How will Latvia's natural gas market change in May?

Take note – story published 1 year ago

The natural gas market in Latvia will be fully open as of May 1, with a new participant entering the market. This means that there will no longer be a single trader providing gas to users for a tariff that is regulated and evaluated only twice a year. Therefore, the Minister for Climate and Energy said on April 4 it is encouraged that households choose their own service provider.

From the consumer's point of view, this means that natural gas will now have to be handled in the same way as electricity, with a contract for the supply of this energy source with one of the traders. Considering that there will be some people who do not enter into such contracts, the possibility of receiving natural gas in the same way as now is left in place. Namely, according to rules approved by the government on Tuesday, citizens will have access to the 'universal' service.

“It is clear that the era of monopoly on the gas supply to our households is ending,” Prime Minister Krišjānis Kariņš (New Unity) said after the government meeting.

The changes

The cost of natural gas supplies to households is currently regulated and calculated based on a methodology approved by the Public Services Regulation Commission (SPRK). As of May 1, the natural gas market will be open and gas will be delivered to households at market price.

The total natural gas charge will continue to be composed of five components:

  • the price of natural gas,
  • transmission charges,
  • distribution fee,
  • excise duty,
  • value-added tax.

The price of natural gas will be the only component that will differ in traders' supply.

There are currently nearly 380 thousand gas-dependent objects in the household segment. Of those, a little over 300 thousand are users who use natural gas for cooking. Others use it for water heating and heating. Of all households, around 360 thousand are currently users who continue to use the public trader service and are advised to review their contracts, the Ministry of Climate and Energy said.

For customers considering switching the gas trader from the next month, this should be done by the 15th of the current month. Consequently, to change the gas supplier from May 1, the application for a new contract should be made until April 15. Those who will not choose a new offer will continue to receive the so-called universal service with a fixed price for six months from “Latvijas Gāze”. Normally, universal service is more expensive than market prices but the universal service provides additional protection for the user, namely the fixed price for six months and the right to terminate the contract without changing the price.

Households will be able to choose a different offer in place of universal service at any moment without penalty.

As of May 1, three companies will offer gas to households: Latvijas Gāze, Latvenergo under the brand Elektrum, and the Estonian gas and electricity trader Eesti gaas subsidiary Elenger.

The costs

The currently existing regulated tariff with state aid is 9.7 cents per kilowatt-hour.

Latvijas Gāze does not yet name a specific price, but it is estimated that the price of the universal service for natural gas will be 20-40% lower for households compared to the current regulated tariff. Prices will be different for different user groups.

Latvenergo predicts that gas costs will fall by 25 to 30% compared to the regulated tariff.

Elenger will offer two tariffs as of May 1 — the flexible tariff of 6.7 cents per kilowatt-hour and the fixed tariff — 7.7 cents per kilowatt-hour. For cooking gas, the planned tariff is 11.5 cents per kilowatt-hour. In addition to the price of natural gas, households will have to pay the distribution and transmission system tariffs, which will remain regulated.

Minister for Climate and Energy Raimonds Čudars (New Unity) estimates that the number of these traders will not increase in the near future at least. “We are looking forward to more receptiveness, it is true, but at the moment we are talking about very stable three [suppliers] in the household sector,” Čudars said.

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