An Expert's View about Electricity Generation and Distribution in Latvia

Posted on: 28 Sep 2010

This report provides an overview of energy sector in LATVIA and identifies the investment and trade opportunities for UK companies wishing to invest or sell their products and services.

Energy ? Latvia Sector Report ENERGY LATVIA Produced by: Ms Santa Plivca, Senior Market Adviser, British Embassy Riga th Last revised 29 May, 2009 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Enterprise & Regulatory Reform, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published xxx 2009 by UK Trade & Investment. Crown Copyright © Energy ? Latvia Table of Contents OVERVIEW 3 OPPORTUNITIES 7 CHARACTERISTICS OF MARKET 8 KEY METHODS OF DOING BUSINESS 9 MORE DETAILED SECTOR REPORTS 10 PUBLICATIONS 10 EVENTS 10 CONTACT LISTS 11 Page 2 of 13 Energy ? Latvia OVERVIEW Careful and economic use of natural resources is important in all national economy sectors in the context of sustainable development of the country, hence special attention in Latvia is paid to issues of environment, ecology and energy efficiency. Both the imported (natural and liquefied gas, oil products, coal) and local energy resources (wood and peat) are used in Latvia to provide fuel, electricity and heat to national economy sectors, commercial consumers and population. Part of electricity is generated mostly by Latvian HPPs and CHPs, whereas other part is imported. In heat generation mainly the imported fuels (natural gas and oil) and local fuels (wood) are used. In 2007, the total energy consumption of Latvia was 211.2 PJ, and 70.9 per cent of this consumption was ensured by imports of energy resources mostly from Russia (natural gas ? 29 per cent, heavy fuel oil ? 2.3 per cent, other oil products ? 35.7 per cent, coal ? 1.9 per cent). Among local energy resources, wood was used the most (firewood, remainders from woodprocessing, woodchip, wood briquettes and granules), comprising 23.1 per cent of the total energy consumption. Share of the electricity generated by Latvian HPPs and wind power stations in the total energy consumption was 4.7 per cent. Consumption of Energy Resources in Latvia 1 (thousand tons of equivalent fuel ? ktce ) Consumption of energy resources 2002 2003 2004 2005 2006 2007 Energy resource consumption ? total 6226 6514 6648 6770 7021 7206 of which: - natural gas 2050 2138 2114 2155 2233 2158 - light fuel products and other oil products 1717 1857 1950 1995 2225 2442 - heavy oil, shale 230 166 132 113 77 59 - firewood, peat, coke and other types of fuel 1537 1655 1719 1722 1725 1691 - coal 99 90 87 107 116 145 - electricity (HPPs, wind generators and 593 608 646 678 645 711 imported from abroad) Source: CSB and the Ministry of Economics 1 1 ktce = 0.02931 PJ Natural Gas Natural gas in Latvia is used in heat generation, power generation, and the manufacture of construction materials, agriculture, food and many other industries as well as for the utility needs of enterprises. At present, JSC Latvijas Gaze is the only merchant in the natural gas market in Latvia. In compliance with licenses issued by the Public Utilities Commission, Latvijas Gaze carries out transmission, distribution, storage and sale of natural gas, whereas approximately 70 companies compete in supply of liquefied petroleum gas. Latvijas Gaze supplies natural gas to industrial clients through its centralised gas supply network, also carrying out and financing parts of engineering and installation works for the establishment of new connections. The biggest consumers of natural gas are CHPs and heat supply enterprises of ?Latvenergo? (57.3 per cent), industry (20.8 per cent) and other consumers (around 21 per cent). Riga region accounts for 80 per cent of the total natural gas consumption in Latvia. Natural gas is not used at all in Latgale region, with the exception of Daugavpils and Rezekne cities and Preili district. In Kurzeme region natural gas consumption is the biggest in Liep?ja and reaches approx. 11 per cent (by JSC ?Liep?jas siltums? and JSC Page 3 of 13 Energy ? Latvia ?Liep?jas metalurgs?), while in Zemgale region it amounts to approx. 4per cent (in Jelgava city and Bauska district). 3 Natural gas consumption (million m ) 1800 1750 1700 1650 1600 2003 2004 2005 2006 2007 Source: CSB Latvia is luckily endowed with a unique natural resource ? the Incukalns Gas Reservoir, which is the largest natural gas storage in Europe with a capacity of approximately 4.4 billions m3. As a result, the country is in a very favorable position in terms of gas supply costs, also providing gas storage for the two other Baltic States and the most western part of the Russian Federation. The reservoir enables the operator JSC Latvijas Gaze to avoid problems arising out of seasonal demand fluctuations and to more effectively utilize existing gas pipeline networks. Oil Oil products are used both as heating fuel and liquid fuel. Prices in the oil product market are liberalized and competitive in regard to other types of heating fuel. Free market principles