Shedding some light on the Latvian electricity market

Shedding some light on the Latvian electricity market

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In the field of economy, electricity (both power and energy) is a commodity that can be bought, sold or traded, therefor giving way to the consolidation of an “electricity market”, where bids and offers use supply and demand principals to set prices for purchase (through bids), sales(through offers) and long-term trades (through purchase agreements between private bilateral parties). Power is the metered net electrical transfer rate at any given moment, measured in megawatts (MW) and Energy is electricity that flows through a metered point for a given period measured in megawatt hours (MWh).

On 15 May 2008, the electricity market in Latvia was opened. Since its consolidation, the country has been adapting to the fairly new market slowly but surely. With regards to electric energy, there are only two electricity sellers in the market: the state own company Latvenergo and Enefit, an affiliated company in Latvia of the Estonian state enterprise Eesti Energia. Energy in Latvia comprises only a small part of the country’s GDP (approximately 3.5%), however, it is a vitally important part of the national economy. Only enterprises with an annual turnover in excess of 10 million EUR, or with at least 50 employees, may buy electricity on the open electricity market. Smaller companies and households are still on the regulated electricity market, which in turn are the consumers of the JSC Latvenergo. Ironically, electricity prices on the regulated market are presently lower than the free market price.

The first in the top 5 largest companies in the energy business, according to net turnover in Latvia, is Latvenergo JSC. The company was founded on 22 December 1939 as the State Electricity Enterprise “Ķegums”. Today, the Latvenergo Group comprises the parent company Latvenergo AS, engaged in the generation of electricity and thermal energy and the provision of telecommunication and information technology services. It also has several subsidiaries such as Latvijas elektriskie tīkli AS, which ensures transmission system asset management; Sadales tīkls AS which ensures electricity distribution to each customer; and Elektrum Eesti OÜ and Elektrum Lietuva UAB which conduct electricity trade in Estonia and Lithuania respectively. Also as a response to the opening of the electricity market, Elektrum Latvija SIA was founded to conduct electricity trade within the country.

Apart from its subsidiaries, Latvenergo AS holds shares in two associated companies:  Nordic 25% of Energy Link AS, which carries out electricity transmission; 46.3% of Pirmais Slēgtais Pensiju Fonds AS, which is engaged in managing pension plans; and lastly 0.005% in Rīgas siltums AS.

 

Image courtesy of  Márcio Cabral de Moura Follow  at Flickr.com
Image courtesy of Márcio Cabral de Moura Follow at Flickr.com


During the creation of a unified energy system some years ago, base load power plants were established such as shale power plants in Estonia; and the Ignalina nuclear power plant and the Elektrenai power plant in Lithuania. In Latvia, however, the Daugava river hydropower plants were designed to suddenly increase or decrease the capacity for peak, half-peak and emergency modes when needed. Neither coal nor shale power plants allow such sudden change of generation capacity because of its technological complexity.

The heat and power plants in Riga work together to help provide 70% of the heat required by the city and approximately 20% of the electricity required by the country. The remaining part of electricity required for the national electricity supply is imported by Latvenergo AS from Estonia, Lithuania, Russia, and from the Scandinavian countries using the Nordpool exchange. These diverse energy sources ensure an uninterrupted electricity supply in Latvia.

In 2014, Latvenergo Group strengthened its market leadership, by maintaining its position as the electricity supply leader in the Baltics. The Group has a 35% share in the Baltic electricity market, which consumes a total of about 24.6 TWh.

In informal earnings results reports for the Nine Months before September 30, 2015, Latvenergo reported revenue of EUR 685,945,000 compared to EUR 748,885,000 a year before. EBITDA was EUR 236.2 million compared to EUR 178.6 million the previous year. Net profit was EUR 68,595,000 compared to EUR 30,018,000 in the year before. Net debt as of September 30, 2015 was EUR 682.5 million compared to EUR 713.7 million as of the same month in 2014. The decrease of revenue was associated with the discontinuation of recognition of the mandatory procurement public service obligation fee income in the revenue of Latvenergo Group along with the entrance into operation of Enerijas publiskais tirgotjs AS of 1 April 2014. Profit before taxes was EUR 74,803,000 compared to EUR 33,326,000 a year before. Operating profit was EUR 87,168,000 against EUR 46,798,000 the previous year. Net cash flows from operating activities were EUR 153,804,000 against EUR 106,439,000 a year before. Purchase of intangible assets and property, plant and equipment was EUR 132,790,000 against EUR 117,868,000 a year before. The company reported electricity generation of 2,676 GWh and 1,584 GWh of thermal energy for the nine months of 2015. Compared to the respective period last year, the amount of generated electricity has not changed significantly and the Daugava hydropower plants (HPPs) have generated 1,590 GWh, whereas Riga combined heat and power plants (CHPPs) have generated 1,048 GWh.

For more information on the Latvian Group and possible investment opportunities you can take a look at this further information: http://www.latvenergo.lv/eng/investors/financial_information/key_figures/

 

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