The heating season is a couple of months away, and “Rīgas Siltums” already in June submitted to the Public Utilities Commission (SPRK) for evaluation a new heat tariff – 88.10 euros per megawatt hour (MWh), which will increase the heat price for Riga residents by about 22%. While Saeima deputy Andris Kulbergs (AS) has started raising the issue of heat tariffs in Riga and has given an interview in the latest issue of the magazine “Klubs”, industry players are outraged. “Kulbergs is manipulating information and lying in almost every sentence. I can’t really understand whether he is lobbying for something and deliberately manipulating, or simply doesn’t understand anything,” says Jānis Timma, co-owner of the companies SIA “Eco Energy Riga”, SIA “Juglas Jauda” and author of the initiative “Rīgas Ilgtspējīgas Siltumapgādes Asociācija” mentioned in the interview.
You say that Kulbergs is lying and manipulating. How so?
I am ready to do a “corrections” section for this interview, where the Saeima deputy talks about the situation in the heat market; in every sentence there is some absurdity…
We will get to specific statements, but tell me briefly what the main accusations would be?
It is very simple. Andris Kulbergs says and apparently really believes that some small boiler houses have latched on to the free market, and that nobody invited the small boiler houses. He doesn’t understand why such things appeared at all and claims they are profiteers. He asserts that, roughly speaking, ten years ago Riga had the cheapest heat tariff in the Baltics, but now it no longer does, and that this situation is the fault of the small boiler houses that have been built here.
In reality, the situation is exactly the opposite – Riga currently has the most expensive tariff, because in Vilnius, Tallinn, and also in other large cities in neighboring countries, many more small boiler houses have been built during this period, and woodchip fuel is cheaper than gas. We have still preserved our dependence on gas, while our neighbors have switched to local renewable resources. In addition, in both neighboring countries heat is also obtained from waste incineration, which faces strong resistance in Latvia. And then, of course, Mr. Kulbergs still sings the old song about “residual heat” supposedly produced by Latvenergo, which is not true – the European Commission clarified a long time ago that heat produced in cogeneration is not any sort of residual heat. That is precisely why it is cogeneration – because both electricity and heat are intentionally produced in it.
Mr. Kulbergs has not been shy in using various epithets. In your opinion, what happened – why did Riga have the lowest heat tariff ten years ago, but the highest now?
Let’s start with the fact that ten years ago we lived in a completely different energy market. Gas ten years ago was cheap, 18–20 euros per MWh. Today the gas component costs 35–40 euros, in winter around 50 euros. We remember that the price climbed even to 200 euros when the war started, but let’s not take those peaks into account; clearly that price level cannot be called normal fluctuations. So the gas component is about 40 euros, plus distribution and transmission services at about 6–8 euros, excise tax another 2 euros, and then you also have to pay for CO2 quotas, which the heat producer pays, but that is about 10 euros per MWh. There is a mechanism to obtain up to a 3-euro discount, but on average it is still 10 euros. Roughly speaking, the cost of one gas megawatt is 55–60 euros; there is no way to get it cheaper.
Woodchips cost 18–20 euros in summer, and in winter the price goes up to 25 euros. The difference is certainly noticeable.
What Riga, essentially Latvia, has done is to seek at any cost to preserve its dependence on gas. Now it is no longer Russian gas, but it is still the most expensive resource.
In Tallinn and Vilnius small boiler houses have been built that have reduced dependence on gas, and there are also waste incineration plants. In Lithuania, for example in Klaipėda, the company Gren has been incinerating waste for 12 years already, and that is an even cheaper fuel resource. In Lithuania there are waste incineration plants in Vilnius, Kaunas, Klaipėda and Akmenė, at the cement plant.
How much cheaper?
Let’s put it this way – there is currently one company in Latvia that incinerates waste – Schwenk in Brocēni, but its energy, of course, does not reach Riga’s central heating system. It is more of a service for others – waste managers even pay extra for having someone accept and incinerate the waste. A resource for which you even get paid… But there is strong resistance in Latvia; it is not really clear why. It’s not like garbage trucks come and dump diapers together with fridges and banana peels and then all of that is burned. This is the combustible fraction of already sorted waste. Of course, there are also more advanced technologies that indeed burn unsorted waste, but the main part of incinerated waste consists of large amounts of construction wood. The sorters are no fools either – they will sort high-quality plastic or rubber separately and then sell it on for a higher price because it has greater added value.
