While household market opening in Latvia is still under question and most likely it will not take place on April 1st this year, we believe it is worth looking at a larger picture to see what future will bring to all end consumers located in Latvia.

Due to regulation issues specific to Latvia, household electricity price has decreased since the last time regulated tariffs were approved on April 1st 2011, because of continuously increasing payments to cover public service obligations (PSO) or, locally named, “obligata iepirkuma komponentes” (OIK/mandatory procurement components). As a result, electricity price in the “start tariff” (for household consumption <1200 kWh/year) is currently 12,92 EUR/MWh while in the “base tariff” (for household consumption >1200 kWh/year) electricity price is 41,96 EUR/MWh:

Irrespective of the weights of both tariffs in the consumption of a particular household, electricity price is significantly below the market price as determined by power exchange Nord Pool Spot. Spot price in 2013H2, for instance, was 51,88 EUR/MWh in Latvia price area which adds pressure to increasing it for households.

What is being missed in the picture, though, is that market price is becoming less and less relevant as the volume of capacities that receive guaranteed feed-in tariffs or capacity payments is continuously increasing. This means that, if market price is increasing, there is less to cover in PSO payments and vice versa.

In 2013 subsidized capacity (1313 MW) already almost covers Latvia’s consumption peak (1344 MW) not even mentioning large hydro on the Daugava River, thus raising important question of whether it makes any sense to install even more subsidized capacities be it renewable of fossil:

Since installed capacity does not automatically mean that power plant has reached its generation potential and feed-in tariffs are being paid about electricity generated, it is worth comparing output in GWh and in mEUR paid on top of market price. This shows us that while support for renewables has grown in 2013, its share in GWh is relatively smaller, because feed-in tariffs for renewables are considerably higher:

If you want to find out more about PSO in Latvia and how it affects your electricity payments, please contact us and RCG team will be glad to help!