INTERREG IIIC - REGENERGY Promoted by the European Union Development of municipal District heating supply in Latvia Gaidis Klavs Institute of Physical Energetics Component 2 seminar, Berlin, 8-11of May 2006

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 2 Role of DH in the heat supply system of Latvia; The main problems and solutions of DHS development in Latvia; The main challenges of DHS in future; Content of the presentation

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 3 Final energy demand in Latvia, year 2004

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 4 Final energy consumption in households sector, year 2004.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 5 Number of households connected to DHS in Latvia

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 6 District Heating system in Latvia Big citiesRegional towns and willages Daugavpils – 8%Ogre – 1,5% Liepaja – 6%Jekabpils – 1% Ventspils – 5%Salaspils – 1% Jelgava – 4%Valmiera – 1% Jurmala – 2%Cesis – 1% Rezekne – 1,5%Bauska – 1%

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 7 DH production in Latvia

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 8 Fuel consumption in DHS of Latvia

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 9 Development of DH consumption in Latvia and Riga

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 10

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 11 The main problems, difficulties, challenges of DHS in transition economy

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 12 Legends and wrong impressions concerning DHS in transition economy DHS does not have place in market economy; DHS as centralised form of energy is necessarily inefficient and inflexible; To improve situation: At the technical and economic level, each system should be evaluated for optimal performance. At the policy level, governments need to develop regimes that support quality district heating and do not encourage inefficient district heating.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 13 The main steps of DHS improvement in Latvia Improvement of efficiency in all DHS stages (production, transmission, distribution). Installation of control and metering equipment. Improvement of regulation (separating regulation and ownership). Improvement of management (changing of DH organisational structure).

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 14 Improvement of production efficiency in DHS of Riga

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 15 Heat losses in transmission system of Riga’s DHS

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 16 Development of DH market in Riga

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 17 A Coherent Policy and Regulatory Framework Common regulatory principles to ensure that there are no major differences in the way various energy forms are regulated. Separating regulation and ownership The problem of great importance is that of securing the independence of decisions made by municipal regulators. There are cases when in such decision- making process political factors dominate over economic reasons.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 18 DH regulation in Latvia A two-tier system of public service regulation. The first tier regulator – the Public Utilities Commission – regulates public services on the state level (electricity, gas) The second tier regulators – local government regulators – regulate local service providers including heat supply. By January 1st of 2006 in the municipality- regulated spheres (heat supply, water supply and waste management) 81 municipalities together had created 17 municipal regulators.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 19 DH tariffs in municipalities in Latvia for the heating season 2005/2006.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 20 Development of organisational structure of DH companies

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 21 The organisational set-up till year Integrated municipal company

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 22 Disadvantage The company management have little freedom to take necessary actions; There is a risk that the budget of the company will be to mixed with budget of other municipal activities; The international banks will not provide loans to the company if management structure and budget can not be separated entirely from the municipal administration; Usually DH tariffs is used as instrument of political awareness before elections.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 23 Organisational set-up from year 2005 According to the new Commercial Law two main set – up forms could exist - limited liability company and stock company. The form of limited liability company is more appropriate for small municipalities and if municipality would like to remain sole owner of DH company.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 24 Organisational set-up from Independent municipal district heating company

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 25 Advantage The company can be managed exactly as a privately owned company in which the management is only responsible to the board; The activities of the company will be kept separate from the other municipal activities and the budget; The natural objective of the company will be to minimise the costs of heating (and not minimising the heat price) and the company should therefore have an initiative to advice consumers on energy saving.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 26 Disadvantage Board does not understand its role of acting on behalf of the owner and setting the objectives for the management; Board is to weak and leaves all power to the management with no control or the opposite; Board goes into detail and tries to solve the tasks of management.

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 27 Still challenges for DHS in Latvia Improvement of efficiency and more customer focus; Co-ordination of DH, Housing Policy and Social Policy. Development and integration of CHP technology based on bioenergy. The need for a Heat Policy?

INTERREG IIIC - REGENERGY Promoted by the European Union Folie 28 Thank you Gaidis Klavs Institute of Phycical Energetics Aizkraukles 21, Riga, LV – 1006 LATVIA E – mail: