at solar panels, for example. Their working principle was discovered a hundred years ago, while just a couple of decades ago we could already see real solar panels in their current form and understood that they could produce energy. In a few years, solar panels have been so affordable that we can go to a building supplies store and buy one for ourselves. This comes from two things: one is scale, which reduces the cost base, and the other is increasing efficiency, which means that you use fewer units in the device to produce the same amount of energy”, he stated.

According to Õunpuu, improving production processes also plays a role: if you scale, you also have to make the processes more automated and faster. He believes their technology does not always necessarily require a low renewable energy price.

“Industries that use hydrogen generate a lot of waste heat in the process. Waste heat is an advantage of our technology because by using it, we can achieve much higher efficiency, which can be close to 100%. Electrolysis technology, which operates at lower temperatures, cannot offer this. It usually operates with an efficiency of 55-60%. Our technology operates at a higher temperature and on a steam base, which is much more energy-efficient. We can offer the same hydrogen price even with a more expensive energy input”, stated Õunpuu.

Elcogen’s main customer base is in Asia. “Our technology is mainly used in electricity production rather than in hydrogen production. Distributed electricity production can be adjusted very quickly according to consumption needs. This is what is needed today to compensate for the availability of erratic wind and solar energy: to have a very quickly scalable production capacity that is more efficient and environmentally friendly, as our technology is”, he added.

Õunpuu points out that the main applications in Asia that use Elcogen’s technology combined with local biogas are data centres where AI data is processed. In terms of electrolysers, he mentions a client in France whose applications are in the steel industry.

“The steel industry has a very large environmental footprint, and reducing it and utilizing the heat of high-temperature processes is the combination that our applications can offer”, he said.

In October 2023, Elcogen announced that Korea Shipbuilding & Offshore Engineering (KSOE), a member of HD Hyundai Group, was investing €45m in the Estonian start-up Elcogen and its solid oxide technology. A year later, Elcogen received additional funding worth around €31m from the US energy company Baker Hughes, and additional investments have followed.

Elcogen is now in the process of raising further investment, which it plans to conclude in the autumn.

“We will continue with the same advisor we had for the previous rounds – Rothschild. We are talking to several strategic investors who have synergies with our current strategic investors of Hyundai and Baker Hughes”, Õunpuu revealed.

Another direction that Elcogen is looking at is potential consolidations with companies with which they have strategic synergies and where Elcogen could offer something with its technology that they don't.

"These are companies that are currently bringing a slightly different type of electrolyser application to the market, where our electrolyser technology could offer an addition, such as high-temperature applications. We are actually already starting talks with such companies”, he concluded.

Naco Technologies, a Latvian nano-coating solution provider for green energy systems, believes that hydrogen is a major opportunity in the switch to an eco-friendly economy.

By Anda Asere, exclusively for Baltic Business Quarterly

 This start-up helps to do it by providing catalytic and protective coatings for hydrogen system components. Today, hydrogen is produced from fossil fuels with high carbon emissions. A green alternative is to convert excess solar and wind energy into hydrogen via a water electrolysis process. Hydrogen produced in this way is highly aggressive chemically, so electrolyzer components need protection with advanced coatings. Currently, most widely used coating deposition methods are outdated and not scalable due to high production costs and the use of precious and scarce metals.

Naco Technologies provides catalytic and protective coatings for hydrogen system components, such as membranes, anodes, cathodes and bipolar plates. Its technology makes it possible to create complex, nano-composite coatings with outstanding properties.

Great promise for the green hydrogen industry

The high-speed magnetron sputtering technology developed by Naco Technologies holds great promise for the green hydrogen industry. It can sputter almost any material at a high rate and combine them into novel nano-structure coatings. PEM electrolyzers and fuel cells are essential components in hydrogen production and storage, but their reliance on materials like platinum and iridium makes them expensive and less sustainable.

“Naco Technologies’ innovative catalytic coatings aim to eliminate or significantly decrease the usage of these materials, thereby reducing the cost and environmental impact of hydrogen production”, says Aleksandrs Parfinovičs, co-founder of Naco Technologies.

As the world moves toward decarbonisation, green hydrogen has emerged as a clean, sustainable energy source with a wide range of applications, from transportation to industry. However, the high cost of production has been a significant barrier to widespread adoption. Naco Technologies' technology could help overcome this hurdle, making green hydrogen a more economically feasible option for businesses and consumers alike.

