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Latvenergo: average electricity price in the region will reduce

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The postponing of the liberalization of Latvia’s electricity market was an unexpected surprise, because Latvenergo was prepared for competition this year, said Latvenergo production director Māris Kuņickis in his interview to BNN.

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUHe predicts electricity will become cheaper in the region in the nearest future.

What are some of the most notable recent events in your sector?

In 2013, Latvenergo performed investments in several important sectors. We have completed a full reconstruction of Riga TEC-2, continued improving our services for customers in the Baltics and performed a successful release of Latvenergo bonds. We have also made major progress in improving corporate management. It is also worth mentioning investments in network assets, including Kurzemes Loks.

There have been warnings about some desire in the sector to use artificial methods and benefits to subsidize new forms of energy, which may result in an increase of electricity costs for consumers. Traditional large-scale production plants are left behind despite effectively serving customers with dependable technologies over the years.

Can you say economic conditions are improving and there is a lot of potential for economic growth in the market?

Latvenergo is the largest producer of electrical energy in the Baltics. In 2013, we sold 7,954 GWh of electricity to retail customers. This is 4% lower than we managed to sell the year before. This decline in sales was due to lower consumption of electricity in Latvia’s manufacturing sector. Nevertheless, as a result of targeted sales activity in 2013, Latvenergo managed to increase its sales in Estonia and Lithuania by 32%. The number of retail customers Latvenergo has outside of Latvia has exceeded 20,000.

How would you describe the government’s economy policy aimed at improving the economic situation in the country?

Nearly all of the European Union is dominated by market development proportionality challenge: on the one hand – there are attempts to develop energy production diversity. On the other hand – there is the matter of making sure this development does not impact customers. This situation is also present in Latvia, where the matter regarding the rise of the aforementioned risks was discussed by experts and residents alike in 2013. Solution to this problem was sought on a national level. Officials and organizations discussed methods of preventing growth of price pressure in order to make sure mandatory energy procurement does not slow down economic development and residents’ welfare.

How is the industry affected by Latvia’s policy? What changes to legislation would you like to see? What helps? What makes things more complicated?

All businesses in Latvia, including Latvenergo, are affected by Latvia’s policy. Even though the price of electricity has changed since 2011, when the new electrical energy tariffs came into force in Latvia, the mandatory procurement component has increased as well. The liberalization of the market continues to realize an unusual social function for entrepreneurs. However, this situation cannot continue forever – the state is busy developing a support mechanism and safety pillows for groups that require them. We are prepared for having the market in Latvia liberated in 2015. We continue to work on our offers in order to make sure Elektrum is a Nr.1 choice among households in Latvia. However, I want to add that the postponing of liberalization of Latvia’s electricity market was rather unexpected for us – we were prepared to engage our competition in 2014.

How would you describe the industry’s position in the Baltics? What about competition with Estonia and Lithuania?

Liberalization of electricity markets in Baltic States continued in 2013. Estonia’s electricity market was liberated for everyone on January 1st, 2013. Lithuania’s market was liberated for all legal customers. The gradual liberalization of the Baltic electrical energy market allows Latvenergo to perform targeted sales activities in order to maintain its positions on the Baltic electrical energy market.

Under conditions of sharp competition, we have expanded activities and increased market shares in Estonia and Lithuania. The volume of electricity sold outside of Latvia forms more than one-fourth of the total sales and reaches 2,081 GWh, which is 674 GWh more than the volume of electricity sold in Latvia by competitors.

What can you can your ‘trump card’? What is your ‘Achilles’ heel’?

One of the most important recent event to shake up Latvia’s energy sector is the completion of construction of the second bloc of Riga TEC-2 in the second half of 2013. With a power output of 2,569 MW we have made Latvia self-sufficient for the first time in history. We are now able to produce our own electrical energy.

The reconstructed TEC power plants in Riga are ideal for flexible solutions, which are invaluable in a situation with steep competition. Following reconstruction, Riga TEC-2 now has a power output of 832 MW of electrical energy and 1,124 MW of heating energy output. We have reduced CO2 emissions to a minimum and made sure the plant works with high efficiency.

Riga TEC-2 has a limiting factor for uncontrolled rise of prices of imported electricity. With that, importers of electrical energy cannot force us to procure electricity for a price that is higher than production costs at Riga TEC.

Trade of electricity in the Baltics is performed in accordance with Nord Pool Spot. Every customer can check NPS prices in other countries online. The functioning of the exchange and market is not possible without a common and accepted electrical communication system.

Can you say there is a lack of skilled workers in Latvia?

Employee rotation is not large in Latvenergo – 6%. It does not present risks for the company’s long-term development. It does provide a balanced exchange of knowledge to young specialists.

Employees are Latvenergo’s main resource. Latvenergo highly values the diversity of its workers. This includes work experience, new knowledge and approaches. Latvenergo’s work specifics dictate the importance of accumulation and passing on of knowledge with regard to a reasonable and balanced retirement plan and replacement of old employees with young ones.

What do you predict for the next five years? Will the situation in the industry improve, worsen or remain the same?

Our objective and only opportunity to develop balanced solutions is by performing correct investments in the right moment and right amount.

Latvian and Estonian network operators are currently developing a new network project between Latvia and Estonia that will allow electricity price in the Baltics to become homogeneous. This network will develop. Even now Estonia and Finland share a network with power output of 1,000 MW. There will also be a network set up between Lithuania and Sweden (700 MW), which may later become connected with Poland (1,000 MW). This network will allow entry for electricity from Scandinavia to enter our region and reduce the average price in the region.

Ref: 102.109.109.2292


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