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Tuesday 24.04.2018 | Name days: Nameda, Visvaldis, Ritvaldis

Latvenergo ex-chairman: Scandinavians to join Latvian energy market

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RU, Latvenergo ex-chairman Karlis Mikelsons

Latvenergo ex-chairman Karlis Mikelsons

Energy producers from Scandinavia are likely to join Latvenergo competitors in the Latvian energy market in near future, the energy power supply enterprise Latvenergo ex-chairman Kārlis Miķelsons told in an interview to the business news portal BNN, adding that this will toughen the competition in the energy market even more.

He also stresses Latvia should fight for the construction of a nuclear power plant, instead of taking part in building the joint Baltic nuclear power plant in the territory of some other country. The former Latvenergo boss also touches upon alternative energy issues, pointing out that development of such projects is to boost the total portfolio electric energy costs. In terms of his career, Mikelsoons reveals political forces did exercise pressure upon him in decision making regarding Latvenergo.

What do you do at the moment? What are your future plans?

I am currently in consulting business. There are people and companies that need my experience and knowledge. I consult on energetics in terms of renewable energy resources and on businesses. I am also considering other directions that I am always been interested in, but could not access. This is linked to environmental problems solutions, also cars that I have always liked. I have always been engaged in motorsport, thus I also feel I could develop or produce something in connection with that.

Does you consulting business have enough clients?

One always wants more, but all I have is myself and I try to do my best. However, I shouldn’t complain, instead I should start considering growth, because people need knowledge and advice in these times. You cannot make money as easily as before.

Does reputation of a person matter in consulting business?

I do not deny my reputation is ruined, to put it mildly. But if it was completely destroyed, people would not come to ask for advice. Of course, reputation matters a lot in this sector. But still, sorry, I have neither been convicted, nor a suit has been filed against me. I am in my field, doing what I am the best at. People still believe in me, despite this background.

Can you imagine yourself returning to Latvenergo if there is such a chance?

I do not need that. I did my best and ten years is a long period of time to head a single enterprise, the biggest in Latvia. It was an amazing chance, which I made use of. But I should not do it twice, neither would I suggest anyone doing it, because it is not politics with you being the prime minister, taking a break and then taking the post again. This is not politics, it is business.

Does the fact the whole thing ruined your image depress you?

Speaking about images, I believe I have not made intentional use of mine. I have not been involved in politics. I have worked in a company, but I did not exercise my power upon it. Yes, people take into consideration my opinion and I hope they sill still do that.

If Latvenergo wanted to be a client of your consultation business, would you agree?

No, I wouldn’t. No man should ever step in the same river twice, because it can only hurt you, as emotions might step in at some stage. There have been cases with certain former Latvenergo employees willing to consult the company, but I do not approve of that.

What is your view on the alternative energy market? They say there is a bubble… What do you think?

We cannot assess the situation only through the perspective of Latvia. The whole world is doing that. Also wealthy economies. So we can more or less feel how it is going to be. For example, they spend huge money on solar energy, but we cannot do that here, because we do not have enough Sun, thus it would not pay off. This is in contrast with Germany, which spends half a billion euro on solar energy, if am not mistaken. The German economy can afford that, whereas we cannot. Ten million is already a huge sum for us.

Similarly, it is the same with wind energy. There are pros and cons as well. Our land is so small. And we should carefully assess whether to cover it with wind turbines that cannot work efficiently, because the wind blows the way it blows. There has to be a balance, a good mix, which it currently is. I know supporters of the river Daugava beauty would reprimand me, but our hydroelectric station should be cherished, as it adds to our energy independence considerably. And then there is also gas – one of the purest fuels. It comes from Russia, though, thus it does not provide energy independence, but there are alternatives that we should develop. For example, liquid gas supplies would boost the energy independence.

Wood is also not made use of efficiently enough. However, all in all, the mix in Latvia is well balanced.

What do you think about the current alternative energy support mechanisms, the guaranteed procurement system?

I believe the existing subsidies mechanism is completely wrong. It should be different. It must be real support to production, not a guaranteed procurement. This is not the right way. We here in Latvia decided to introduce it ourselves, no one in Europe asked that from us.

I could illustrate the system in short as follows: you go to a bank, you find funds, build a plant and the state guarantees a good electric energy price for some period of time and a procurement. I believe this support mechanism should not be that simple, because within this simplicity there is a chance various businessmen will want to exercise pressure. Then lobbyists take care of the necessary amendments introduced in the legislation. There is a lack of long-term perspective. Let’s take the double tariffs system as an example. God forbid, something like that still existed.

In terms of prices, they would be too low with the double tariffs system. If we see the prices per megawatt hour of wind energy, people do not line up for them. The market price is too low to promote alternative energy projects. There are quotas, but very few people apply for them.

Will a growing proportion of alternative energy boost energy price?

Yes, it is inevitable. But we should not compare ourselves with, for example, Germany, which invests billions on annual basis in alternative energy. There has to be a balance. Our small economy cannot afford activities of such a scale. It would be a too heavy burden on the energy sector.

But the European Union does ask for a specific proportion of energy obtained from alternative and renewable resources?

It was just an indication, but we, I do not why, included it in the legislation. Why? Because obviously those concerned were willing to have some guarantees. And they got them.

How does the future of Latvenergo look like? Is the company competitive in external markets?

Yes, it is, exactly because of this combination – hydropower and cogeneration. Similalry, the company also has financial resources and an intellectual basis. All this makes it competitive. But the company cannot compete only with its product, namely, Latvenergo cannot compete only with electric energy, because, for example, Estonians offer it at a much lower price, due to shale oil plants. However, many clients want long-term contracts and partners. And value added. This is what Latvenergo offers.

Will clients care for energy being «green» enough?

They do already care for that. We see a growing tendency already now. Many companies are ready to pay more for green energy. Many Latvian companies cannot afford that. But there are also clients that can afford that and are willing to spend on that. Some companies try to polish their image by purchasing green energy. It is apart of marketing. It is, however, a strong belief of others. It is something only companies whose energy costs do not make up the majority of the total ones can afford.

In several Western Europe countries also private persons can opt for green energy, paying more for that, but having the feeling that they are consuming green energy.

This could appear in Latvia as well. Everything is heading towards that. A moment will come when a client will have a choice. All in all, it is a huge marketing weapon.

What do you think about nuclear energy? Do the Baltic countries need their own nuclear power plant?

This is the future of humanity, although many do not like that. I believe Latvia needs its own nuclear power plant in its territory, instead of only participating in some common project.

Such a huge project would not only guarantee energy independence, but also promote many other projects. It would be a considerable stimulus. A chance for people to study and work. Nuclear energetics is a science and a large economy sector.

Latvia cannot, of course, carry out a project of such a scale, but it can provide tax incentives, support and promotion. I dare say the state of Latvia will never have such money, but it should give a chance to private investors to build the plant. There are no such investors in Latvia, of course. But I am sure there will be international companies interested in building a nuclear power plant in Latvia. We just need the right environment. Nuclear energy does have this issue of reputation. These are stereotypes one can manipulate with.

Recently there has been information competition is toughening in the Latvian energy market. What do you think about that from the perspective of Latvenergo? Are activities of Estonians a mere PR move, not having any considerable effect on the company?

It would be silly to say that marketing activities, no matter Lithuanian or Estonian, do not have any effect. By the way, I am sure Scandinavian energy producers will also join the Latvian energy market soon, which is a logical step with the connections between the Baltics and Scandinavia developing more and more.

These are the rules of the market. If there is competition in the market, sure there will also be marketing and PR activities from the part of competitors. Ethic or less ethic, but they have to exist, because it is a part of the market, we cannot do anything about that. Not paying any attention to them would be simply silly.

I would not suggest doing that under no circumstances, because the market has not matured yet. It is in an early stage, clients are not knowledgeable enough. It is a similar situation in the stock market, where clients knowledge is not sufficient to operate there. It a characteristic of energetics – it takes a certain period of time. It is very easy to annoy clients, all you need to do is to change the structure of the negotiations, communicate with the people not successfully enough and you see the outcome. All the competitor has to do then is gather the fruit. But I am not reproaching Latvenergo anything. These are the rules of the game and that’s it. Latvenego will have to deal with new competitors. Also from Scandinavia in future.

Do you know how many companies are abandoning Latvenergo services? Is there a lot of them?

I don’t know, however, simply saying that you are leaving is one thing. At the next stage you start already calculating whether the new supplier can offer something better. It is electricity. It has no scent, no looks. It has the price. The price of the service is equal for everyone, it is set by the Regulator. So we are speaking only about the contract and favourable conditions of it. This is the valuable skill you need – to attract long-term clients regardless the supplier.

Will Latvenergo be able to compensate for the lost market share in Latvia with activities in external markets?

There will be no other options. If the company loses clients here in Latvia, it will have to look for them abroad. As long as you have something to sell, you have to find clients. I believe Latvenergo is already partly doing that.

Up to which period is it possible to forecast electric energy price?

It could be two years, which is also the period a contract can be signed for. Situation with gas changes very frequently. There are also accidents, technical problems. It all has an effect on prices.

What could other tendencies of the energy market be?

It depends on the economy. If someone told me precisely how it is going to be with the economy and other processes, I could tell how it is going to be with electric energy. It is not Latvenergo regulating the price as it pleases, it is the market. It is misleading to believe alternative energy exclusively is to boost possible energy price gains in future. The market situation and other market factors are most likely to do that. Alternative energy will, of course, also influence prices, because it costs a lot to develop such projects. These costs are inevitable, because no one is to step back from these projects now.

If all of a sudden consumption dropped considerably, energy price would also fall. This could balance the impact of the alternative energy. Europe has already been carrying out a number of activities to reduce energy consumption.

Does Latvia need the fourth hydroelectric station on the river Daugava?

It think it would be too expensive. It is better to make maximum use of the existing ones, by making them more efficient and modernizing. The fourth station would need an agreement with Belarus and I assume it would not be that easy. No one has tried it yet, though. However, I see no reasons for such huge investments. But Latvia loves unreasonable projects.

By the way, what happened to the coal-fired power plant project? Why isn’t anyone speaking about it anymore?

Do you believe it would have been a prospective project?

No, I don’t think so. However, it was strongly politically-driven. At any cost. And then in hushed, although construction work was about to be launched.

Did political forces try to exercise any pressure on you as the chairman of Latvenergo?

Of course. That is why they are politicians. And actually I could not do anything about it. I was left with explaining and trying to convince them. Certain persons thought they could act like that just because they were politicians.

Has such a pressure resulted in economically ungrounded decisions?

There is a simple example – the tariffs, which have always been politically-driven. Politicians are not willing to take unpopular decisions. They rather tend to adopt all the unpopular decisions a year after the elections. That is the way it is.

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  1. Harris says:

    How is it possible to beleive this guy who was fired from hjs job for dishonesty.

    Thumb up 0 Thumb down 0

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