Russian President Vladimir Putin and Belarus President Alexander Lukashenko have signed off on an agreement to unite their energy markets as part of plans to create a Union State.

The treaty lays the legal groundwork for the creation, operation and development of the market regulating the purchase and sale of electricity. However, signing the agreement does not guarantee the immediate operation of the joint market.

The deal does not outline a specific timeline for the launch of the Union State energy market, which it is believed may commence operations by January 1, 2025. In Belarus, the draft agreement received approval last year on November 27, 2023, by Decree No. 376.

Belarusian Energy Minister Viktor Karankevich initially declared a start date of January 1, which was subsequently retracted by the Russian Ministry of Energy citing unresolved technical and legal details. Later announcements set the market's launch for January 1, 2025, and a unified market for the Eurasian Economic Union (EEU) by 2027, though these dates remain tentative given ongoing disagreements between the countries.

Belarus is keen to capitalise on the unified market, seeing it as an opportunity to export surplus electricity generated after the commissioning of the second unit at the Russian-built Ostrovets (aka Astravets in Lithuanian) nuclear power plant (NPP). With markets in the Baltic States, Ukraine and Poland closed due to sanctions, Belarus has little choice but to export to Russia, as the NPP was built with more capacity than that necessary to supply the domestic market and was always intended as a money-making export venture.

The Baltic States and Poland are distancing themselves from the Belarusian and Russian energy grids, opting to synchronise their power systems with the EU network by February 2025, supported by approximately €1.2bn from the EU, covering 75% of the synchronisation costs. The two grids are currently still connected but that tie is due to be cut at the start of next year.

The Belarusian Ministry of Energy says that the exit of the Baltic States from the regional power ring will not have an impact on Belarus' power system operations but will influence energy costs in those states. Meanwhile, the cost of electricity in Belarus continues to rise, often announced retroactively.

Experts note significant hurdles before Belarusian electricity can freely flow into the Russian market. Belarus lacks a developed electricity market, unlike Russia, which has been operating under market conditions for over a decade with established infrastructure and exchange trading. Additionally, Russia's surplus energy capacity of about 20 GW diminishes the need for Belarusian electricity, potentially leading to resistance from Russian industry lobbyists.

In order for the joint market to work, Belarus and Russia must resolve critical issues including market model unification, regulatory approaches and price setting for services. A particularly contentious issue remains the equalisation of gas prices between Belarus and Russian producers, a topic that has long been mired in wrangling.