OPET CHP/DH Cluster District heating and co-generation

Improving CHP/DHC systems in CEEC

Report
Draft National Heat Energy Plan

Riga, 2004

European Commission (Directorate-General for Energy and Transport) Contract no. NNE5/2002/52: OPET CHP/DH Cluster

Draft National Heat Energy Plan

Organisation: Address: Tel.: Fax: E-mail: Web:

Ekodoma, Ltd OPET Latvia 12-49, Zentenes Str., Riga LV1069, Latvia +371 73 23 212 +371 73 23 210 ekodoma@ekodoma.lv www.ekodoma.lv

The project "OPET CHP/DH Cluster" has obtained financial support from the European Commission (Directorate-General for Energy and Transport) under the contract no. NNE5/2002/52 for Community Activities in the Field of the specific programme for RTD and demonstration on "Energy, Environment and Sustainable Development - Part B: Energy programme" The responsibility for the content on this publication lies solely with the authors. The content does not necessarily represent the opinion of the European Community and the Community is not responsible for any use that might be made of data appearing herein.

Table of Contents
EXECUTIVE SUMMARY ........................................................................................................................... 4 1 2 ENERGY SYSTEM ............................................................................................................................. 5 THERMAL ENERGY......................................................................................................................... 6 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4 4.1 4.2 4.3 4.4 4.5 5 5.1 5.2 5.3 5.4 6 6.1 6.2 6.3 7 8 PRODUCTION AND SUPPLY OF THERMAL ENERGY .......................................................................... 6 RIGA.............................................................................................................................................. 7 DAUGAVPILS ............................................................................................................................... 11 LIEPAJA ....................................................................................................................................... 13 OTHER DISTRICT HEATING SYSTEMS............................................................................................ 14 CONSUMPTION PROJECTION......................................................................................................... 14 ORGANIZATIONAL STRUCTURE.................................................................................................... 19 THERMAL ENERGY DISTRICT HEATING ..................................................................................... 20 PRODUCTION OF THERMAL ENERGY ............................................................................................ 20 FUEL CONVERSION FOR GENERATION OF THERMAL ENERGY ....................................................... 22 TRANSMISSION OF THERMAL ENERGY ......................................................................................... 24 FINAL CONSUMPTION OF THERMAL ENERGY ................................................................................ 25 EFFICIENCY IMPROVEMENTS IN HEATING SYSTEMS ..................................................................... 30 INVESTMENTS ............................................................................................................................. 30 GAS SUPPLY ................................................................................................................................ 31 FOSSIL FUEL SUPPLY ................................................................................................................... 32 WOOD BASED FUELS ................................................................................................................... 34 PROJECTION STRUCTURE ............................................................................................................. 34 ENVIRONMENTAL PROTECTION ................................................................................................... 36 INTEGRATION IN EUROPEAN UNION ............................................................................................ 39 SECURITY OF SUPPLY AND RESERVES .......................................................................................... 41 PRICE TRANSPARENCY ................................................................................................................ 42 GAS AND ELECTRICITY TRANSIT .................................................................................................. 42 HOT WATER BOILERS................................................................................................................... 43 SULPHUR CONTENT OF CERTAIN LIQUID FUELS ............................................................................ 43 USE OF SUBSTITUTE FUEL COMPONENTS IN PETROL..................................................................... 44

ENERGY EFFICIENCY................................................................................................................... 20

ENERGY SUPPLY RESOURCES................................................................................................... 31

LEGISLATION AND REGULATORY FRAMEWORK .............................................................. 39

LIBERALIZATION OF GAS AND ELECTRICITY MARKETS ............................................... 43

THE LATEST DEVELOPMENT .................................................................................................... 45 BARRIERS FOR ENERGY EFFICIENCY IMPROVEMENT.................................................... 46

9 NEW INSTRUMENT IN PROMOTING CHP DISTRICT HEATING AND ENERGY EFFICIENCY IN LATVIA ........................................................................................................................ 47 10 10.1 10.2 10.3 10.4 10.5 10.6 10.7 11 FINANCING THE DISTRICT HEATING PROJECT IN LATVIA ....................................... 48 THE ENERGY EFFICIENCY FUND .................................................................................................. 48 SCIENCE AND EDUCATION ........................................................................................................... 49 KEY ACTIVITIES IN THE EDUCATION FIELD .................................................................................. 49 KEY MEASURE IN SCIENCE .......................................................................................................... 50 FINANCIAL RESOURCES REQUIRED FOR EDUCATION .................................................................... 50 INVESTMENTS ............................................................................................................................. 51 FINANCIAL RESOURCE, SCHEDULES AND SOURCES .................................................................... 51 SOURCES...................................................................................................................................... 56

EXECUTIVE SUMMARY
This draft version of Latvian National Heat Program is based on earlier versions of the National Energy program prepared prior to January 2004, as well as other studies and documents. Comparing with the earlier Latvian National Energy Program this document analyses the energy sector in close ties with trends in the national economy as whole. Investments in the energy sector have been projected depending on the economys actual capability. The highest priority has given to the energy efficiency, which largely determines not only the thermal energy demand but also the welfare of population and the competitiveness of Latvian businesses. In order to ensure further integration into the European Union the program has been harmonized with the general EU policy and its directives. In this regard wide program is planned to ensure the compliance of international legislation. The section regarding indigenous and alternative resources has been substantially expanded and the program anticipates a maximum utilization of their potential within financial reasonable limits. The objective of the National heat program is to define a set of measure that will ensure stable energy supplies at the lowest costs and lowest affordable environmental impacts that in quantity and quality correspond to the domestic demand. Improving the energy efficiency, promoting the utilization of domestic and energy resources and decreasing share of the energy in the countrys imports will achieve this objective. The program covers a period up to 2020. It is a draft planning document that integrates into a single system interrelating technical, financial and organizational measures and is composed of 11 subprogram- Thermal Energy, Energy Efficiency, Gas Supply, Oil Product, Coal, Wood, Peat, Alternative Energy sources, Environmental Protection and Institutional Regulations, Education and Science. The National Program envisages: Efficiency improvement in the whole chain of the energy system - from production, transmission, and distribution for final consumption; Deeper integration into EU energy market, energy systems of Baltic and Nordic States; Liberalization and restructuring of the energy sector, with the aim to promote the development of a rational energy systems; Favorable environment for private investment in efficient energy systems (cogeneration), utilization of domestic and renewable energy resources as well as energy efficiency;

Rational utilization and maintenance of the existing capacities, replacement of obsolete and environmentally inadequate installations. The is focused from the heat market point of view.

ENERGY SYSTEM

The energy system consists of a chain of processes. It starts with the extraction or collection of primary energy sources, such as coal, crude oil, natural gas, biomass, uranium and sunlight. The energy content of the annual flow of these sources is often referred to as primary energy consumption. Primary energy is converted into energy carriers such as petrol and electricity, which is then converted into energy end-use provisions to provide the desired energy services. The annual flow of these energy carriers is called final energy consumption. Due to conversion losses, final consumption is less than primary consumption (e.g. the generation of heat in many conventional power plants has an efficiency of less than 70%). Environmental pressures are caused by all parts of the energy system; some of the prominent pressures are selected for analysis in this report. Greenhouse gas emissions in Latvia are largely carbon dioxide emissions from fossil fuel consumption in the end use sector or from energy conversion. In addition, carbon dioxide and methane during extraction and transport play a role. Acidification and urban air pollution result from emissions during energy conversion and final consumption. Opportunities to reduce environmental impacts can be found in all part of the system. For example, carbon dioxide emission can be lowered in the first part of system by switching to energy sources with lower carbon content (e.g. natural gas) or with a net zero carbon content (e.g. biomass). In the second part of the system, lower conversion loss result in lower carbon emissions. One important option here is the combine generation of heat and power CHP, which can raise the overall efficiency of converting fuels into heat or electricity. Last but not least, demands for final energy can be reduced. A complex of factors, including production and consumption patterns, income, available technology, determines energy demand. Energy conservation measures result in the use of less energy to deliver the same services. Pressure Energy production Mining/extraction Transport Energy conversion Refineries Heat production Electricity production Energy consumption - Agriculture - Transport - Industry - Services -Household

