Latvia: government adopts new rules on mandatory purchase of energy from renewables and cogeneration

On 2 September 2020 the Latvian Cabinet of Ministers adopted two new regulations on the mandatory purchase of electricity from cogeneration and renewable sources. For biogas plants that sell electricity under this system in Latvia, the changes tighten efficiency requirements and make the purchase price dependent on the type of raw materials used.

What changed

The new rules replaced Regulation No. 221 of 2009 (cogeneration) and No. 262 of 2010 (renewable energy). Earlier, on 15 February 2020, amendments to the electricity market act entered into force, which became the basis for the new implementing acts.

Entities receiving support under the mandatory purchase system (obligātais iepirkums) or a guaranteed payment are to bear greater responsibility for meeting the conditions of support. The requirements for generation efficiency and useful use of heat, previously applied to cogeneration, will from 1 January 2021 also cover power plants using renewable sources. Rules on the so-called single technological cycle were to be developed by the same date.

Consequences for biogas plants

The rules linked the purchase price to the type of fuel used by the biogas plant. If an installation does not meet the minimum requirements on fuel composition, its right to mandatory purchase may be withdrawn. From 2022 biogas plants are to gradually limit the use of agricultural food products such as maize and rely on waste, including slurry.

The Ministry of Economics announced that by the end of the year it would propose a reduction of the OIK component. The government also stressed that no new rights to mandatory purchase have been granted since 2012, so the system applies only to installations that obtained them earlier.

What OIK means

OIK (obligātā iepirkuma komponente) is a component of the energy bill added to customers' consumption (the scope of any exemptions follows from the regulations and is not discussed here), from which the difference between the guaranteed purchase price of energy from eligible generators and the market price is financed. It is thus the equivalent of the Polish mechanism of surcharges financed by customers, but with a longer history and a more controversial public assessment: in Latvia a debate has been going on for years around the level of the charge and the excessive support for some power plants.

What this means in practice

• A biogas plant that ran on maize must change its substrate mix if it wants to keep its right to purchase.
• The efficiency and heat utilisation requirements, previously applied to cogeneration, will from 2021 also cover renewable installations.
• Because no new rights have been granted since 2012, the changes concern installations already operating; a new investor must look for other sources of revenue.