function with regard to oil product supply in Latvia. Oil products have an important place in Latvian market of energy resources. Their market share is slightly higher than 30 per cent, including the share of heavy fuel oil in the oil fuel balance amounting to approximately 4 per cent. The biggest consumers of heavy fuel oil are heat supply (65 per cent) and industry (27.5 per cent). Complying with the abovementioned requirements of the EU Directive 1999/32/EC, the Cabinet of Ministers adopted Regulations No. 125 ?On the Limitation of Sulphur Content in Certain Liquid Fuels? on March 2, 2004. It is expected that the heat supply enterprises that used heavy fuel oil for heat generation will replace this type of fuel with other energy resources. Solid Fuel Solid fuels used in Latvia are coal imported from the CIS and local fuels (firewood and peat). The forecast of firewood consumption depends on the extent to which regions will manage to change from the extensive use of firewood to its rational use. In the total fuel consumption, the share of firewood is already quite substantial and has reached 29-30 per cnet. The biggest consumers of firewood are households (62.3 per cent), heat supply companies (14.7 per cent), industry (mainly wood processing enterprises) and other consumers (23 per cent). Firewood and coal are used evenly across all regions of Latvia. The usage of peat in the energy sector continues to decrease. Centralised Heat Supply Page 4 of 13 Energy ? Latvia District heating in Latvia accounts for 39 per cent of the primary energy consumption. Consumption structure of the centralized heat supply has not changed in the recent years, with central heating comprising 65-70 per cent and hot water supply making 30-35 per cent. In 2008 2.3 per cent of the total amount of sold heat energy was sold to industry, 73.4 per cent to households and 24.3 per cent to other consumers. The district heating energy is mainly produced from natural gas and firewood. District Heating Resource Supply Structure in (2007) Source: Construction, Energy and Housing State Agency District heating enterprises are located in more than 300 Latvian municipalities. The main actors in the district heating market in Latvia are located in the largest cities. Electricity Market st Starting from the 1 of July, 2007 Latvia?s electricity market became fully liberalised. Both industrial consumers and private households are free to choose their electricity supplier. Since July 1, 2004, all electricity consumers except households have been allowed to choose alternative suppliers. Several companies which do not have their own distribution networks have been licensed to sell electricity. By far the most dominant company in electricity delivery is the state-owned share company Latvenergo, which produces more than 90 per cent of the electricity that is produced in Latvia. The company?s restructuring/privatisation is a major issue to be resolved in a near future. As from September 1, 2005 all functions of electricity transmission system operator are performed by JSC Augstsprieguma tikls. The Cabinet of Ministers adopted Electricity trade regulations in its session of June 26, 2007. With adoption of respective regulations Latvia has completed introduction of legal preconditions for operative electricity market according to Electricity Market Law and pursuant to directive 2003/54/EC. Thereby all functions of electricity distribution system operator from the July 1, 2007 are taken over by JSC Sadales tikls. The JSC Sadales tikls is a former unit of JSC Latvenergo, and its main activity is providing of electric power distribution services. Sadales tikls provides electric power supply to more than one million electric power users, and its service covers more than 99 per cent of the territory of Latvia. Electric power consumption in production, service and household sectors has been Page 5 of 13 Energy ? Latvia rapidly increasing during the past years. Sadales tikls is responsible for an essential stage of long-lasting power supply to users ? supply of electricity as a product to each particular user. As of the beginning of 2007, the overall length of electric power distribution networks has reached 99.6 thousand kilometers. The medium voltage (6 ? 20 kV) network makes approximately one third (33.7 thousand kilometers) of the distribution system, whereas the low voltage (0.4 kV) network ? approximately two thirds. 