Climate change State Impact

Summer smog

Urban air pollution

Acidification

Human health

Terrestrial ecosystems

Response Price reform Energy audit & management Policies for heat and electricity sector Policies on transport Additional environmental measures

Fig. 1 Analytical breakdown of the assessment

THERMAL ENERGY

In Latvia the total thermal energy consumption in 2002 reached 26 PJ, demonstrating a 43% drop comparing to 1996. An analysis of the consumption of thermal energy shows that the period from the year 1996/1997 to 1999/2000 was characterized by a decrease in the consumption of thermal energy, but starting with the year 2001/2002 the consumption tends to stabilized. Approximately 70% of the total thermal energy was supplied by district heating system although the trend towards decentralization was gaining popularity, particularly within this area with developed natural gas networks. Space heating and ventilation consumed some 65% of the energy delivered. One of the most important factors, which influenced the consumption of thermal energy and accordingly to the price for thermal energy to residents, has been the recording of consumed energy at the users premises. The decrease in the thermal energy used for the preparation and supply of hot water was influenced by standards issued by the Riga City Council, which: a) foresaw the use of hot water meter readings, when calculating the cost of the residential consumed thermal energy; b) gave the possibility of refusing centralized district heating, including the supply of domestic hot water and to install autonomous individual electric or gas water heaters in apartments.

Gross Heat Consumption, PJ 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 46 37 34 28 25 26 26
Series1

Fig. 2 Gross heat consumption

2.1

Production and supply of thermal energy

During the year 2002, 3 million MWh of thermal energy has been supplied to the heating networks, which is 2% (or 62.712 MWh) more than in 2001. Table 1 shows the heat consumption by sector in Latvia in 2002, PJ Table 1 Heat consumption by sector in 2002, PJ Production Centralized Local Losses and self-consumption Final consumption Households Industry Agriculture, forestry, hunting, fishing Construction Other consumers 33.05 29.55 3.50 6.73 26.32 19.47 0.57 0.07 0.10 6.11

Structure of Heat consumption in 2002

Industry,Forestry,Agric ulture & Construction 3% Other consumer 23% Households 74%

Households Other consumer Industry,Forestry,Agriculture & Construction

Fig. 3 Structure of heat consumption In Latvia various types of fuels are used in thermal generation. Data on fuel utilization in centralized and decentralized generation are summarized in table 2. Table 2 Fuel consumption in thermal generation in 2002, PJ Natural Gas Centralized supplies Local supplies Total Share, % 35.21 2.54 37.75 69.08 Wood 7.10 3.79 10.89 19.93 Heavy fuel oil 4.22 0.12 4.34 7.94 Peat 0.95 0.05 1.00 1.83 Coal 0.26 0.08 0.34 0.62 Shale Oil 0.32 0.32 0.58 Total 48.06 6.58 54.64 100

2.2

Riga

Approximately 80% of thermal energy supplies in Riga come from centralized (district) heating systems. The rest is being covered by local (individual) energy sources - industrial plants whose generation is limited to the respective companys needs as well as other smaller boilers. March 1996 an integrated district heating company AS Rigas siltums was established and this fact is considered being a positive move towards better management and improved transparency of the systems operation. Merger of thermal energy generation capacities transmission and distribution networks formerly operated by PVAS Latvenergo and Riga City Council created Rigas Siltums. That also means that district heating system in Riga nowadays has single management providing coordination of overall operation and development policy. Rigas Siltums mainly focuses on: the production of thermal energy in its own thermal plants and purchasing thermal energy from another producers; the transmission, distribution, supply and sale of thermal energy; the installation, maintenance, and control of industrial heat equipment; the purchase, storage and sale of various types of fuel;

the maintenance and servicing of consumers heat supply systems, as well as the training and consulting of consumers personnel. The company also provides technical maintenance of the internal heating systems of residential buildings In further analysis of thermal energy generation structure the term centralized heating system refer to the following thermal energy - CHPs all AS Rigas siltums boiler plants as well as industrial plants that generate energy not only to cover their companys internal needs but also for sale to AS Rigas Siltums. Data on heat generation in centralized and decentralized systems is summarized in table 3. Data in this table refers to both CHPs, 123 AS Rigas Siltums boiler plants, 9 industrial plants that are operated within centralized system, 111 individual industrial as well as 330 other local plants.

Table 3 Thermal energy generation in Riga 2000, PJ Supplies Households Industry Commercial Losses and self-consumption Generation Centralized CHP AS Rigas siltums boiler plants Industrial boiler plants Local Industrial boiler plants Other boiler plants Stove and individual heat generators Share of centralized supplies Share of cogeneration in centralized supplies 2847 1593 364 383 508 2847 2283 1222 944 117 565 207 039 319 80% 54%

Further, table 4 present a short description of major thermal energy sources in Riga as well as estimate of their consumers load in 2002 and main operation indices. Table 4 Major thermal energy sources in Riga, 2000 Specific fuel Consumption, Kgoe/MWth 903 903 903 945 941 1461 72 190 149 172 14 102 176 2337 96 956 951 976 1065 1640 954 973 1134 944 94 79 79 111 170 95 87 132 86

Rating MWth CHP-1 CH-2 Total CHP BP Andrejsala BP Kengarags Total BP Vecmilgravis BP Imanta BP Zasulauks BP Rigas siltums gaseous & liquid fuel AS Rigas siltums solid fuel BP BP Ziepniekalns Total BP Industrial boiler plants Total 616 1237 1853 368 277 2498 157 375 252 267 20 130 1846 561 4260

Connected, load MWth

Incl. own, MWth

82 83 83 81 82

Centralized heating system in Riga is comprised of more than 14/23 independent pipeline networks. The largest network supplies over 60% of the total centralized thermal load.

District heating in Riga was peculiar due to existence of 183 central heating points that were built during 70ties and 80ties to supply dwelling blocks constructed at that time. Central heating points are used to prepare hot water for a large group of buildings. Form the central heating points these buildings are supplied by four pipes systems. District heating consumers representing over 45% of all no industrial thermal load are supplied through such system Total pipeline network length excluding internal networks of industrial companies in Riga is about 999/24 Km including about 199 Km to various businesses. The total network length also included 18 Km of steam pipes, which are owned by AS Rigas Siltums and are not used anymore because the formerly supplied industrial companies have stopped their operations. District heating systems in Riga was mainly build 1958-1990. Centralized resource planning system during soviet times did not provide for about maintenance and renovation of DH network. Today the City of Riga is divided into four heat supply districts and each has an appropriate company organizational structure. Each district has own functional administrative units (network area, heat plants), which are accountable to the companys economically and financially centralized administration. As of October 1st, 2002 the total length of the thermal heating network was 876 km, 72.3 % of which is owned by the JSC Rigas Siltums, including: 615 km of thermal heating networks, 1 km of hot water supply networks; and 18 km of steam pipelines

Despite inflation, the company has been able to ensure a sound operation and has not changed the tariffs for the last six years. This outstanding result was achieved thanks to a good management of the company and a carefully planned refurbishment of the Riga district heating system. 250 Rigas Siltums has funded its service Implmented alternative quality on the operational activities 200 Full replacement costs and on an innovative service culture where the client is in the focus. The 150 company has started in particular to pay attention to its technical and 100 highly developed technological foundation, without which it is almost 50 impossible to provide high quality service. Using modern technologies as 0 a foundation, thermal energy use Production plants Substations Distribution recording has been transformed from network an estimation method to an instrumental one, the four-pipe supply Investment carried out compared to total estimated system has been completely replaced replacement costs with a two-pipe system and all central block heating substations owned by the company have been liquidated. In the old system the heat was distributed from the central plant by a 2 pipe system to Central Supply Points (CSPs ). There were 180 CSPs in the DH system of Riga. In the CSPs the 2pipe system was split up into a 4 pipe system: two pipes for space heating, and two for the supply and re-circulation of domestic hot water. The domestic hot water was produced by heat exchangers in the CSP, while the space heating was carried out without heat exchangers. The pipes for both heating and domestic hot water were made of steel, and corrosion was a big problem, especially for the domestic hot water pipes because of the oxygen content in the water. The main objective for rehabilitation of building connections in the project has been to make the supply points in connected buildings independent from the central production plants with respect to heat demand control. All Central Supply Points (CSPs) have been converted to Individual Supply Points (ISPs), and equipped with heat exchangers and control units both for heating and for domestic hot water production in each individual building. The measures have reduced annual heat energy consumption for the consumers by 15 - 20 %.

Million Ls

Number of installed and reconstructed ISS

In the 2001/2002 year, a considerable amount of work was done on the renewing of contractual relations with building managers, which was associated with the liquidation of central block heating stations and multi-building heating networks and the resulting changes in the lists of buildings being serviced and the actual thermal energy consumers.

1400 1200 1000 800 600 400 200 64 672 967

1309

450

The company obtains the greatest 0 reduction of thermal energy loss by 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 reconstructing the heat network, as well as from renewing components Individual substations installed by R gas siltums of the Main district heating pipes. Annually, the following repairs are made: the replacement of large-diameter heating mains, using modern insulating materials, as well as the replacement of insulation on aboveground heating mains without pipe replacement; the replacement of heating mains using preinsulated pipe technology; the installation of new modern equipment and valves (ball and half-turn valves, and bellows-type expansion joints). The above-mentioned repairs are performed simultaneously with the 1200 1065 optimization of the heating network, 1022 reducing the length of the heating 1000 887 network and pipe diameters in accordance with actual heat loads. 800 One of the most important renovation projects in the 2001/2002 year was 600 487 the construction of a connecting 387 pipeline, joining the heating networks 400 of the boiler houses MOrupes street 19 and M. NometPu street 66/68 200 with main pipeline M1 from the thermal heating plant Imanta, as 0 well as the construction of a 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 connecting pipeline joining the Emergency repairs financing by years heating networks of the boiler houses Alises street 13 and TrijOdQbas street 5 with the main pipeline M2 of the heating plant Imanta. By replacing sections of the mains pipelines and the distribution networks results a significant reduction made in the companys expenses related to emergency repairs due to pipeline ruptures. Losses caused associated with the temporary shutdown of the heating networks to connect new consumers have been reduced because they can be tapped in to the working heating network under pressure. The greatest gain from replacement of the heating pipelines is the reduction of heat loss and the leakage of the thermal heating carrier, as well as an increase in the safety of the heating supply. Total thermal load in the city of Riga is evaluated at 3200 MW including 2351 connected to district heating network. Structure of thermal loads in Riga is summarized in Table 5.

Thousand Ls

Table 5 Thermal Loads in Riga, 2000

Industry Steam t/h Centralized CHP AS Rigas siltums BP Industrial BP Local Industrial BP Local BP Stoves BP TOTAL 155 20 55 80 250 250 0 0 405 Hot water MWth 171 75 53 44 110 89 21 0 281 Total MWth 272 87 89 96 273 251 21 0 545 Households Hot water MWth 1609 1116 437 56 468 0 12 455 2076 Steam t/h 0 0 0 0 13 13 0 0 13 Commercial Hot water MWth 417 257 188 24 100 22 28 51 570 Total MWth 470 257 188 24 109 31 28 51 579 Steam t/h 155 20 55 80 263 263 0 0 418 Total Hot water MWth 2250 1448 671 124 679 111 61 506 2928 Total MWth 2351 1461 714 176 849 282 61 506 3200

The above table indicated that some 73% of total load are connected to centralized district heating system including 77% of total household load. That demonstrated high centralization level of thermal energy supply.

2.3

Daugavpils

Approximately 76% of thermal energy supplies in Daugavpils come form centralized heating system. The rest is being covered by local individual energy sources. The main heat supplies to households and commercial sector are two municipally owned heating plants HP1 and HP-2 complemented by a few small solid fuel boiler plants while VAS Dauteks. CHP supplies major part of industrial consumers. In 1994 two steam turbines rated 12 MW each have been installed at this industrial CHP. It has to be noted that a present feasibility of installing 15 MW of steam turbine in HP-1 is being analyzed. Table 6 Thermal energy generation in Daugavpils 2000, PJ Supplies Households Industry Commercial Losses and self consumption Generation Centralized HP Smaller municipal boiler plants Industrial boiler plants Local Industrial boiler plants Other local plants Stove etc 4.39 215 112 063 049 4.39 335 238 004 092 1.05 030 030 071

Further Table 7 presents a short description of major thermal energy sources in Daugavpils as well as estimate of their consumers loads in 2000 and specific fuel consumption. Table 7 Major thermal energy sources in Daugavpils, 2000 Rating MWth HP-1 HP-2 Smaller municipal boiler plants Total municipal Industrial boiler plant Incl. A/S Dauteks CHP Total Centralized supplies 122 222 11 355 562 502 917 470 106.9 Connected Thermal load MWth 103 165 6 274 195 145 Incl. own Load MWth Specific fuel Consumption kgoe/MWh 107.6 105.4 163.7 107.2 106.0

In Daugavpils thermal energy generation is based mainly on heavy fuel oil, which in 2000 covered 65% of total fuel supplies and 85% of fuel consumption in district heating. That is largely due to favorable sales terms as the town is located closed to Latvias Eastern border. Centralized heating system in Daugavpils is deeply integrated as largest part of consumers connected to district heating networks are supplied simultaneously by tow main heat sources whose networks are interconnected. The only exception being consumers with comparatively small load in Griva and Kalkuni district and industrial consumers supplied by VAS Dauteks. Total water pipeline network length excluding internal networks of industrial companies in Daugavpils is approximately 179km. That is complemented by 9km of steam pipe network. Pipe diameters vary form 800 mm to 32 and they have been installed in underground and over ground channels. District heating networks were mainly built during 70ties and are approaching end technical life. Total thermal load in the town of Daugavpils evaluated in 2000 at 636 MW, including 470 MW connected to district heating network. Structure of thermal loads in Daugavpils is summarized in Table 8. Table 8 Thermal loads in Daugavpils, 2000
Industry Steam t/h Centralized HP Smaller municipal BP Industrial BP Local Industrial BP Other local BP Stoves, etc. Total 93 37 0 56 4 4 0 0 97 Hot water MWth 166 21 0 145 14 13 0 0 180 Total MWth 227 45 0 182 17 16 0 0 243 Households Hot water MWth 193 179 1 13 101 0 0 100 293 Steam t/h 0 0 0 0 8 8 1 0 8 Commercial Hot water MWth 50 44 5 1 44 27 4 12 94 total MWth 50 44 5 1 49 32 5 12 99 Steam t/h 93 37 0 56 13 12 1 0 106 Total Hot water MWth 409 244 6 159 158 41 5 113 567 total MWth 470 268 6 195 166 49 5 113 636

The above table indicates that 74% of total load are connected to centralized district heating system. Total space heating area within the household sector is estimated at 2, 08 million sq. m, with 1,4 million sq. m. from central heat supply. Approximately 90 thousand persons are supplied by district heating.

2.4

Liepaja

In 2000 approximately 53 % of thermal energy supplies in Liepaja came from centralized heating systems delivered by AS Liepajas siltums- a joint stock company established in 1994.The rest is being covered by local (individual) energy sources. Notwithstanding the fact that a single district heating company operates the district heating system, the structure of thermal energy supplies in Liepaja is relatively complex, as Liepajas siltums operates comparatively large number of district heating networks. The main heat source of Liepaja is the towns heating plant to which the largest thermal load and district heating network is connected. During 1995 - 1996 HP has even expanded as Liepajas siltums converted a number of consumers from industrial suppliers to its own networks. A 12 MW rated steam turbine is installed at the HP. As Liepajas siltums thermal energy generation facilities include also 3 relatively large district heating plants, 10 smaller natural gas and liquid fuel boiler plants and over 10 small solid fuel plant. Further table 10 presents a short description of major thermal energy sources in Daugavpils as well as estimating of their consumers loads and specific fuel consumption in 1995. Thermal energy in Liepaja is generated also by 40 local industrial plants, including the CHP at Liepaja sugar plant, which has 2,67 MWel rated by steam turbine and over 40 other small local plants. Data on heat generation is centralized and decentralized systems are summarized in Table 9. Table 9 Thermal Energy generation in Liepaja, 2000 Supplies Households Industry Commercial Loses and self-consumption Generation Centralized CHP AS Liepajas siltums BP Local Industrial Other Local BP Stoves, etc 3.06 1.61 0.74 0.43 0.28 3.06 1.64 1.03 0.61 1.42 0.76 0.08 0.59 Table 10 Major thermal energy sources in Liepaja, 2000 Rating, MWth CHP Zala birze district BP DR district BP Karaosta district BP Other gaseous and liquid fuel BP Solid fuel BP Total AS Liepajas siltums generation 273 43 36 78 58 11 525 Connected thermal load, MWth 131 8 20 6 42 6 213 Relative fuel consumption, kgoe/MWh 105.3 107.7 107.7 107.7 109.3 163.7 108.0

