Back
Read the German version HERE.
Read the Spanish version HERE.
Janis Timma [Jānis Timma], Chairman of the Board of “Eco Energy Riga” and the Latvian Cogeneration Power Plant Association, 05.12.2024
Residents often ask whether there is a possibility that 'Rīgas Siltums' prices will decrease, and if so, when it will happen. This question has several layers. The first is global energy prices, which should be noted as still significantly higher than they were 5–7 years ago, before Russia’s invasion of Ukraine.
Gas prices also affect the prices of other energy resources, such as wood chips, which are also significantly higher than before the war. The first answer to this question - when the price of energy resources decreases, we could also expect a reduction in heat prices in Riga. Unfortunately, there are currently no clear indications for price reduction in the foreseeable future.
The second aspect affecting the price is whether 'Rīgas Siltums'—which produces only part of the heat itself and purchases the rest from other producers, including 'Latvenergo' and smaller independent producers—has effectively established its procurement procedure and whether Riga is truly acquiring the cheapest heat energy. In fact, I am a bit ironic, as the actual situation is, unfortunately, the opposite of what would seem obvious. A new procedure for purchasing heat through auctions has come into force this year, as a result of which part of the heat energy is not purchased from small independent producers this heating season, even if it is cheaper than the price of another producer.
We are currently compiling the data and will publish it, but it is clear that due to these procurement manipulations, hundreds of thousands, if not millions, of Riga residents' funds will be overpaid/wasted, giving unique advantages to some specific producers. In a few weeks, we will be able to assess whether this system really works for the benefit of all Riga residents, providing the cheapest possible heat. I just want to add that if this system does not work according to the principle of the lowest price, then this is a poor prognosis for Riga not only within one or two heating seasons but also in the future, as potential future investors, project developers and banks will evaluate this procurement "specificity", let's call it that way, as an additional risk factor and new facilities will simply not be built - as a result, the competition of heat producers in Riga will not increase and Riga will remain with higher heat prices in the long term than they could be under normal free competition conditions.
A question partly related to the previous one is whether solar panels have met the expectations. First of all, it should be noted that we are talking about the electricity market, not the heat market. And there is still a significant capacity deficit in this market – Latvia imports 30% of electricity, while the Baltics import around 40%. There is no reason to expect a significant drop in electricity prices in a deficit situation. Of course, very high electricity generation capacities have been applied to the electricity transmission network – around 6,000 MW or six GW, which is about six times higher than Latvia’s current consumption – but very little of this has yet been built – several small solar parks, which produce few megawatts or tens of megawatts, not thousands. It is clear that not all of this capacity will be built, although I believe that a significant part will still be built.
However, an important aspect should be noted here – even if solar parks with an installed capacity of several thousand megawatts are built, they will not lead to a fundamental reduction in prices in the market if there is no solution for balancing aspect of the electricity network at the same time, for example, large-capacity electricity storage battery parks. The problem lies in the fact that solar parks reach their maximum production capacity during the brightest hours of a summer day, which often coincides with the lowest electricity consumption in the market, as a result of which the electricity price can reach zero or even become negative. On the same day, after a few hours, when electricity production from solar parks has stopped, but the peak of electricity consumption has been reached in the evening, the price level can increase many times.
In such a situation, producers have a choice – either to sell electricity at zero price or to switch off the equipment. On the other hand, when electricity demand is high—during the morning and evening hours—solar panels are unable to supply electricity to the grid; hence, electricity prices are high at these times. Therefore, only the integration of storage batteries with large solar parks could stabilise these price fluctuations and ensure a decrease in electricity prices in the long term.