23 thousand transformer substations with 6-20/0.4 kV capacity supply power to the electric facilities of the users connected to the low voltage network. In 2007, the SJSC ?Latvenergo? generated 53 per cent of the required electricity, 39 per cent was supplied by other countries and 8 per cent was purchased from small producers of electricity. In comparison with the respective period of the previous year, the electricity consumption has increased by approximately 5 per cent. 1 Electricity Supply in Latvia (billion kWh) Components of electricity 2002 2003 2004 2005 2006 2007 supply Total electricity supply 6.323 6.608 6.786 7.053 7.399 7.771 Electricity generation ? total 3.975 3.975 4.689 4.905 4.891 4.771 of which: 2 - HPP 2.433 2.216 3.044 3.267 2.661 2.668 3 - CHP 1.238 1.363 1.225 1.278 1.740 1.452 - other CHP 0.263 0.298 0.306 0.255 0.407 0.532 - small HPS 0.030 0.050 0.065 0.058 0.037 0.066 - wind generators 0.011 0.048 0.049 0.047 0.046 0.053 Imports of electricity 2.348 2.633 2.097 2.148 2.508 3.000 1 Source: state JSC Latvenergo, Ministry of Economics, CSB 2 Daugava cascade and Aiviekste HPP (HPP of state JSC Latvenergo) 3 CHP of state JSC Latvenergo The main source of power generation is Daugava Hydro Power Plant. Volume of electricity generation directly depends on the flow of the Daugava River. Also electricity imports from Russia, Estonia and Lithuania play a substantial role in the electricity supply as well as two Riga Co-generation Power Plants. Structure of Electricity Supply in 2007, GWh, % Source: Construction, Energy and Housing State Agency Page 6 of 13 Energy ? Latvia ?Latvian Energy in Figures? report There are also some 150 small hydroelectric power plants which produce electricity. They have a total capacity of 26.6 Mw. Latvia has 41 wind power stations with a total capacity of 28.4 Mw, as well as over 40 co-generation stations with a total capacity of 182 Mw. Implementation of the EU Directives Latvia fully supports the idea to develop a common EU energy policy and use a co-ordinated approach in relations with third countries as well as establish a crisis management system. Latvia is particularly interested in integration of the Baltic States? energy market into the single EU energy market. At present, the energy market of the Baltic States is quite isolated from the EU energy market. Co-operation projects with the neighbouring countries are being developed or implemented in order to decrease the energetic isolation from other EU member states. Latvia has opened the common electricity market for all consumers. It is planned to open the domestic gas market by 2010. In this way, competition in the energy market will be ensured. The government has accepted the Energy Development Guidelines for 2007-2016 that envisage several strategic measures to reduce the energy dependence of the state, among them construction of new power stations in Latvia and increased use of renewable energy resources (especially biomass) in energy production. Taking into account the policy implemented by EU in the field of climate change reduction and the energy supply security issue topical for Latvia, sustainable use of energy resources is one of priorities of the state. The key fields in harmonisation of legal acts with EU legislation are oil and oil product reserves, security of supply, energy efficiency, and continued introduction of market principles in the energy sector. OPPORTUNITIES ? Construction of new 400 megawatt solid fuel station in Latvian eastern port town Liepaja is planned; ? Several small capacity (up to 4 MW) biomass CHP projects as well as wind power plants are planned to be built in a near future; ? According to Ministry of Economics investors for the development of new power plants in Latvia need to be involved; ? Renovation and construction of new electricity transmission grids and transformation stations; ? Renovation of old district heating boilers in municipalities; ? Modernization of heat supply systems according to environmental requirements and improvement of energy efficiency both in production and distribution and for the end consumers is required; ? Energy efficiency, heat insulation projects. In the upcoming years substantial investments will be allocated to the heat insulation projects in the housing sector. Already now many energy efficiency projects are taking place in the schools, kinder gardens, and social houses Page 7 of 13 Energy ? Latvia of different municipalities in Latvia. Households is a sector with the largest energy savings potential in Latvia and EU Structural Funds are significant mechanism for increasing the energy efficiency in housing. EU SF support for heat insulation of social residential buildings is available. Allocation of the funding is regulated by the Cabinet Regulation of 15 January 2008, No 28 "Regulation on Activity ?Measures of Improvement of Heat Insulation of Social Residential Buildings" of the Complement to the Operational Programme "Infrastructure and Services"". Total available funding from the European Regional Development Fund is LVL 6,922,499.92. Implementation type of the activity: restricted selection of project applications. Under this activity the projects may be submitted by the local governments. The Cabinet Regulation required for the allocation of the co-funding for insulation of multiapartment residential buildings has not been drafted yet. It is necessary to agree on certain issues concerning the implementation of the activity with the European Commission, including the implementation mechanism. Objective of the activity is to increase energy efficiency in multi-apartment residential buildings. Target