Notwithstanding the fact that the largest part of boiler plants in Liepaja is connected to natural gas network, heavy fuel oil covers the largest proportion of fuel need there. In 1995 its share reached 44% in Total fuel supplies and it covered 62% of fuel consumption within district heating. In Liepaja as well as in other largest Latvian towns, part of consumers in newer districts are connected to DH network by four pipes system through central heating points. Total water pipeline network systems

length, excluding internal networks of industrial companies in Liepaja is approximately 165 km. Major part of district heating networks were build during 70ties and are approaching the end of their technical life. The total thermal load in Liepajas towns was evaluated at 431 MW in 1996 including 212 MW connected to district heating network. Structure of thermal load in Liepaja is summarized in Table 11 Table 11 Thermal loads in Liepaja, 2000
Industry Steam t/h Centralized CHP AS Liepaja siltums BP Local Industrial BP Other BP TOTAL local 4 4 0 83 83 0 0 87 Hot water MWth 6 6 0 52 51 1 0 59 Total MWth 9 9 0 106 105 1 0 115 Household Hot water MWth 158 90 68 76 0 1 74 234 Steam t/h 0 0 0 4 4 0 0 4 Commercial Hot water MWth 45 32 13 34 6 10 19 80 Total MWth 45 32 13 37 9 10 19 83 Steam t/h 4 4 0 87 87 0 0 91 Total Hot water MWth 210 128 82 162 57 12 93 372 Total MWth 212 131 82 219 113 12 93 413

Stoves, etc.

The above table indicates that 50% of total load are connected to centralized district heating system.

2.5

Other district heating systems

This group includes systems that are outside towns of Riga, Daugavpils and Liepaja and that generate approximately 46% of total thermal energy outputs in Latvia. Approximately 80% of thermal energy supplies in these areas came from centralized (district) heating systems; industrial and other small plants the rest I being covered by local (individual) energy sources. Data on heat generation in centralized and decentralized systems is summarized in table 12. Data in this and other following tables refers to district heating, individual and industrial plants and local heat generation. Table 12 Thermal energy generation in other area in 2000, PJ Supplies Households Industry Commercial Losses and self- consumption Generation Centralized, industrial and other boiler plants Stoves, etc 31.3 24.7 6.6 31.3 26.3 5.0

Supplies to consumer connected to district heating systems in regional centre and other rural towns in 2001 on average did not exceed 70% of the level required by the existing norms. Hot water supplies were limited to approximately 60%. In those systems heavy fuel oil and wood are the principal and most commonly fuel used.

2.6

Consumption projection

Thermal energy consumption in future will depend on change in the total number of inhabitant, dwelling floor area, overall industrial growth and implementation of energy efficiency measures.

Construction of new dwelling and public buildings is the most important factors that influence the shift in thermal energy demand. In addition demand is influenced also by other factors: As the national economy stabilizes and consumer welfare grows, thermal energy supplies will be required to ensure appropriate level of comfort (space heating not limited by the supplier, regular hot water supplies); Growing requirements in regard to the convenient working environment will require renewing operation of ventilation systems that at present in most cases do not operate. Growing demand from industrial consumers, recovering from 1993 - 1995 crisis. From the other side, growth of demand will be held back by implementation of energy efficiency measures. Notwithstanding the differences in volumes of investment, directed to implement energy efficiency measures, as well as differences in average per capita floor area projected under base and Optimistic Scenarios, total thermal energy demand in 2020 in both scenarios is anticipated to reach almost equally 92 PJ (optimistic, 91,5 PJ - Base Scenario ) (see fig. 4).
Therm al energydem and, P J 120 100 80 60 40 20 0
19 9 19 7 9 19 8 99 20 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 14 20 1 20 5 1 20 6 1 20 7 1 20 8 1 20 9 20
O ptim itic B ase

Fig. 4 Thermal energy demand, PJ This trend is explained with the fact that optimistic Scenario anticipates higher growth of industrial demand, which will offset effects of efficiency improvements (see fig. 5). Heat consumption in space heating per sq. m of dwelling floor area in optimistic Scenario in 2020 is by 13% lower than in the Base Scenario (see fig. 6).

Thermal energy demand by industry, PJ 25 20 15 10 5 0

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20

Optimistic Base

Fig. 5 Thermal energy demand by industry

Average monthly thermal energy onsumption for space heating in dwellings during heating season, KWh/sq.m
40 35 30 25 20 15 10 5 0
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20

Base Optimistic

Fig. 6 Average monthly energy consumption for space heating during heating season Within the structure of thermal energy generation changes in two directions are expected to occur: As electricity imports will become more and more expensive and the government shall offer beneficial treatment to domestic cogeneration, boiler plants should be converted to cogeneration. That will increase the share of thermal energy produced in cogeneration processes. The government should provide beneficial treatment and favorable operating environment; while gross product subsides will not be exploited; In district heating decentralization and centralization will occur simultaneously, though both at unsubstantial scale. From one side - mass decentralization would require considerable financing from the consumers side, which in near future is unlikely to be available for the majority. From other side, as national economy stabilizes and welfare grows, evidently higher service standards that are provided by district heating enterprises. It is anticipated that decentralization will take place in areas with low average heating load density (below 0,8 MW per km of pipeline network). Contrary to electricity and natural gas supplies, district heating systems are local by nature and they constitute an integrated part of local (municipal) infrastructure. Therefore district heating issues have to be treated individually in each locality, taking into account respective circumstances and conditions. That also means that district heating planning at the national government's level will be limited to stipulation of general principles, optimization of the country's fuel balance and management of a system, ensuring the policy implementation. Detailed planning and programming has to be arranged by each respective municipality on its own. Each municipality, having district-heating system, should elaborate a detailed concept for development of this important infrastructure component. Energy planning shall Disconnection from district heating companies shall be regulated by municipal energy planning, where local communities establish a community-heating plan, ideally with the input and cooperation of state and energy agencies and public utilities. Such a plan would address not only heating fuels and environmental impacts, but explore ways to provide low-cost universal service, improve safety, and expand use of existing heat sources. These plans based on economical, environmental and technical studies shall be designed to insure: Long-term and safe supplies of heat for consumers Substitution of imported fuels with indigenous Safeguarding the economic viability and low cost of heat supplies. Use of heat supply technology with causes as little pollution as possible Retention of customer choice in the energy market Compulsory heat metering shall be introduced to all heat substations in consumer buildings. This program based on analysis of present situation and consumption projections have to set general development scenarios for the district heating system and contain respective investment programs. Other wise it may happen that substantial investments are made into individual components of the system that

presently seem to be the most urgent, though actual results will differ considerably from those anticipated due to negligence of the system's other components. In the majority of towns, first of all, general development guidelines have to be reviewed and within two following years it has to be decided whether centralized district-heating systems. The government shall carry out implementation of these by simple recommendations as well as utilizing its administrative tools-in the form of regulations, taxes etc. The program envisages commissioning of the following cogeneration capacities: Installation of gas turbines at HP Andrejsala (2000) and HP Imanta (2003); Reconstruction of Riga CHP-1- construction of a new natural gas fired block which will replace the existing equipment; Development of independent power producers, that between 1997 and 2000 are anticipated to commission cogeneration facilities equal to 80 MW or 55MW in respectively, optimistic and Base Scenarios. In future years it is also planned that similar cogeneration plants fired either by natural gas or heavy fuel oil will develop in the largest towns. Smaller peat and wood fired plants are also expected to appear, although their capacities will be less substantial. Structure of thermal energy generation within centralized systems are illustrated by Figure 7, Figure 8, Table 11 and Table 12.

Structure of thermal energy generation within centralized systems. Base Scenario, PJ

100 80 60 40 20 0 1997
Boiler Plants cogeneration

1998

1999

2000

2005

2010

2020

Fig. 7 Structure of thermal energy generation within centralized systems. Base Scenario, PJ

Structure of thermal energy generation within centralized system. Optimistic Scenario, PJ

100 80 60 40 20 0 1997 Boiler Plants Cogeneration

1998

1999

2000

2005

2010

2020

Fig. 8 Structure of thermal energy generation within centralized systems. Optimistic Scenario PJ

Table 13 Structure of thermal energy generation within centralized systems - Base Scenario, PJ 1997 Supplies Demand Losses Generation Cogeneration Boiler plants Generation Structure Cogeneration Boiler plants 58.74 47.27 11.48 58.74 13.83 44.92 1.00 0.24 0.76 1998 59.16 47.70 11.46 59.16 15.38 43.79 1.00 0.26 0.74 1999 59.71 48.31 11.40 59.71 16.93 42.78 1.00 0.28 0.72 2000 60.19 48.93 11.26 60.19 19.72 40.47 1.00 0.33 0.67 2005 65.31 54.56 10.75 65.31 24.65 40.66 1.00 0.38 0.62 2010 68.67 59.18 9.49 68.67 25.43 43.24 1.00 0.37 0.63 2020 77.07 69.18 7.88 77.07 69.18 7.88 1.00 0.35 0.65 Table 14 Structure of thermal energy generation within centralized systems Optimistic Scenario, PJ Supplies Demand Losses Generation Cogeneration Boiler plants Generation Structure Cogeneration Boiler plants 1997 58.90 47.47 11.43 58.90 14.43 44.47 1.00 0.25 0.75 1998 59.44 48.13 11.31 59.44 16.58 42.86 1.00 0.28 0.72 1999 60.35 49.11 11.24 60.35 18.74 41.61 1.00 0.31 0.69 2000 61.18 50.05 11.13 61.18 21.89 39.29 1.00 0.36 0.64 2005 67.01 56.48 10.75 67.01 28.28 38.73 1.00 0.42 0.58 2010 70.69 61.66 9.03 70.69 29.26 41.44 1.00 0.41 0.59 2020 78.16 71.35 6.82 78.16 31.38 46.79 1.00 0.40 0.60

Structure of fuel utilized in district heating is expected to be transformed gradually. There are three principal objectives that require such changes: Better security of energy supplies; Lower cost; Improve efficiency of thermal energy supply; Minimize environmental emissions. Consequently it is planned to induce the following trends: Heavy fuel oil substitution by natural gas; Gradual substitution of lower quality coal by high quality coal imported from western markets; Substitution of heavy fuel oil; with high Sulphur content by a similar environmentally friendlier fuels or indigenous resources. In rural areas, the construction of financially feasible small boiler plants (2-4 MW) that are fired by indigenous fuels and based on technologies developed domestically will be supported.

In Optimistic Scenario due to large investment in energy efficiency improvements, thermal energy output in centralized district heating which are roughly equal to those in Base Scenario will be generated with substantial reduction in fuel consumption
Fuel onsumption in Centralised thermal energy supply,PJ 80 70 60 50 40 30 20 10 0 1997 1998 1999 2000 2005 2010 2020 Base Optimistic

Fig. 9 Fuel consumption in centralized thermal energy Supply, PJ

2.7

Organizational structure

In many of Latvias towns the district heating systems forms an integral part of the local infrastructure. This contemplates those respective municipalities that have the awareness of local circumstances and besides are in charge of local urban planning are to take the responsibility to manage district-heating systems and to coordinate its development. In almost all the regional centers this already has happened and municipal enterprises or joint stock companies (Riga and Liepaja) operate district-heating systems there. In some of the towns however district companies formally still belong to state. Such legal form of operations does not provide for appropriate management as the local municipality may disregard this important local infrastructure element while DH Company may operate independently form the local community, which also is undesirable. In general legal form of operations is not a deciding factor for the district heating (state companies though are less likely to be appropriate) if that ensures increasing municipalitys involvement in development of this major infrastructures component. There will be no obstacles also in development of independent thermal energy producers particularly in context of cogenerations. Independent thermal energy procedures are anticipated to improve competitive situation and market transparency within system where they operate. In more distant future it is considered being useful to merge utilities that in a certain area supply thermal energy gas water and electricity into a single utility company such utility companies are quite common for may EU countries and have proved their efficiency as single utility company has number of advantage comparing with situation when the same services are provided by a number operators. Planning and development of all types of communications is in much better co-ordination; Maintenance of three communication systems (electricity, gas and heat) in parallel rarely could be justified if any of those might be substituted by others; Capital investments will be minimized; Lower overheads relating to emergency information etc services; Simpler system for settlement of accounts consumers pay their utility bills to a single company; Smaller managerial staff.

3
3.1

ENERGY EFFICIENCY
Thermal Energy district heating

District heating share in the final energy consumption in 1995 reached 38% and twice exceeded that of electricity. Therefore it is major area for energy efficiency improvement. Besides it has also be taken into account that a substantial share of the remaining final energy consumption reported in the form of primary energy, relates to conversion of these into thermal energy at decentralised systems. It is estimated that such processes add another 15%, while energy efficiency measures relating to energy consumption are completely similar for both groups of thermal energy consumers. Thermal energy - as well as any other energy form, is utilised efficiently if the consumer is motivated through pricing. Actually delivered energy prices in most cases correspond to appropriate energy costs and individual consumer groups. Industry and private householders already have demonstrated their motivation to improve energy efficiency. In general efficient utilisation of thermal energy may be separated into two groups of measures: Measures relating to energy production and distribution which are carried out by a supplier; Demand side management and savings measures at the consumer's site.

In an ideal case energy efficiency improvements should begin from the consumer as production and distribution structure solely depend on consumption, from other hand, however, investments in production and distribution facilities have shorter payback period which due to very limited availability of funding is the main factor. Therefore it is anticipated that initially priority is given to energy efficiency improvements in production and distribution. Figure x depicts structure of achievable energy efficiency potential that is feasible and financially reasonable from the point of view of presently available technologies and existing conditions of heating systems. Implementation of the respective efficiency improvements would require investment of approximately 2 billion lats*, while aggregate efficiency in thermal energy systems would improve by 65%,

Structure of energy efficiency potential

Generation 22%

Consumption 47%

Consumption Transmisson Generation

Transmisson 31%

Fig 10: Structure of energy efficiency potential

3.2

Production of thermal energy

Majority of district heating system in Latvia have been installed between 1960 and major of their elements are approaching the limit of their technical life cycle or have even exceeded that. The average annual efficiency of installed boilers does not exceed 85%. Average efficiency of boiler rated below 1 MW is 70-75% with liquid fuel, 70-80% with natural gas and 50-60% with low quality solid fuel. Conditions are slightly better at larger boiler plants (>15MW), where better financing opportunities have provided for at least minimum maintenance. Systems generally lack control of equipments. In small plants the burning regulation and control equipment is in unacceptable condition or is not installed at all. Water treatment facilities generally operate only in

large boiler houses. In many cases there are no such facilities in small plants, which largely expedite network and boiler wear. Low boiler efficiency, unacceptable control over burning and utilization of low quality high sulphur content heavy fuel oil and coal cause substantial environmental consequences. Improvements are also required in metering the heat outputs, energy self-consumption and fuel (except natural gas). Many small boiler plants lack any metering equipment. Electricity consumption and rating of installed fans, pumps and other electric appliances exceed presently the required levels. Boiler plants lack equipment for ensuring automatic fuel burning. Air flow in many cases is regulated manually. In most cases there are no equipment for estimating the plants efficiency, the actual capacity and other important parameters. Consequently, it is impossible to estimate actual losses and volumes of delivered energy as well as other indicators required to ensure proper management of theses systems. Approximately 3-3.5 thousand-boiler plants with installed capacity of over 0.2 MW were operational in Latvia in 1996. (see fig. 11). The technical condition in small and medium plant (<15MW) that dominate in number and produce over 50% of energy delivered by district heating systems are particularly bad

