Trends and Prospects for Energy in Latvia

The energy market in Latvia is in a constant process of development, on both the regulatory and business sides. The following highlights suggest the energy sector will remain active in the foreseeable future, providing new opportunities for potential investors.

Firstly, over the last couple of years, the Public Utilities Commission (PUC) has put a lot of effort into the improved efficiency of the electricity and natural gas tariff system. This has resulted in a new tariff methodology for transmission and distribution networks, which ensures that grids are used effectively and each consumer, whether industrial or household, pays its fair share for expended electricity and natural gas. While initially this change was not supported by energy producers, who were largely exempt from tariffs, the PUC maintained a very firm position, to ensure that grid maintenance costs are shared among all users of the grid.

Secondly, the Latvian district heating ownership is becoming more diverse, as international investors are entering a market once dominated by municipal companies. We expect this trend will incentivize further investments in this industry. A landmark deal in this regard has been Partners Group’s acquisition of Fortum’s district heating platform in the Baltic States, including Latvia. Fortum has been one of the largest and longest-standing foreign investors operating in the energy sector in Latvia. The acquisition of Fortum’s business in the Baltics by Partners Group confirms the strong interest from equity investors in the local district heating and renewable electricity business, notwithstanding the fact that the support period for most renewable electricity generators, via the EU approved feed-in tariff and capacity payment scheme, is approaching its expiry towards the end of 2020s.

Thirdly, for many years, the Latvian wind energy sector has been underdeveloped, in spite of Latvian wind conditions being comparable to many of the leading European wind energy forerunners. Now the decrease in technology costs and the availability of land have fueled an inflow of investments in wind energy projects. In 2020 the development of new onshore wind energy projects became even more accessible, due to revised planning requirements. Regulatory enactments were amended by relaxing some of the too-stringent restrictions and requirements for wind farm development projects. Several planning restrictions were substituted with the ability to evaluate and possibly mitigate the effect of such restrictions within environmental impact assessment. Another novelty was the possibility to construct wind farms in forests, which improves the available space for the development of new projects.

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This article was originally published in Issue 8.8 of the CEE Legal Matters Magazine.