group - apartment owners in multi-apartment residential buildings. Loan fund for promoting energy efficiency in multi-apartment residential buildings would be provided. Maximum amount of public funding is EUR 142,287 for buildings with total area less than 1500m2 and EUR 78.26 per m2 of total area for residential buildings with total area exceeding 1500 m2. A critical obstacle in implementing energy efficiency measures in housing sector is insufficient amount of public funding that keeps the housing owners from investing in heat insulation of buildings. UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. CHARACTERISTICS OF MARKET ? In the period after 2009, the current excess capacity generated by energy systems of the neighbouring countries will diminish and Latvia?s opportunities to ensure import of electricity will decrease; ? According to the Ministry of Economics apart from the work on new power plant projects, the remaining co-generation potential has to be used and a balanced use of renewable energy needs to be encouraged; ? In May 2009, the government approved new regulations increasing amount of mandatory renewable power purchase to 52.67 per cent in 2009 and 54.57 per cent in 2010 of total power consumption. New mandatory purchase prices were also set. See the table below. Price per kWh (LVL) Types of Power Station (capacity) Min Max Wind (up to 250kW) 0.1168 0.1281 Wind ( over 250kW) 0.675 0.954 Hydro (up to 5 MW) 0.1078 0.1386 Biomass (up to 4 MW) 0.1097 0.1410 Biomass (over 4 MW) 0.728 0.878 Page 8 of 13 Energy ? Latvia Biogas (up to 2 MW) 0.1332 0.1638 Biogas (over 2 MW) 0.910 0.1146 Solar 0.3010 0.3010 ? Discussions between Latvia, Lithuania, Estonia and Poland are taking place regarding the new Ignalina nuclear power plant project. Latvia agreed to participate in the project. However, at the beginning of May 2009 the local electricity provider Latvenergo announced that that they would be ready to explore Nuclear Power Plant building opportunities in Latvia. The research institutions are exploring the opportunities to build a new nuclear power station in Latvia; ? On May 6, 2009, the first reconstructed power unit of the Riga thermal power station no. 2 (TEC-2) was officially opened. TEC-2 provides 600 MWel electric and 1,124 MWth heating capacity. Currently, the station is the most modern electricity and heating station in the Baltic region. The new power unit with a 420 MW capacity has significantly increased the power efficiency of the TEC-2 and has decreased Latvian power supply dependency by 30%. It is expected that the new power unit will be put into operation by November. It is expected that the new power unit will reduce the import of electricity by 1,400 GWh a year on average; ? The plans for reconstruction of second power unit of the Riga thermal power station no. 2 (TEC-2) is postponed till autumn; ? Most of the social houses were built during Soviet times in Latvia and they require renovation, especially to decrease the energy losses in these buildings. Recently the first National Energy Efficiency Action Plan for 2008-2010 in accordance with the EU Directive 2006/32/EC "On energy end-use efficiency and energy services" was adopted. It is aimed solely at the end-use efficiency. The indicative energy savings target for 2016 is 9 % = 3483 GWh. 67 GWh - the total forecasted energy savings by 2010 of which 52 GWh in the housing sector; ? The Russian ? Latvian gas supply company Itera Latvija wishes to build a gas power plant in Latvia, it hopes that Latvenergo and Russia's Gazprom will also participate in the project. The project could cost around USD 500 million. There are several possible shareholder make-ups. One is Latvenergo, Itera, Gazprom and Germany's E.ON Ruhrgas International AG, another option is Latvijas gaze and Latvenergo. It will not be Itera alone, that's clear. Many ministers have acquainted themselves with the problem and believe that there is a place for a gas power plant in Latvia; ? Estonia's energy giant Eesti Energia entered the Latvian market in 2007. In 2008 Eesti Energia provided 170 GWh of electricity directly to 110 Latvian customers in Latvia gaining 5 per cent market share of the electricity market. KEY METHODS OF DOING BUSINESS Background information on doing business in Latvia can be found on UKTI?s website. Simply go to the Latvia country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up Page 9 of 13 Energy ? Latvia ? Visiting and social hints and tips ? Overseas Security Information for Business MORE DETAILED SECTOR REPORTS Research is critical when considering new markets. UKTI provides market research services which can help UK companies doing business overseas including: ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, and support during your visits overseas ? Export Marketing Research Scheme. In-depth and subsidised service administered by the British chambers of Commerce on behalf of UKTI Contact your local International Trade Advisor if you are interested in accessing these services, or for general