Boiler plant capacities and structure of heat production

70% 60% 50% 40% 30% 20% 10% 0% 0,2 - 0,5 0,5 - 1,0 1,0 - 2,0 2,0 - 4,0 4,0 - 7,0 7,0 - 15,0 >15 Share in total number Share in production

Fig. 11 Boiler plant capacities and structure of heat production 90% of boiler plants have capacity below 4 MW, though this group produces just some 30% of energy delivered by district heating. These plants were cast iron boilers prevail are utilising the largest proportion of solid fuels. Rising fuel prices have resulted in conversion of plants from imported fuels to domestic wood and peat, even that the installed boilers are not designed for these fuel types. Conversion to domestic fuels is connected with difficulties relating to fuel storage and accumulation, as they may occupy comparatively large areas. Substantial part of wood fuel is utilised immediately after its produced and brought from the forest. Installed cast Iron boilers due to features of their construction and low efficiency are not suited for conversion and operation in future. New boilers manufactured in Latvia and designed for wood utilisation have been installed in a number of boiler plants, though often they are operated in conditions that do not allow ensuring proper efficiency. Operated without water treatment facilities and with unacceptable routines their productive lifetime until full reconstruction is not expected to exceed 4 years. In boiler plants with capacities between 4 MW and 15 MW DKVR, DE and KVGM type boilers are prevailing. As rule these plants are operated by municipal district heating enterprises or industrial companies. Main fuels are heavy fuel oil and natural gas though few plants have been converted to domestic fuels. Present efficiency of natural gas and liquid fuel boilers is between 75% and 85%, although it is lower if economiser is not installed. As rule liquid and gaseous fuel boilers have standard automatic regulation and feeding system. In most cases they are operated manually without any control over the burning process. In recent years loads connected to district heating boiler plants have decreased substantially, while installed production capacities are remaining the same. Large boilers and other appliances are being operated at low output levels that cause superfluous consumption of fuel and electricity as well as expedite wear of equipment. Conditions in plants where installed capacity exceeds 15 MW generally are relatively better.

Table 15 Common boiler types

Type DKVR DKVR DE E E KVGM PTVM RK BRATSK UNIVERSAL ENRGIJA TULA MINSKA AK Medium Steam Steam Steam Steam Steam Water Water Water Water Water Water Water Water Water Fuel Natural gas, heavy fuel oil Coal Natural gas, heavy fuel oil Natural gas, LFO Coal Natural gas, heavy fuel oil Natural gas, heavy fuel oil Natural gas, LFO Coal, natural gas, LFO Coal, natural gas, LFO Coal, natural gas, LFO Coal; natural gas, LFO Coal, natural gas, LFO Wood Capacity, (MW) 2 - 14 2 14 4 - 17 0.7 0.7 4 - 35 35 - 60 1.85 0.7 0.2 - 0.4 0.25 - 0.5 0.3 - 0.6 0.2 - 0.3 0.2 - 1.0 Theoretical efficiency, (%) 91 75 90 - 92 88 71 87 - 94 86 - 90 82 - 90 75 67 73 67 68 80 Actual annual mean efficiency, (%) 85 70 85 80 65 89 85 70 60 50 55 50 50 70

The following measures represent main directions for energy efficiency improvements in boiler plants: Conversion to cheaper fuel; Installation of new and efficient boilers; Optimization of installed production capacities; Improvements of fuel preparation and storage Optimization and control of burning process; Replacement and modernization of electric appliances; Reconstruction of water treatment facilities.

3.3

Fuel conversion for generation of thermal energy

Available resources of woody biomass and rapid development of woodworking industry in Latvia form favourable conditions for wood utilisation in energy production. Projections of prices in both Scenarios demonstrate that woody biomass will also in future be one of the least expensive energy sources. Although costs of transportation, and labour-intensity of its processing significantly limit its utilisation in larger boiler plants (>8 MW), Latvia has a good potential for district heating equipment manufacturing represented by a number of Latvian companies (Komforts, Latura, Orions), though presently they are only able to deliver boilers with capacities below 5 MW. Investment costs per MW of installed capacity for wood chip plants that are manufactured In Western Europe and installed in Latvia are between Ls 100 to 200 thousand which rarely allows to achieve any price advantages comparing with other fuels. Identical plants manufactured in Latvia presently cost Ls 30-40 thousand per MW and offer an excellent option for conversion to wood chips. Besides, conversion of excising boilers to indigenous fuels in most cases is not cost efficient as the boilers themselves usually are relatively in poor technical conditions and reconstruction costs may easily exceed costs of identical new installations. 3.3.1 Installation of new and efficient boilers Approximately one thousand boiler plants with capacities of 0,2-4,0 MW need replacement of old cast iron section boilers. Replacement of inefficient, low quality boilers may bring fuel savings of 10-30%.

3.3.2 Optimization of installed production capacities This group of measures relates mainly to boiler plants with-capacity exceeding 4 MW. In many cases heating loads have decreased substantially over last few years and large boilers are operated at very low operating loads. In these cases production capacities have to be optimised to fit with new operating conditions. Fuel savings in certain cases may reach even some 50%. 3.3.3 Improvements of fuel preparation and storage Efficiency of solid fuel boilers largely depends on fuel moisture content. According to experimental analysis moisture content for freshly cut wood generally is 45%-65%. If the moisture content is reduced by 15-30% lower calorific value increases by 40%, which may bring fuel savings of some 15%. Burning temperature directly influences boiler efficiency. Boilers that have small convective area will not be able to burn effectively fuels with low burning temperatures. Moisture decreases burning temperature and 60% moisture in woody biomass is the limit for its utilization in energy production. 3.3.4 Optimization and control of burning process By automating the burning process the following parameters are optimised: Fuel feeding; Air; Traction; Water feeding. Automatic controls are the only means that ensure plant's efficient and secure operation. Liquid and gaseous fuel burners manufactured in developed states are fully equipped with necessary controls and security systems, ensuring high fuel burning efficiency at various load levels. Depending on fuel type and boiler capacity installation of appropriate burners may save 5-30% of fuel. Analysis of already implemented projects demonstrates that burner replacement is the most efficient measure for small boilers (RK, BRATSK, etc.). Particular requirements apply to solid fuel burning processes that may not be immediately interrupted. Costs of solid fuel boiler control equipment and automating are considerably higher than those for liquid and gaseous fuels, while achievable fuel savings are substantially lower. Although, changing air feeding depending on structure of flue gases can regulate even small wood boilers. Better results may be achieved with chip boilers. 3.3.5 Replacement and modernization of electric appliances Replacement or modernization of electric appliances manufactured in former USSR that, in addition have excessive capacities, can reduce respective electricity consumption by 50-70%. 3.3.6 Reconstruction of water treatment facilities In most cases water treatment facilities are more or less operational in boiler plants with capacities exceeding 4 MW. Water quality is principal factor influencing all chains of district heating system in terms of technical conditions and service lifetime. Particular importance is in systems where pipelines and substations have already been reconstructed. Order of implementation for various efficiency measures depends on fuel type and boiler plants capacity. In boiler plant using natural gas, the fuel burning is considered as the main priority. Automatic burners have to be installed in order to improve the fuel burning. In boiler plants using liquid fuel, improvement should start with the reconstruction of fuel storage and preparation systems (preheating, filtering, pumps, etc) if required, followed by the installation of efficient burning systems. In plant designed for solid fuel burning, new boiler that are designed for specific types of fuels have to be installed first, followed later by the construction of fuel storage and finally, some measures connected with the burning control and automating must be carried out if these were not implemented with boiler installation. Energy efficiency measures prioritised for various groups of boiler plants are summarized in table 16.