At the moment, the start-up has a pilot production line in Riga, Latvia. But it is preparing for large-scale production too. A high-capacity manufacturing facility will be in Poland, aiming to scale production capabilities to meet the growing demand for nano-coated components across Europe and beyond.

One day Naco Technologies will be in the sky

But that’s not all. Under a program funded by the European Space Agency, Naco Technologies is setting the stage for a leap in hydrogen fuel cell technology for space applications. This project will be in partnership with PowerUP Energy Technologies, an Estonian producer of sustainable energy generators. Together, the companies are preparing to test and use high-speed magnetron sputtering technology in manufacturing catalyst-coated membranes – a key component of hydrogen fuel cells. The essence of this project is not just to innovate, but to redefine efficiency and sustainability in the hydrogen fuel cell domain. By deploying a patented high-speed magnetron sputtering technology, the team aims to refine the catalytic layer of these membranes. The expected outcome is a significant boost in the efficiency and durability of proton-exchange membrane fuel cells and a considerable reduction in production costs.

The membranes developed through this project are destined for use in the energy systems of spacecraft and satellites, potentially revolutionizing the way we approach space exploration. The promise of increased longevity and reliability under the harsh conditions of space points towards the possibility of longer, more autonomous missions with reduced energy consumption.

Not exactly newcomers to the industry

The Naco Technologies team has a proven history of working with nano-coatings. In 2009, the team met at the Commercialization Reactor's Ignition event. They developed a nano coating for the automotive industry that reduces friction in car components. In 2015, the start-up sold this invention to the German company Schaeffler Group. A few years later, the original team came together and decided to start a new venture.

At the moment, Naco Technologies has raised €4 million in investment to bring their ideas to life. Together with the EIC Accelerator grant, the total financing has now reached €6.5 million.

The Baltic States must consider developing additional base capacities that are fully controllable and can be used in all circumstances, claims energy expert Āris Žīgurs.

By Armanda Vilciņa

“A good solution in this case would be the construction of a small-scale nuclear power plant, but the progress of such projects can take considerable time. The fastest way to create new base generation capacities for Latvia, Lithuania, and Estonia would be by building gas power plants”, says Žīgurs. He thinks that although the existing capacities may seem sufficient from a mechanical security standpoint, the amount of base capacities is still quite limited. “The Riga thermal power stations have a total of only four generating units, any of which could fail or require maintenance at any time. In such cases, it would be beneficial if Latvia or another Baltic country had alternative controllable capacities available”, he adds.

In recent years, the term energy crisis has frequently appeared in public discussions. Can we now say that this crisis is over?

I wouldn’t describe it as a crisis in the traditional sense because I think we were all simply facing a fear of the unknown. Energy users, politicians and the institutions responsible for the energy sector were all deeply concerned. Up to 2022, a significant share of the European Union’s (EU) energy resources came from Russia. When the war in Ukraine began, it became clear that restricting energy exports would create not only financial strains but also supply challenges. We had to quickly find alternatives and adapt to a new reality. Now, we can say that we have successfully navigated this challenging period, but it was not a typical energy crisis. At no point did we experience an actual resource shortage that threatened basic survival. Instead, the main challenge was the sharp rise in energy prices and its impact on economies and consumers.

The abandonment of Russian gas led to significant transformations in the Baltic energy market. How did the Baltics cope with this situation?

I believe we have successfully adapted to the new conditions. It has been about ten years since Latvia began purchasing gas via the Lithuanian liquefied natural gas (LNG) terminal. That made the transition away from Russian gas a bit easier, as gas consumers and traders were already familiar with alternative supply methods. In recent years, the circulation path of natural gas has become completely clear. Market participants know where LNG can be obtained and are familiar with the ordering and procurement procedures for this resource. Latvia's greatest advantage is the Inčukalns underground gas storage, where the gas can be stored all year round. This storage provides us with significant advantages compared to other countries that do not have such large storage facilities capable of meeting annual gas consumption needs. I can confidently say that we do not currently feel a shortage of natural gas, as the resource is available to us in the necessary quantity and quality. To be honest, I think natural gas suppliers would only be happy if we consumed more gas.

What are your forecasts regarding natural gas consumption in the Baltics?