advice in developing your export strategy. When considering doing business in Latvia, it is essential to obtain legal, financial and taxation advice as well as useful contact lists of lawyers, PR agencies, interpreters and other relevant professionals in the country. For further details, please contact: Ms Santa Plivca Senior Market Adviser British Embassy Riga Address: 5 J.Alunana Street, LV-1010 Tel: +371 67774700 Fax: +371 67774707 E-mail: Web-site: PUBLICATIONS Energetika un Automatizacija (Power industry and automation), Magazine Address: 3-111 Ausekla street, Riga, LV 1010 Tel: + 371 67324667 Fax: + 371 67324668 Email: Energija un Pasaule (Energy and the World), Magazine Address: 121 Dzirciema street, Riga, LV 1055 Tel: + 371 67464577 EVENTS ENERGO EFFECTIVENESS 2010 5 - 8 March 2010 Web-site: th 14 international exhibition of electrical engineering, energy supply and equipment. Page 10 of 13 Energy ? Latvia ENVIRONMENT AND ENERGY 15 - 18 October 2009 Web-site: International exhibition for energetics and sustainable energy systems and technologies. Renewable energy resources and energy production technologies. Electricity generation, transmission and distribution. Heat and gas supply. Heating equipment. Ventilation and air- conditioning systems and equipment. Water treatment, equipment and technologies for wastewater treatment. Waste management and recycling. Geodesy and geological research. Environmental protection and monitoring. Control systems and measuring instruments. Engineering and ecological construction. Ecological fuel and fuel-efficient vehicles. Special communal machinery and equipment. TECH INDUSTRY 26 ? 28 November 2009 Web-site: International exhibition of materials and technologies for industrial production, mechanical engineering, metalworking, automation, electronics, electrical engineering and tools. Metalworking equipment and machinery, bench servicing, metal working processes and services, mechanical engineering, tools, industrial equipment and materials, airflow technologies, hydro-technologies, electronics, electrical engineering, automatics, automation, gas supply equipment and materials, repair and maintenance technologies; hydraulic, pneumatic devices and materials, control systems, abrasive materials and machinery, specialised software, science and consultations. For more information on different energy sector events as well as exhibitions and trade fairs please, visit: UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria ? UKTI staff overseas will be available to assist delegates Find out if you are eligible to apply to attend this event, and more about the support UKTI can offer, on the UKTI Market Entry web page. Other Market Visit Support may be available via your local International Trade Advisor. CONTACT LISTS Ministry of Economics Mr Ugis Sarma, Director of Energy Department Address: 55 Brivibas Street, Riga LV 1519 Tel: + 371 67013169 Fax: 00 371 67280882 Email: Website: Page 11 of 13 Energy ? Latvia The Public Utilities Commission Address: Brivibas Street 55, Riga LV1010 Tel: + 371 67097200 Emails: Website: JSC Latvenergo Address: 12 Pulkveza Brieza Street, Riga LV1230 Tel: + 371 67728222 Fax: + 371 67728880 Email: Website: JSC Latvijas Gaze Address: 6 Briana Street, Riga LV1001 Tel: + 371 67375414 Fax: + 371 67517340 Email: Website: Latvia?s Electricians? Brotherhood Address: 13 - 5 J.Asara Street, Riga LV1009 Tel/fax: + 371 67845425 Email: Website: Latvian Energo-building Association Address: 55 Brivibas Street, Riga LV1010 Tel: + 371 67240642 Email:; Latvian Association of Civil Engineers Address: 99 Kr.Barona Street, Riga LV1012 Tel/fax: + 371 67845910 Email: Website: Latvian Society of Heat, Gas and Water Technology Engineers Mail address: a/k N 526, Riga LV1010 Tel/fax: + 371 67506650 Website: Latvian Electrical Engineering and Electronics Industry Association (LETERA) Address: Dzirnavu Street 93, Riga LV 1011 Tel/ fax: + 371 67288360 Email: Website: Latvian Builders Association Tel: + 371 67228584 Fax: + 371 67210023 Email: Website: Page 12 of 13 Energy ? Latvia Association of Mechanical Engineering and Metalworking Industries of Latvia Address: 6-109 Ezermalas Street, Riga LV 1006 Tel: + 371 67554825 / 26462882 Fax: + 371 67089776 Email: Website: Latvian Traders Association Address: 12 - 9 Bruninieku Street, Riga LV1001 Tel: + 371 67217295 Fax: + 371 67821010 Email: Website: Latvian Chamber of Commerce and Industry Address: 35 Kr. Valdemara street, Riga LV 1010 Tel: + 371 67225595 Fax: + 371 67820092 Email: info@chamber@lv Web: Investment & Development Agency of Latvia London office Ms Indra Freiberga, Head of the London office Address: 72 Queensborough Terrace, London W2 3SH Tel: + 44 (0) 20 7229 8173 Fax: + 44 (0) 20 7727 7397 Email: Web: British Chamber of Commerce in Latvia Ms Ieva Gruzina, Executive Director Address: 33 Kr.Valdemara Street, Office 11 (entrance from courtyard) Tel: + 371 67218043 Fax: + 371 67218045 Email: Web: UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. Page 13 of 13
Posted: 28 September 2010