Riga, 2014-01-28 08:09 CET (GLOBE NEWSWIRE) -- Liberalisation of the electricity market will conclude with the inclusion of households. The process began in 2007, and in the run-up to 1 April 2014, 75% of electricity consumed in Latvia is sold according to market principles, as all legal entities are already market participants.
Āris Žīgurs, Chairman of Latvenergo AS Management Board: “Development of the energy industry in Latvia opens a door to the Nordic Countries: Latvia needs to be fully integrated in the Nordic electricity markets, because historically there have been the lowest electricity prices in Europe for quite a long period. 100% open market in Latvia will stimulate development of new cross-border interconnections that will integrate us better with the region of low electricity prices. However, to make this possible, an electricity market that is sensible, transparent and open for competition must be established.”
Latvenergo has had many years of experience with servicing market customers in Latvia and the Baltics and developing new products for households in Estonia. Knowledge about electricity consumers in Latvia accumulated in long-term experience with them has helped the company to develop a range of products suitable for each consumer segment. Anyone may choose the most suitable product for their needs.
Latvenergo AS notes that Elektrum products have a characteristic feature of open markets: as a household’s consumption increases, the amount it pays per kWh goes down. Anyone may become acquainted with detailed descriptions of Elektrum products by visiting www.latvenergo.lv and www.e-latvenergo.lv.
The electricity price currently quoted in regulated tariffs is significantly lower than the market price. Since 2011, Latvenergo AS has been performing a social welfare function as a trader, using profits it receives on the open market to subsidise its Start tariff, for 20 million lats per year. Household users should account for the fact that market prices will be higher. Starting from April 1, electricity costs in the household sector will average 7-12% higher than the current Base tariff.
The principles underlying electricity consumption costs can be compared to banking: there will be customers who choose stable products with a fixed price and customers who opt for floating prices that depend on exchange developments. This change of habit when switching from a regulated tariff to an open market is quick: in Estonia, hundreds of households have taken the opportunity to switch products and traders within the first month. Experience shows that customers in Latvia can quickly judge what offer is most suitable and expedient for them, so competition among traders will increase to benefit the consumer. The availability of choices will be the market’s primary purpose and greatest benefit. Choices mean not only different traders but also the best products shaped by awareness of customer needs.
We have reported earlier that complete liberalisation of the electricity market is planned for 1 April 2014, meaning that consumers should select their trader by 15 March (and in the future, a trader for any subsequent month should be selected by the 15th of the current month). Several electricity traders are registered in Latvia: their data are available on the website of the distribution system operator Sadales tīkls AS. New traders may start offering their services on the Latvian market when the market is open.
Please note that the open market only extends to electricity itself, which represents about one-third of a household’s electricity bill. Other price components – transmission and distribution network services and mandatory procurement components to subsidise eligible electricity producers – will remain state-regulated.
Evaluating the wider socioeconomic aspects of market liberalisation, Pēteris Strautiņš, the economics expert of DNB Bank, notes that the electricity market liberalisation will surely receive mixed responses among the public. This step will no doubt increase electricity expenses for household users: this product used to be subsidised using income from the electricity generation assets (hydropower plants in particular) managed by the state-owned producer Latvenergo AS. These resources will now be made available for investment in energy industry development or allocated for other purposes via dividends that Latvenergo pays and the Latvian state budget, depending on decisions made by the people’s representatives: the Saeima and the state government. One should certainly evaluate the option of using part of these funds towards assistance for residents who might be most affected by higher prices. Being an EU Member State, Latvia has no say in the matter of whether to liberalise its market. However, it is completely up to ourselves to decide where to put the funds that have been used on subsidies. In any event, subsidising electricity costs for everyone, which has been the case so far, is not an effective social policy.
Additional information:
Jānis Irbe
Group Treasurer
Phone: +371 67 728 239
E-mail: investor.relations@latvenergo.lv
About Latvenergo
Latvenergo Group is a pan-Baltic energy company, engaging in electricity and thermal energy generation and supply, electricity distribution services and management of transmission system assets. Latvenergo Group holds one-third of the entire Baltic electricity market, thus ensuring its leadership in the Baltic electricity supply. Latvenergo AS has been acknowledged as the most valuable company in Latvia for several years in a row. International credit rating agency Moody’s has assigned Latvenergo AS an investment-grade credit rating of Baa3/stable.
Latvenergo Group includes the parent company Latvenergo AS (electricity and thermal energy generation and supply) and its subsidiaries Latvijas elektriskie tīkli AS (management of transmission system assets), Sadales tīkls AS (electricity distribution), Elektrum Eesti OÜ (electricity supply in Estonia), Elektrum Lietuva UAB (electricity supply in Lithuania) and Liepājas enerģija SIA (thermal energy generation and supply, electricity generation), as well as Elektrum Latvija SIA (electricity supply), a subsidiary of Elektrum Eesti OÜ.