Natural gas consumption in Latvia will certainly not decrease in the next five or ten years. To ensure a secure and reliable supply of electricity in the Baltic region, it is essential to utilize Riga's thermal power plants, which operate on natural gas. Under the current circumstances, we cannot function without them. As such, we cannot operate without natural gas. If we talk about Estonia, it should be noted that the gas consumption there is already very low, but if a new gas thermal power plant is built in Estonia, consumption could naturally increase. It is difficult to assess the situation in Lithuania. For example, the company “Achema”, which historically has been one of the largest natural gas consumers in the Baltics, has not been operating at full capacity for several years. If “Achema” returned to full capacity, it could consume a very large amount of gas and increase the total consumption. In any case, no matter how much solar and wind power we have, there will be moments when we will need to use gas for electricity production.

When it comes to energy security, how do you assess the current situation in the Baltic region? Given the recurring damage to various electricity and gas lines in the Baltic Sea, can we truly consider ourselves safe?

Ensuring a country’s energy supply is a highly complex, multi-layered, and challenging task. We all follow the information in the media and see that the politically responsible officials claim that everything is in perfect order. At the same time, energy market participants and experts are aware that this is only the tip of the iceberg. Energy sector security is influenced by multiple factors. Last year, due to technical failures, the Estonia-Finland connection was out of operation for more than six months, limiting access to low-cost electricity from Finland. Now, we are facing a similar situation once again, although this time it is not the result of a technical failure, but rather a deliberate and malicious act. A malfunction of this cable means a significant loss of power for the Baltic market amounting to 650 megawatts. Of course, the Baltic region has sufficient electricity generation capacity, allowing us to maintain operations and ensure that consumers receive the necessary amount of electricity. At the same time, I would say that the Baltic region needs to develop additional base capacities to strengthen its energy security. Although the existing capacities may seem sufficient, the amount is still quite limited from a mechanical security standpoint. The Riga thermal power plants have a total of only four generating units, any of which could fail or require maintenance at any time. In such cases, it would be beneficial if Latvia or another Baltic country had alternative capacities available. These capacities must be controllable, ensuring the ability to switch them on and off as needed.

Exactly what solution do you think would be the best in this case? A couple of years ago, you mentioned the construction of a nuclear power plant as one of the options – is that still relevant?

I know that in Estonia, based on private initiative, a public limited company called “Fermi Energia” has been established, which is attempting to develop a modular reactor nuclear power plant project in Estonia. The Estonians plan to involve multiple participants in this project, and public information suggests that “Latvenergo” has also shown interest in it. The total costs are estimated at nearly one billion euros, making it clear that significant investment is needed to develop this project. The construction of a small-scale nuclear power plant would be a good solution for the Baltic region, but unfortunately, progress on this matter has been very slow. I believe the fastest way to create new base generation capacities for the Baltics would be by building gas power plants.

The Chairman of the Board of “Augstsprieguma tīkls” has said that in Estonia and Lithuania we already have stations that can be used if necessary. Isn't that enough?

As a modern society, we should be using efficient equipment. The efficiency of Lithuania’s Soviet-era turbines is very poor. If we generate electricity using old equipment, approximately two-thirds of natural gas is simply wasted into the atmosphere. It is clear that we will need electricity in the future too so we must find a long-term solution.

You already mentioned that the Riga thermal power plants play a significant role in ensuring Baltic energy security. Historically there have been many negative comments about the fact that these stations use gas for electricity generation. However, in the current situation, everyone is quite happy that we have them.

Exactly! I would like to know where these people are who criticized the modernization of the Riga Thermal Power Plant-2 15 years ago and argued that gas stations should be shut down because they would not be needed in the future. In February, when the Baltic States synchronized with the European grids, it was the thermal power plants that ensured the stability of the grid. Without them, we would not have been able to manage, and we will not be able to do so in the future either.

How do you assess the desynchronization process?

The process itself was successful, but we still have a great deal of homework to do. One of the main tasks is the installation of synchronous compensators. In addition to that, we also need to finalize the installation of the Battery Energy Storage Systems in Tume and Rezekne. All these things will help maintain a stable grid operation and frequency. Lithuania has completed these tasks earlier than Latvia, but we are working to catch up. There is still much to be done in 2025.

How will desynchronization affect electricity prices in the Baltic States?

