INTERREG IIIC - REGENERGY Promoted by the European Union Development of municipal District heating supply in Latvia Gaidis Klavs Institute of Physical

INTERREG IIIC - REGENERGY

Promoted by the European Union

Development of municipal District heating supply in

Latvia

Gaidis Klavs

Institute of Physical Energetics

Component 2 seminar, Berlin, 8-11of May 2006

INTERREG IIIC - REGENERGY Folie 2


• Role of DH in the heat supply system of Latvia;

• The main problems and solutions of DHS development in Latvia;

• The main challenges of DHS in future;

Content of the presentation



Final energy demand in Latvia, year 2004

12%

15%

26%32%

15%

Electricity

Heat

Fuelwood

Oil products

Other



Final energy consumption in households sector, year 2004.

9%

30%

48%

13%Electricity

Heat

Fuelwood

Other



Number of households connected to DHS in Latvia

0

20

40

60

80

100

Latvia Riga Vidzeme Latgale

%

OtherDHS



District Heating system in Latvia

Big cities

26,50%

Regional towns

and willages 22,50%

Riga 51%

Big cities Regional towns and willages

Daugavpils – 8% Ogre – 1,5%

Liepaja – 6% Jekabpils – 1%

Ventspils – 5% Salaspils – 1%

Jelgava – 4% Valmiera – 1%

Jurmala – 2% Cesis – 1%

Rezekne – 1,5% Bauska – 1%



DH production in Latvia

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004

PJ

CHP

Heatboilers



Fuel consumption in DHS of Latvia

70%

5%

24%1%

Natural gas

Heavy fuel oil

Fuelwood

Coal



Development of DH consumption in Latvia and Riga

10

15

20

25

30

2000 2001 2002 2003 2004

PJactual DHconsumptionLatvia

climate correctedDH consumptionLatvia

actual DHconsumption Riga

climate correctedDH consumptionRiga



0 5 10 15 20 25 30 35

Stockholm

Berlin

Helsinki

Vienna

Prague

Copenhagen

Riga

Tallinn

Vilnius

PJ



The main problems, difficulties, challenges of DHS in transition economy

Poor and deteriorating service quality

Decreasingrevenue

Non-existent or poorly designed heat policies

Decreasingcompetiti-veness

Financialproblems

Unnecessary costs due to: - heat losses - inefficiency - excess capacity

Tariffs below costs

Non-payment

Poor management

Lack of customer

focus

Increasingtariffs

Lack of control and metering equipment



Legends and wrong impressions concerning DHS in transition economy

• DHS does not have place in market economy;• DHS as centralised form of energy is necessarily

inefficient and inflexible;To improve situation:• At the technical and economic level, each system

should be evaluated for optimal performance.• At the policy level, governments need to develop

regimes that support quality district heating and do not encourage inefficient district heating.



The main steps of DHS improvement in Latvia

• Improvement of efficiency in all DHS stages (production, transmission, distribution).

• Installation of control and metering equipment.

• Improvement of regulation (separating regulation and ownership).

• Improvement of management (changing of DH organisational structure).



Improvement of production efficiency in DHS of Riga

90

91,993

85

90

95

100

2000 2002 2004

%



Heat losses in transmission system of Riga’s DHS

0 5 10 15 20

2000

2001

2002

2003

2004

%



Development of DH market in Riga

0

1

2

3

4

5

2000 2001 2002 2003 2004

%



A Coherent Policy and Regulatory Framework

• Common regulatory principles to ensure that there are no major differences in the way various energy forms are regulated.

• Separating regulation and ownership• The problem of great importance is that of securing

the independence of decisions made by municipal regulators. There are cases when in such decision-making process political factors dominate over economic reasons.



DH regulation in Latvia

• A two-tier system of public service regulation. • The first tier regulator – the Public Utilities

Commission – regulates public services on the state level (electricity, gas)

• The second tier regulators – local government regulators – regulate local service providers including heat supply.

• By January 1st of 2006 in the municipality-regulated spheres (heat supply, water supply and waste management) 81 municipalities together had created 17 municipal regulators.



DH tariffs in municipalities in Latvia for the heating season 2005/2006.

0

5

10

15

20

25

30

35

40

Aizkraukle Rīga Salaspils Jelgava Limbazi Cesis Kuldiga

EUR/MWh



Development of organisational structure of DH companies

Public

State

Public

Municipal

State

Mixed Public Private

Municipal

Lease

Concession

Private shareholder



The organisational set-up till year 2005 - Integrated municipal company

D HS ystem

D HD epatrm ent

W ate rD epartm ent

Hous ingD epartm ent

W asteD epartm ent

RoadD epartm ant

***

Municipality



Disadvantage

• The company management have little freedom to take necessary actions;

• There is a risk that the budget of the company will be to mixed with budget of other municipal activities;

• The international banks will not provide loans to the company if management structure and budget can not be separated entirely from the municipal administration;

• Usually DH tariffs is used as instrument of political awareness before elections.



Organisational set-up from year 2005

• According to the new Commercial Law two main set – up forms could exist - limited liability company and stock company.

• The form of limited liability company is more appropriate for small municipalities and if municipality would like to remain sole owner of DH company.



Organisational set-up from 2005 - Independent municipal district heating company

D H sys tem

D is tr ic t hea ting com pany W ater supply com pany X X

Municipa lity



Advantage

• The company can be managed exactly as a privately owned company in which the management is only responsible to the board;

• The activities of the company will be kept separate from the other municipal activities and the budget;

• The natural objective of the company will be to minimise the costs of heating (and not minimising the heat price) and the company should therefore have an initiative to advice consumers on energy saving.



Disadvantage

• Board does not understand its role of acting on behalf of the owner and setting the objectives for the management;

• Board is to weak and leaves all power to the management with no control or the opposite;

• Board goes into detail and tries to solve the tasks of management.



Still challenges for DHS in Latvia

• Improvement of efficiency and more customer focus;

• Co-ordination of DH, Housing Policy and Social Policy.

• Development and integration of CHP technology based on bioenergy.

• The need for a Heat Policy?



Thank you

Gaidis Klavs

Institute of Phycical Energetics

Aizkraukles 21, Riga, LV – 1006

LATVIA

E – mail: [email protected]

Documents

INTERREG IIIC - REGENERGY Promoted by the European Union Development of municipal District heating supply in Latvia Gaidis Klavs Institute of Physical