We have no incineration plants, there are few small boiler houses, and Latvia, like Hungary and Slovakia, has remained dependent on gas; 70% of the required heat in Riga is still produced from gas, while in Vilnius 70–80% of the required heat is produced using renewable resources, and gas provides the remainder.
Where else has Mr. Kulbergs expressed untruths?
About tariffs. I don’t understand how someone can lie so openly – is there no shame at all? Kulbergs says, and I quote: “…by forming the weekly market, these five boiler houses submit 100% identical tariffs, a few cents below Latvenergo’s highest regulated tariff.” First, such a situation has never existed in which five boiler houses have submitted identical tariffs. Second, the tariffs of small boiler houses are on average 20–30% lower than Latvenergo’s tariffs. I have compiled information on how the tariffs of small boiler houses have differed from Latvenergo’s tariffs over the course of a year (see the table below or the more extensive summary here). This information is certainly available to Mr. Kulbergs. The price difference is from 12 to 20 euros per MWh, and that is not just a few cents. And third, was it really so difficult for Kulbergs to check that Juglas Jauda, just like Latvenergo, has a regulated tariff, which is available on the SPRK website and also on the company’s website. Thus, Latvenergo’s regulated tariff this year is 78.92 EUR/MWh, while Juglas Jauda’s approved, also regulated, tariff is 58.48 EUR/MWh, a difference of 26%. Gren has been providing a tariff of 44.55 EUR/MWh, which is 32% lower than Latvenergo’s. Last year, when Latvenergo’s regulated tariff was 65.33 euros, Juglas Jauda’s tariff was 23% cheaper. What “few cents” and “identical tariffs” is Kulbergs talking about – that really is the question.
An even more important fact is that Juglas Jauda also has a cogeneration plant and, like Latvenergo, uses gas. Then the question is – both use gas, so how is it that a small, private plant can provide a tariff that is 25% lower?
What are the possible explanations?
Inefficient operation. Small plants, including Gren, which are also “in” the electricity market, follow electricity prices, events, trends – they monitor and plan. Why is Juglas Jauda capable of monitoring and planning and ultimately providing a lower price, but Latvenergo is not? The whole market can, but only Latvenergo cannot.
I believe they could reduce the tariff. I cannot say whether down to 53, 58 or 61 euros, but they could still reduce it. Let’s be honest – private companies work more efficiently; the state usually manages as it can…
In the recent past, over the last 3–5 years, has there been any moment when your small plants’ energy was more expensive?
Never! Our contract with Rīgas Siltums even stipulates that they will not automatically buy from us if our price is even 1 cent higher. They will not buy it even if the price is the same as Latvenergo’s.
But has it been similar or with a small difference, or has the gap always been 15 euros?
Of course there are weeks when the price is very close, but there are also weeks when the difference is large.
The colder the period, the lower the outdoor temperature and the higher the demand, the smaller that delta is. With each new boiler house built, the instances when the price is similar would become ever rarer. But it is not even essential whether it was similar for a week or for a month.
It is essential for the user, the reader, because many people do not know or understand all the nuances, so ultimately there is only one question – is it cheaper or not?
If we look at it mathematically – for there to be an average 20% price difference over the year, the price must either be almost the entire year 20% lower, or the price will be similar for a large part of the months and then for a few months the price difference must be 80%. In real life it is, of course, the first option. The price differs significantly throughout the year, except for short periods when there is a prolonged severe frost outside.
It seems that when we spoke a couple of years ago, you said that Rīgas Siltums’ procurement was not weekly but daily…
It varies. There are both weekly and daily procurements. It differs between the heating season and the summer. But I think that holding daily auctions is also wrong, and it is yet another Latvenergo lobby. How can a biomass boiler house participate in a daily auction at all? It’s not an engine or a gas stove that can be turned on and off as needed. Roughly speaking, a boiler house is a large fireplace that heats up slowly and cools down slowly. A gas plant is an engine/turbine that can be switched on with the push of a button.
In a city’s centralized heat supply system biomass boiler houses should form the base, and gas should be the resource used to cover demand “peaks”. And that has long been the case in Lithuania and Scandinavia, and Estonia is rapidly approaching this as well.