We should not expect investments worth millions to come at no cost. We will have to pay for this equipment, even though part of the costs will be covered by EU funding. Additionally, we will need to pay for the operation and processes that the equipment ensures, such as frequency stabilization services. Moreover, it is known that at the beginning of this year, Latvia and the Baltics started actively participating in the balancing market. All of this will not reduce electricity prices. Energy independence, within which we must ensure a full energy supply security package, certainly comes with a price. It's not for free.

What is the situation regarding resource availability in the Baltic States?

Resource availability is reflected in prices. At the beginning of the war in Ukraine, for example, the price of natural gas went up to 200 EUR per megawatt-hour (EUR/MWh). Currently, it stands at 50 EUR/MWh, and last spring, it was under 30 EUR/MWh. Therefore, it can be said that the situation is much better now than it was three years ago. I believe that this spring, we should not expect any surprises. Only time will tell what happens later. The market will certainly also be influenced by ongoing processes in the United States, where a significant portion of the LNG that reaches Europe is sourced. In any case, I hope that in the future we will rely solely on gas suppliers that are safe and do not use the funds obtained from gas to finance military operations.

How do you evaluate the development of the renewable energy market in the Baltics?

The overall situation in the Baltics is excellent. Of course, not all investment projects are progressing as quickly as investors had hoped, but overall the situation is good. When it comes to Latvia, it's true that we are slightly behind our neighbours in terms of installing new renewable energy capacities, but positive trends are emerging in Latvia as well.

What are your predictions for the future of the Baltic energy market – could we become exporters of renewable energy?

To make the most efficient use of renewable energy, Europe needs to develop so-called transcontinental networks – high-voltage grids with large capacities that would enable the transport of energy not just over a thousand kilometres but much further. In the Baltics, we can build numerous renewable energy stations, but we might face a situation where there will be nowhere to export this electricity. One connection to Poland is simply not enough. With regard to the resources, I think the Baltics will still mainly use the same resources in ten years – gas power plants as a base and renewable energy stations as an addition. In the future, I believe we will see more renewable energy stations competing for space to generate energy as efficiently and cost-effectively as possible.

Life in the Baltic States has become more expensive, as excise duty rates have been raised in all countries, while labour taxes have changed significantly in Latvia and Estonia, as have profit taxes in Estonia and Lithuania.

By Māris Ķirsons

This is according to the BDO research on tax changes in the Baltic States. 

“In recent years, the Baltic States have become a region where tax changes have been relatively rapid, mostly in the form of increases in several tax rates”, says Jānis Zelmenis, Partner at BDO Latvia, describing the overall situation. He justifies his statement by saying that basically all tax changes are bad news for taxpayers – because they will have to pay higher taxes, and because all countries have increased car taxes, excise duties on fuel, alcohol and tobacco, while in Latvia even sweetened soft drinks are taxed at a higher excise duty rate. Excise duties also affect electricity, and in Estonia they have been increased by around 40% for this essential energy source.

Main change

“The most significant change in labour taxation has been in Latvia, where the previous three personal income tax rates will be replaced by just two in 2025, but at significantly higher rates. While the lowest personal income tax rate was 20%, it is now 25.5%, a quarter higher than before, and while 20% applied to income of up to EUR 20,004 per year, the new rate will apply to incomes of up to EUR 105,300 per year (EUR 8,775 per month), while higher income earners will have to pay 33% instead of the previous 31%”, explains Zelmenis. He points out that in Lithuania, the personal income tax rates were already revised in 2024, resulting in a 20% rate for incomes up to EUR 126,532 and a 32% rate for incomes above this amount. In Estonia, the tax rate is 22% from 2025 instead of the previous 20%. “Although Lithuania currently has the lowest personal income tax rate at 20%, it is more profitable to hire high-level professionals in Estonia, where the rate is 22% regardless of income, while in Lithuania the rate will apply to incomes of up to EUR 126,532 per year, and above that it is 32%”, Zelmenis calculates. He points out that Latvia’s first personal income tax rate – 25.5% – is higher, not to mention the next rate up – the 33% threshold – which starts at EUR 105,300 per year, and a further 3% rate if incomes exceed EUR 200,000. This additional tax is aimed at “taking” more money in taxes from recipients of large dividends and sellers of expensive real estate, etc. “At the same time, neither Lithuania nor Estonia have such an additional tax on high-income earners”, Zelmenis explains.