Table 16 Priorities for energy efficiency measures in boiler plants Measures Replacement and modernisation of electric appliance Installation of new and efficient boilers Optimization and control of burning process Reconstruction of water treatment plant facilities Optimization of production capacities Fuel preparation and storage Conservation of boiler to domestic fuels 0.2 - 4.0 MW 1 3 4 2 3 3 3 > 4.0 MW 1 4 2 3 4 6 4 Table 17 Energy efficiency investments in boiler plant Ls/MW Conversion to domestic fuels Fire wood boiler Wood cheap boiler Installation of new and efficient boilers Fire wood boiler Wood cheap boiler Fuel preparation Burning optimization Wood LFO Natural gas Capacity optimization Natural gas Mazut Replacement and modernization of electric appliances Water treatment 10000 25000 10000 25000 25000 5000 4500 2500 30000 35000 1000 - 2000 1000 Efficiency improvements 10 15% 20 25% 10% 20% 15 20% 5% 10 25% 5 10% 10 20% 20 50% 50 70% Long term

3.4

Transmission of thermal energy

In Latvia there are in total 3200 km of district heating pipelines of various diameters (see fig. 12). For most of the pipeline network the quality of insulation and construction works is unacceptable. Centralized district substations and four-pipe scheme, which was used in networks of the largest towns in areas, constructed during 70-80ies, has neither financially nor technically justified itself. In general present conditions of distinct heating networks in the major part of Latvia's urban areas are unacceptable, as they have been built during 70ies. As normal technical lifetime of pipelines is 25 years most of these networks are worn out. Average depreciation of pipelines is 50-75%. Though, in many cases due to poor operating conditions, mostly - high level of SOIL waters or low quality of drainage systems, actual depreciation is substantially higher.

Pipeline length
500 400 300 200 100 0
50 m m 70 m m 80 m m 10 0m m 12 5m m 15 0m m 20 0m m 25 0m m 35 0m m 45 0m m 50 0m m 70 0m m 90 0m m 10 00 m m

Series1

Fig. 12 Pipeline length Heat losses in networks on average are between 25- 30%, though in summer when only hot water is supply they may exceed 50% of heat produced. Besides, heat loses are also influenced by the fact that pipeline diameter do not correspond to those required by consumer loads. Losses in pre-insulated pipelines that have appropriate diameters depend on network length and configuration are in the range of 7-15 %.

3.5

Final consumption of thermal energy

Living and public houses are the major thermal energy consumers. It is estimated that building space heating consumes some 65% of the total delivered heat. Multi-family houses constitute 75% of the total living area, while 65% of it is located in urban areas. In Latvia buildings in general are in poor conditions. Approximately 28% of buildings were built before 1940. This period is characterised with brick wall and wooden buildings. Wooden buildings were constructed as frame constructions or log houses. The latter prevail in rural areas. Space heating in those building usually was arranged with stoves fuelled by firewood. In Riga there are buildings, which were constructed before 1940 that are supplied by district heating, while they also have stoves and fireplaces. After 1940 building construction was under continuous unification and was extensive in 60ies when reinforced concrete constructions were widely used. According to planning principles adapted at that time standard projects were designed with the intention to achieve maximal immediate financial benefits, while heating costs due to few fuel prices were not an important factor. Design of living and public buildings; at that time was determined by requirement to ensure sufficient temperature on construction surfaces oriented towards interior. This parameter was rationed for living and majority of public buildings: 6 to 7oC on interior surfaces of outer wall; 4 to 4.5oC on upper floors ceiling, attic ceilings interior surface.

Thermal reliance of constructions of outer walls in buildings, that where constructed according to these norms was dose to 1,0 m2 o C/W. In living buildings thermal resistance of roof constructions is between approximately 0,8 and 1,5 m2 C/W. Thermal resistance values for constructions in a few types of standard living buildings are summarised in table 18.

Table 18 Thermal resistance values for constructions in standard living buildings Type 3.5.1.1.1 Part of Building Attic ceiling Outer wall from gas -concrete panels Outer wall from clays bricks Cellar ceiling Windows Attic ceiling Outer wall from silicon bricks (1) Outer wall from silicon bricks (2) Cellar ceiling Windows Attic ceiling Outer wall from ceramist concrete panels Cellar ceiling Windows Attic ceiling Outer wall from ceramist concrete panels Cellar ceiling Windows Attic ceiling Outer wall from ceramist concrete panels Cellar ceiling Windows Attic ceiling Outer wall from ceramist concrete panels Cellar ceiling Windows Thermal resistance, m2oC/W 1.342 1.120 0.788 0.968 0.390 0.683 0.799 0.757 0.864 0.390 1.228 0.676 0.752 0.390 0.887 0.676 0.992 0.390 0.650 0.676 0.673 0.390 1.250 0.676 0.880 0.390

103/5

318/5

464/5

467/5

467/5

602/9

As rule in Latvia window constructions with double panel or window with double leafs are used. Latter are more common to single family houses as well as old apartment. In public building, window with aluminum framing are used together with wooden frame windows. These windows construction have relatively high heat losses as metal frame functions as thermal bridge. Some thermal resistance values for various windows construction are summarized in table 19. Table 19 Thermal resistance values: window construction Window construction Double windows with single wooden leaf Double windows with double wooden leaf Double windows with single metallic leaf Double windows with double metallic leaf Thermal resistance, m2oC/W 0.34 0.38 0.31 0.34

On September 12, 1991 Latvia Republic Ministry of architecture and construction issued regulations No 68 On improvement of thermal resistance values of building constructions. Annex to this document

established minimum thermal resistance values for buildings that are under construction or will be reconstructed (see table 20). Table 20 Minimum thermal resistance values for buildings that are under construction or will be reconstructed No. Item New construction Multi-layer ferro - concrete outer wall panel Combined prefabricated monolith concrete outer wall Brick and small block light outer wall Other types (excluding p.l.) of multi-layer outer wall Interior wall panel Roof as well as ceilings beyond cold attic: 1-3 storey buildings 4 and over storey buildings Ceilings beyond cold attic Ceiling on cold cellars Floor on soil Repairs and reconstruction Outer wall Roof and ceiling: 1 - 3 storey buildings 4 and over storey buildings Ceiling on cold cellars Windows Living, public and administrative buildings Industrial buildings Temporary value for rooms, where t>18C t<18C 2,2 2,5 2,0 3,0 1.016 4,0 2,5 2,0 2,0 2,0 3,0 4,0 2,5 2,0 0,42-0,53 0,31-0,48 2,2 2,0 1,5 2,0 l.016 2,0 2,0 2,0 2,0 2,0 1,5 2,0 0,42 0,31

1. 2. 3. 4. 5. 6.

7. 8. 9. 10. 11.

12. 13. 14.

The thermal transfer coefficient (R) and the thermal resistance (U) values established for living building in some countries of Europe with similar weather conditions are summarized in table 21. Table 21 Thermal transfer coefficient and thermal resistance of building wall and roof constructions Country Walls Roof Value U, m2-C/W R, W/m2.C U, m2-C/W R, W/mz-C Denmark 0,20 5,00 0,15 6,67 Norway 0,22 4,55 0,15 6,67 Sweden 0,22 4,55 0,20 5,00 Finland 0,28 3,57 0,22 4,55 Germany 0,50 2,00 0,22 4,55

3.5.2 Insulation of pipes From the financial point of view the cheapest measure, which will improve heat consumption efficiency in living and public buildings is the efficient insulation of heat and tap water pipes located in room where space heating is not required. Cost of such measures amount to 0.14-0.30 Ls/sq. m. These efficiency improvements however will bring only minor saving (in the range of 0.5-1.0%), depending on the former insulations technical conditions.

