Government reduces value of energy subsidy

Starting from July 1, the average value of the mandatory purchase component (MPC) and capacity component will be reduced from €25.79 to €22.68 per megawatt hour (MWh), the government decided April 24.

The government also supported the Finance Ministry's proposal that in case this decision leaves a negative impact on the fiscal space in 2019 and/or 2020, the negative fiscal space will be compensated by increasing dividend payments from Latvenergo power utility. If this cannot be done, then the Economics Ministry will have to offer other compensating measures.

In order to reduce the MPC average value, the government supported the Economics Ministry's proposal that Latvenergo's dividends from 2017 profit, worth €62.2 million, should be paid into the state budget in 2018. Of this sum, €10.5 million are allocated for reducing the average value of MPC and capacity component in the second half of 2018.

The remaining €51.7 million would then be a compensation to Latvenergo for the advance tax payment, proportionally reducing the company's advance tax payment for the time period between January 1, 2019, until September 23, 2028.

The mandatory procurement component is a fundamental macroeconomic mistake that has affected the entire nation, Economics Minister Arvils Aseradens said earlier. 

The component, a charge that is included in electricity bills, was initiated to subsidize green energy producers, but the government recently set up a work group to try to do away with the system, which has has been unfairly used by some energy producers.

The charge is also used to subsidize the state-owned Rīga Thermal Power Stations No. 1 and 2, which run on natural gas. Hence MPC is not really used for green energy exclusively. 

Following reports on possible fraud in several co-generation plants, the Economics Ministry conducted inspections at several companies and found that they were not generating any power. Most probably, the power plants had been turned on just for the necessary 72-hour test period to get their licenses approved.

The Latvian Economics Ministry so pulled licenses from dozens of heat-and power (co-generation) plants.

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