Capital gains tax surge

“The fact that every benefit – interest payments on bonds, sale of real estate in Latvia – is taxed not at the previous rate of 20% or one fifth, but at the much higher rate of 25.5% (+3% if annual income exceeds EUR 200,000) will hit everyone who has sold their flat, land, inherited property, or has received income from shares, stocks and bonds”, adds Zelmenis. He points out that, by comparison, capital gains tax in Estonia is 22%, while in Lithuania it is 15% on incomes of up to EUR 253,065 per year and 20% on income above that amount. BDO’s research shows that Latvia currently has the highest capital gains tax rate in the Baltics, with a top rate of 25.5%, almost at the level of the German minimum and Austrian standard rate, but higher than the Spanish minimum rate of 19%.

Profit tax fluctuations

Zelmenis states that in Estonia, the corporate tax rate is 22% from 2025 instead of the previous 20%. In addition, the reduced corporate tax rate of 14% for regular dividend payers has been abolished in Estonia. In Lithuania, the corporate tax rate has been increased to 16% from the previous 15%. In Lithuania, small businesses with an annual net turnover of less than EUR 300,000 (and no more than 10 employees) will be taxed at 6% instead of the previous 5%. “From 1 January 2026, Estonia will see another change to corporate income tax that is unlike anywhere else. Specifically, the corporate tax rate will be raised to 24% instead of the current 22%, but with the proviso that all companies will have to pay it at 2%, whether or not they pay dividends or carry out transactions equivalent to their payment”, claims Zelmenis. He adds that in Estonia, there will be two different corporate tax schemes within the same corporate tax system. “Latvian and Estonian companies may find the deferred CIT system more attractive than Lithuania’s 16% annual rate, while Estonia’s increased 22% CIT and 2% additional rate from 2026 could make Latvia the most attractive country in the Baltic States”, he argues.

Rising VAT rates

Zelmenis goes on to say that the Estonian government already increased the standard VAT rate from 20% to 22% from 2024, but from 1 July 2025 the standard VAT rate will be 24% instead of the current 22%, which will be the highest in the Baltic States, as it is currently 21% in Latvia and Lithuania. In addition, the reduced VAT rate from 2025 is increased by four percentage points for accommodation services, from 9% to 13%, and for newspapers, from 5% to 9%. “Latvia and Lithuania also need money in their budgets, so it is not impossible that Latvia and Lithuania may follow its Baltic neighbour”, Zelmenis concludes.

Nowadays, not many things seem truly unique anymore. But Edgars Ameriks has still managed to carve out a special place for himself in the world of art and fine craftsmanship. The Latvian peat artist has pioneered the innovative use of this natural resource for art and design in his home country and beyond.

By Alexander Welscher

Peat has a special status in Latvia. It is one of the country’s few domestic natural resources, and its extraction contributes significantly to the Latvian economy and exports. On account of its crucial role, this dense organic material that builds up over thousands of years in wetlands and bogs has been referred to as “brown gold”. Almost one third of the peat used in professional horticulture in the EU comes from Latvia – for growing food and decorative plants as well as tree saplings. One cubic metre of peat can grow 7,000 seedlings, but the resource is now also used in other unexpected ways – in art and interior design.

“Nothing is like peat. It is a unique material for me”, says Edgars Ameriks, whose lifre revolves around peat, not only as the Marketing Manager of the Latvian peat extraction and processing company Laflora. The 43-year-old is also a peat artist and his works are setting a benchmark of excellence and innovation in Latvia, hoping to encourage others to study and exploit the potential of peat and to help change the public perception of this base material and its origin. Not least because peat is often in the crossfire of criticism due to the environmental impact of its extraction.

In an abandoned former Soviet building in Kalnciems near Jelgava, Ameriks has created a kind of peat information centre – the so-called Peat House. Located by the river and near one of Laflora’s peat bogs, it serves as his creative haven. When working there, the trained sculptor gives hands-on art workshops, organises art projects and allows visitors to watch him at work with his favourite material. “The concept is to educate people about peat and let them know more about it. That it is not just good for food production, soil improvement or horticulture, but is a versatile eco-friendly material and can be used for various other purposes too”, claims the peat artist, who seems to have an almost emotional connection to this renewable natural resource.

Where peat meets art and innovation

For more than 15 years, Ameriks has been researching possible new and innovative ways of using peat. Inspired by the laws of nature, he first used it as a base material for a pot for sprouting plants. “The Peat House has been so important to me. It is designed to create new life and give the first impulse to all artistic activities related to the use of peat”, the artist told Baltic Business Quarterly during a visit to Kūdras nams, as the Peat House is called in Latvian. Almost everywhere inside the workshop is some form of peat. No matter where you look, you see the organic material in different shapes, sizes and variations.

Ameriks designs and makes sculptures, objects, furniture and wall coverings. Over the years, he has created many types of experimental prototype design and art works made out of peat, such as ceiling lamps, vases, tiles and tables with peat surfaces. Unique premium products made from “Latvian marble”, as Ameriks calls the processed peat, in limited amounts without standard price tags. Some of them have already been used as interiors for public spaces in the office building of a peat extraction and processing company in the Netherlands and in a concept store at a ski resort in Courchevel, France.

“The properties of dried peat are similar to pressed wood. You can almost make everything from it – the range is very wide. If you know how to do it and understand what you are doing, this resource can be exploited in all kinds of ways and modelled in any shape”, explains Ameriks, adding that it needs time, patience and dedication until you can work properly with it. Controlling the base material has been a challenge, as peat had never been processed in this way before. Ameriks had to acquire the necessary skills over many years on his own from scratch. “The most important things are knowledge and experience”, he stresses.

Treasures from the bog

Preparing the peat for art and innovation takes around three years – starting with the extraction by hand in the field and the drying cycle in the bog, in barns and indoors in special climate conditions, through to the final stage when the organic material is dry and stable, and ultimately has the properties required for processing. Sorted neatly and tidily, Ameriks stores and monitors his peat blanks in a warehouse that he calls the peat library, before he forms them in his workshop into art and design objects. He has also experimented with peat in epoxy and has developed peat composite material and plaster paint made out of milled peat.

More fragile and lighter than timber, peat is highly sensitive and durable at the same time. “This texture is unique. It looks like a stone, but is actually very light and easier to handle than wood. But you have to be careful since even the slightest physical touch might break the pieces”, Ameriks explains after he has cut off a brick-sized piece of a large peat block. Now he carefully takes the piece in his hand and points with his finger to the different shades of colours and density. “This is like a map for geologists. We can see here various types of humid plants. Inside there are some dark parts, which means the peat bog was once on fire”, he says, adding that the texture is unique for each peat brick and inspires his choice of what art or design work he will create out of it.

This transformative power of the bog and its uncanny ability to preserve things that were once buried or submerged and left behind for perhaps more sinister reasons has been a point of inspiration for other artists too. Bogs have long played a role in literature, especially poetry. The Irish poet and Nobel laureate Séamus Heaney (1939-2013) once described the bog as “a landscape that remembered everything that happened in and to it”. And just as Heaney returned to the subject again and again in his poems, so has Ameriks explored the bogs in depth and extensively in his practice as a visual artist. “Whenever clients ask me to create an artwork, I always invite them first to the bogs where I explain to them what peat actually is. Otherwise they will not understand its value.”

“In the coming years, we aim to enhance our footprint in the Baltics, positioning ourselves as a trusted partner by offering innovative and sustainable solutions tailored to the diverse needs of our clientele,”

This is what BASF's Managing Director in the Baltics Roberto Salmito tells Baltic Business Quarterly Magazine.

Can you start by sharing BASF's focus in the three Baltic countries?

Absolutely! At BASF, our commitment to creating chemistry for a sustainable future is paramount. With over 110,000 employees globally, we strive to contribute to the success of our customers across nearly all sectors. Our portfolio is organized into six key segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care, and Agricultural Solutions. In the coming years, we aim to enhance our footprint in the Baltics, positioning ourselves as a trusted partner by offering innovative and sustainable solutions tailored to the diverse needs of our clientele.

In Estonia and Latvia, for instance, the wood and furniture industry is quite significant. Within the scope of wood treatment and processing, we provide our customers with high-performance coatings and adhesives specifically designed for this sector, thereby helping manufacturers to enhance durability and sustainability. In Lithuania, we recognize the strength of the chemicals industry and collaborate with our customers in various industrial areas, ranging from rubber and plastic production to chemical catalysts for fume cleaning, finally improving the performance and sustainability of consumer products. What is equally relevant in the three Baltic countries, however, is our Agricultural Solutions segment, where BASF provides a wide range of innovative crop protection products and seeds to local farmers. Despite our strong commitment and growth in this sector in the past years, we are focused on expanding our presence in all industrial sectors to address the unique challenges and opportunities of the market.