Information has emerged that a specific volume is reserved from which Rīgas Siltums buys from Latvenergo, but there is also the possibility to participate in the small boiler house procurement by offering a lower price than you, while your cheaper heat is still vented into the air. Has the situation changed?
No, nothing has changed. Small biomass plants can currently provide 178 MWh of heat; that is the capacity, they cannot provide more. In winter Latvenergo produces energy at 78 EUR/MWh, while we, the small producers, at say 60 euros. And then at some point Latvenergo announces that they have residual heat, which they suddenly sell, say, at 25 EUR/MWh, and Rīgas Siltums buys it from them. However, Latvenergo provides this price not for part of its capacity, but competes in the 178 MWh procurement volume reserved for small plants, while small plants have no opportunity to participate in Latvenergo’s procurement. Thus the state guarantees buying a large volume at 78 euros, then buys at 25 euros, but producers who offer 60 euros remain “overboard”. Logically, you would first buy at 25 euros, then at 60, and only then the remaining required amount – at the highest price. To reduce the tariff for city residents, all the cheapest megawatts (i.e., heat energy) available on the market must be purchased. Not selectively buy heat more expensively from your own shareholder.
It would be even more logical for Latvenergo to incorporate this “cheap” heat into the overall price, average it out and sell, say, at 75 instead of 78…
Well, of course! Unfortunately, they do not do that. There is a lack of planning, market monitoring and a desire for optimization. It is simpler to maintain this distorted procurement procedure together with Rīgas Siltums, claiming that it is residual heat.
Yes, Mr. Kulbergs also mentions residual heat quite colorfully, even criticizing the Competition Council and maintaining the idea that heat is a by-product…
Exactly. He points out that a European directive stipulates that residual heat must be taken as a priority out of turn because it is green. But he has forgotten to mention that the European Commission has determined that heat produced in cogeneration is not residual heat; that is written in black and white. This is manipulation. The European Commission has clearly stated in the document on residual heat accounting – heat produced in cogeneration mode is not considered residual heat, because cogeneration is a process in which heat and electricity are deliberately produced simultaneously. You cannot say in a cogeneration plant that it has deliberately produced only electricity and did not intend to produce heat. The best example of residual heat is a data center that needs to cool its equipment, thereby producing heat. However, these are small volumes…
Are there real possibilities that anyone will still build small plants?
The possibilities exist, but as long as Rīgas Siltums and Latvenergo maintain this market distortion, the possibilities are small.
Personally, I have two, you could even say three, sites, at one of which there is already a building permit for a 52 MW boiler house, and at another a 45 MW plant is currently being designed. Even if these two facilities were built and we supplied heat at 60 euros, but Latvenergo did not reduce its 78-euro tariff, Riga would already be very close to not needing to raise the tariff in the autumn.
As long as the market is distorted by some kind of guaranteed procurement from Latvenergo, banks are cautious. I can come with a project and ask for financing, but the bank says: wait, you offer cheaper heat energy, but they are not buying from you – instead they buy more expensive from Latvenergo? How can we make forecasts then? Today they buy a little, tomorrow they won’t buy at all… and the people of Riga will pay.
What will you do next?
The price of heat energy that Rīgas Siltums must pay to all producers in order not to increase the tariff for residents is about 53 euros per megawatt hour. The boiler houses I represent will submit such an offer to Rīgas Siltums and also to the leadership of Riga City Council. We are ready to offer a fixed price of 53 euros for the next heating season for the energy we supply. If other market participants (I will clarify – “participant”) follow this, then the problem of tariff increases in Riga is solved.
And if your offer is rejected and they do not buy?
You know, I cannot answer immediately. Clearly, the regulatory framework is on our side, because it unambiguously, let’s put it that way, supports our intention to sell a product cheaper to a municipal institution than others do. This is a very serious issue. Ultimately we are not only talking about the price of heat for Riga residents, we are in fact also talking about national interests and national security. Who will ensure heat energy for Riga and electricity for the region in the event of international political or military conflicts if gas is not available?
Originally published at https://inc-baltics.com/kulbergs-ridziniekus-baro-ar-gazi-nevis-patiesibu-timma-izgaismo-intervija-pieminetas-nepatiesibas/
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