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Current aid schemes may result in 63% increase in electricity prices by 2020

 RIGA, Dec 17 - If the current state aid schemes for electricity generation do not change, the average electricity rates in Latvia may increase 63 percent by 2020, including by 53 percent for households and 73 percent for large industrial enterprises, the Economy Ministry has concluded.
Taking into account that the current policies may lead to a significant increase in electricity rates in the coming years, the ministry has drawn up a report on the risks posed by such an increase and on ways to reduce these risks. The report will be submitted to the government and the Economy Ministry will ask the government to order several ministries promptly find a solution to the looming problem.
The mandatory procurement quotas will account for the bulk of the increase in electricity rates - the quotas are currently paid for by households, small and medium-sized enterprises, as well as large industrial enterprises. The price of electricity bought through the mandatory procurement procedure depends on electricity generation method, capacity of the unit, the period of time it generates electricity, and the price of natural gas.
The ministry notes that, for instance, the mandatory procurement component will increase from the current 1.23 santims per kilowatt/hour (kWh) to 1.93 santims per kWh next year due to higher natural gas price.
The current version of the report obtained by "Nozare.lv" states that, taking into account electricity wholesale prices, system service costs, and the projected mandatory procurement component value, electricity rates may increase 30 percent by 2015.
According to the report, the mandatory procurement component will increase 2.3 times by 2015 and 3.6 times by 2020, reaching 4.5 santims per kWh.
The report says that if all electricity generation projects for which permits have been issued are implemented, the total amount of liabilities to electricity producers could reach LVL 12.5 billion by 2033. However, taking into account that not all the projects will be implemented, the actual figure could be lower, about LVL 7.2 billion.
The report informs that electricity transmission tariff may increase if Latvia fails to attract European Union's co-funding for several major projects, for instance, the third stage of the "Kurzeme Arc" project and the third Latvia-Estonia interconnection.
Also, money will have to be invested in reconstruction and upgrading of electricity distribution networks.
The Economy Ministry states in the report it is likely that electricity rates in Latvia will be growing faster than in other EU member states, therefore rendering Latvian industry uncompetitive.
"It is no secret that electricity prices tend to increase everywhere in the world. In Latvia's case, however, the risk of higher electricity prices is disproportionate due to electricity prices being linked up to the price of gas, which is covered by every electricity consumer in Latvia," comments Economy Minister Daniels Pavluts, adding that support for many "green energy" producers is also linked to the price of natural gas.
The Economy Ministry emphasizes that there is no simple solution to the problem, and the ministry believes that one of the best ways could be reducing the mandatory procurement quota payments and at the same time consider support measures for needy residents.
The report offers several possible actions, including revision of support levels, revision of the formulas so as to lessen the effect of natural gas price, altering the mandatory procurement quota provisions, and others.
The Economy Ministry wants the government to review the report tomorrow, and assign the Economy Ministry, Finance Ministry, Justice Ministry and Welfare Ministry to come up with their proposals by March 1 next year for reducing the risks posed by higher electricity prices.
leta.lv

17-12-2012
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