What specific solutions does BASF offer to potential clients in the Baltic region, particularly in wood production, biochemicals, and coatings?

In the wood production sector, we offer high-performance paints and finishes, adhesives, and treatment solutions aimed at enhancing the durability and sustainability of wood products. One of our popular brands, Kaurit®, features a portfolio of highly efficient glues, hardeners, and impregnating resins with a sustainable and low-emissions profile, suitable for various applications in the woodworking industry.

Another area where we bring a long history of expertise and innovation is in Expendable Polystyrene (EPS), which has set the standard for insulation and packaging applications for many years. BASF's EPS experience goes back over 65 years; we patented Styropor®, the classic white expandable polystyrene, as early as 1951. Then many years later, we enhanced it by incorporating graphite particles, significantly substantially improving its insulation properties. This innovation resulted in our NEOPOR® brand, which has become synonymous with grey polystyrene, especially in Lithuania. This product is relevant for both new construction and renovation projects, particularly in light of the European Green Deal.

In the bioplastics arena, we offer certified compostable polymers made from PBAT (polybutylene adipate terephthalate) and PLA (polylactic acid) under the brand Ecovio®. These can be used in applications such as organic waste bags, agricultural films, and dual-use carrier bags, providing versatility for our clients.

BASF also supplies a complete product range for construction and packaging application manufacturers in the Baltic States.

What trends has BASF observed in Latvia, Lithuania, and Estonia in recent years?

BASF has observed several key trends across the Baltic States that reflect a broader movement toward innovation, sustainability and farm economics. Businesses are increasingly focused on adapting to changing regulations and consumer expectations, seeking materials and products with a better environmental profile that at the same time do not compromise on profitable development.

In agriculture, there's a noticeable shift toward more innovative farming practices, with farmers adopting integrated pest management approaches and seeking products that enhance soil health and crop resilience. This trend aligns with the new European "Vision for Agriculture and Food", which recognizes farming and food production as essential sectors for the EU, emphasizing innovation, sustainability, and generational renewal. BASF is proud to support farmers with a comprehensive range of solutions, from crop protection to seeds and digital tools.

How does BASF assess the business environment in the three Baltic States from a tax and market regulation perspective?

We view the business environment in the Baltic States as dynamic and promising, characterized by strong economic growth and favourable conditions for new businesses. The region offers unique advantages, including a competitive corporate tax environment that facilitates efficient business formation.

The commitment to innovation and digital capabilities makes the Baltic States an attractive hub for investors. Furthermore, the emphasis on flexible and transparent legislation fosters a business-friendly atmosphere that encourages entrepreneurship and attracts foreign direct investment.

Does BASF see growth potential in Estonia, Latvia and Lithuania in the coming years?

Absolutely! We see significant growth potential in the Baltic States across various sectors, not just in agriculture. Our commitment is to expand our presence in Chemicals, Materials, Industrial Solutions, Surface Technologies, and Nutrition & Care.

The Materials segment presents opportunities for developing advanced materials, while the Industrial Solutions and Surface Technologies segments offer potential in construction and manufacturing. Additionally, the Nutrition & Care segment responds to the growing consumer demand for health and wellness products.

BASF remains dedicated to leveraging its expertise and resources to contribute positively to multiple industries in the region while supporting sustainable development. To ensure this, we have been establishing local representative teams to help us stay closer to our customers and their needs. This approach allows us to respond to today's market demands and assist our customers with technical expertise to help their businesses grow and succeed.

CV

Roberto Salmito

Work Experience:

Managing Director
BASF in Baltics, Vilnius, Lithuania

Feb 2024 – Present

Head of Agricultural Division Hungary

BASF Hungary, Budapest, Hungary

2019 - 2024

Head of Controlling & Commercial Director
BASF Russia
2013 – 2019

Performance Management

BASF Germany

2010 - 2013

Strategy Consultant

Shula Hadi & Company Germany

Education:

Degree in Economics 

University of Mannheim