3.5.3 Packing of windows Packing of windows is a comparatively inexpensive measure, though it usually costs more than pipe insulation improvements. On average packing of windows may cost between 0,30 to 0,50 Ls/sq. m and will also bring better than pipe insulation energy saving - 5-7%. 3.5.4 Insulation of attic ceiling Costs of attic ceiling insulation expressed as Ls per square-meter of total area will vary in broad range, depending on number of floors. Costs will in addition also depend on whether or not these insulation works are connected with substantial preparations, as cleaning of attic rooms from rubbish etc. It is estimated that attic ceiling insulation in 5 storey living building will cost approximately 1,5 Ls/sq. m, while for 9 storey building these costs would respectively be only 0,8 Ls/sq. m. Though, efficiency improvements are relatively better in buildings with fewer floors, as their share of heat transferred through attic takes larger proportion of total building's heat losses. Also in monetary terms, investments in attic insulation for lower buildings will bring relatively higher savings ratio and quicker payback. From this point of view attic insulation has to be particularly encouraged in 2-3 storey public buildings, etc. 3.5.5 Modernization of internal heating systems Modernization of building's internal heating system is connected with higher investments, comparing with the above measures. Though, these works could be carried out gradually, initially maintaining properly functioning heating system's elements. Usually that will include installation of new heat substation with heat exchangers, pumps, automatic control and programming equipment, heat meter. Heat substation, depending on its complexity, may and may not embody programming option, heat exchanger for independent space heating connection as well as other elements influencing its price. Also relative costs will be lower in buildings where single heat substation can supply larger area. For instance, heat substation in a building with 8 apartments would cost approximately 4000 Ls, while in a building with 32-36 apartments similar substation will cost roughly 6800 Ls. Assuming that one apartment occupies on average 60 sq. m, relative costs of heat substation installation in the first case are approximately 8,30 Ls/ sq. m, while in 36 apartment building they do not exceed 3,20 Ls/sq. m. Presuming that relative efficiency gains from heat substation modernization are similar for buildings with various floor areas, total heat savings and investment payback will be better in larger buildings. 3.5.6 Repairs and insulation of gently sloping roofs Roof insulation in a building that has no attic and is covered by gently sloping roof is also connected with renovation of the roof's hydro insulation. Meanwhile, in the case that such a building requires renovation of roof it is useful to install also addition insulation. Renovation of 1 sq. m of gently slopping roof together with 100 mm thick thermal insulation from mineral wool may cost approximately Ls 18-22. For 5 storey building it would respectively cost 3,5-4,5 Ls/ total area sq. m, while for 9 storey - 2-2,5 Ls/sq. m. This measure will reduce heat loses by some 8-10% from total losses through the buildings constructions. Contrary to attic insulation, roof insulation requires use of hard and dense mineral wool, which is considerably more expensive than mineral wool's rugs and plates used for attic insulation. If the latter costs 18 - 22 Ls/cb. m, the hard plates will be 110-130 Ls/cb. m. In addition, substantial proportion of costs will relate to the new roof material itself. Moreover, use of rubberoid for the roofs hydro insulation requires provision of ventilation outlets that would emit moisture from the insulation. Ventilation outlet as described above is not required if a material that is not diffusion dense insulates a gently sloping roof. Pulverizing the roof with foam polyurethane creates such an insulation system, where insulation material simultaneously functions also as hydro insulation. It surface is painted with defensive lacquer, which reduces the effect of sunlight and ultraviolet radiance. The system is breathing, the covering does not prevent steam diffusion processes and, therefore additional ventilation is not required. 3.5.7 Improving thermal resistance of windows Thermal resistance of window may be improved by replacing existing window with new ones that have insulation glass packages. This measure is useful in the case that due to conditions of existing window frames and leaf, their repair is more expensive than replacement. The exception here relates to those

buildings with historical value where it is required to maintain the architectural style for all buildings visible elements. In such building it is recommended that insulated glass packages with minimum space between glasses be used in renovation of window panels. These glass packages would cost, depending on their size, approximately 15 26 Ls/sq. m. The total cost of window renovation depending by large and their condition before repairs and whether maintenance of their existing size is required or not. Supplementary costs therefore could add 5-12 Ls/ sq. m and total costs would reach 20-30 Ls/sq. m. In multi-family dwellings such measures will reduce heat losses by some 10-12%. In case that old windows are in poor condition and heir thermal energy losses exceed hose set by norms by some 25%, investments in window reconstruction ill have estimated payback period of 12 14 years. Material cost for new windows are between 80-120 Ls/sq. m, depending on windows size and configuration. Larger windows with simple configuration are cheaper. Costs of installation and additional material are estimated between 8-10 Ls/sq. m. The total cost of window replacement is 90-130 Ls/sq. m. In the case that all windows are replaced with newly manufactured, estimated efficiency improvement would amount to 15-18%. If the existing windows thermal resistance I below 25% of that set by norms, the estimated payback period of window replacement would extend over 25 years. Meanwhile, if the thermal resistance of window corresponds to former norms, the payback period extends to 45 years, which doubtfully might be considered appropriate. In that case it may be recommended to limit window occupy an area equal to approximately 16-17% of the whole buildings area. 3.5.8 Insulation of outer walls Additional insulation of buildings outer walls may be required particularly if the insulation is installed from outside. Meanwhile in most cases insulation from outside is preferred comparing with inside insulation, except historical buildings where substantial change is not allowed and where insulation is installed inside. There are number of systems to choose for outer wall insulation of building. Usually such systems include plates, which depending on conditions of existing foundation are strengthened mechanically or with gluing material. Plaster, strengthened by steel or glass fiber riddle is covered above the insulation. Depending on the chosen system and share of domestic materials, materials cost for insulation of outer walls may reach approximately 7-15 Ls/sq. m. Materials cost as indicated here correspond to the insulation according to the temporary norms (3.0 m2oC/W). Together with labor, costs of outer wall insulation may reach 10-20 Ls/sq. m Statistical data on various standard building demonstrate that outer walls occupy an area equal to 47-52% of the whole building. 3.5.9 Recommended sequence of energy efficiency measures Energy efficiency measures intended to reduce thermal energy consumption in buildings may be prioritized based on their relative costs, achievable efficiency improvements and existing experience. The priorities as described about below are general and each particular case has to be studied and analyzed separately. Measures that may be implemented with comparatively small investments: Packing of windows' leafs; Insulation restoration for heating systems' pipes. Medium capital intensive measures with good efficiency improvements: Insulation of attic ceilings; Modernization and regulation of heating systems; Repair of windows with installation of glass packages. Efficient measures that requires considerable investments: Insulation of gently sloping roofs with simultaneous restoration of hydro insulation; Window replacement with new high thermal resistance windows; Insulation of outer walls with simultaneous building front's renovation. Costs of individual measures and their approximate payback periods are summarized in table 22.

Table 22 Costs and payback period for typical thermal energy efficiency improvements Measures Packing of window leafs Insulation restoration for heating systems pipes Insulation of attic ceilings Modernization and regulation of heating systems Repairs of window with installation of glass packages or additional panels Insulation of gently sloping roofs with simultaneous restoration of hydro-insulation Window replacement with new high thermal resistance windows Insulation of outer with simultaneous building fronts renovation Cost (Ls/m2) 0.30 - 0.50 0.15 - 0.30 0.80 - 1.50 3.0 - 8.5 3.20 - 6.50 2.0 - 4.5 14.0 - 22.0 5.0 - 10.0 Estimated payback, year <2 10 - 12 4-9 3-5 12 - 14 8 - 10 25 - 45 6 - 10

3.6

Efficiency improvements in heating systems

Efficiency improvements in heating systems are closely connected with investments in those systems (generation, networks and improvements of building efficiency). Projections of investments have to take into account that funds allocated to heating will be drawn form elsewhere in the national economy, which in certain cases may slow down GDP growth. Therefore, financing of energy efficiency is tied up with the sector's share in GDP, while it is estimated that the sector's share in aggregate investments, which is affordable and does not hamper GDP growth is 5%. Based on these assumptions it is projected that under the Optimistic Scenario heating sector may consume some Ls 971 million in investment during the period 1997-2020, while in base Scenario this figure is estimated to reach Ls 826 million (see fig13). Consequently, that will improve the total efficiency by respectively 28% and 29% comparing with 1997. It has to be noted that in Optimistic Scenario improvements in energy efficiency are also largely influenced by higher growth in construction and faster replacement of old buildings.

3.7

Investments

Investment with corresponding financing sources and measures envisaged within the national programs heating energy efficiency are summarized in table 23. Table 23 Heating energy efficiency subprogram, 2002 LVL 1996-2000 Group of measures Efficiency improvement in generation Network reconstruction EE building Total Financing sources Foreign loans Other funds Group of measure Efficiency improvement in generation Network reconstruction EE building Total Financing sources Foreign loan Others sources 23.10 59.10 6.20 88.40 35.36 53.04 38.50 86.70 5.00 130.20 52.08 78.2 2001-2010 85.10 262.90 77.40 425.40 127.62 297.78 103.70 287.00 81.80 472.50 141.75 330.75 2011-2020 33.60 174.40 104.00 312.00 93.60 218.40 11.00 194.00 163.20 368.20 110.46 257.74 Total 141.70 496.50 187.50 825.80 256.58 569.22 153.20 567.70 250.00 970.90 304.29 666.61

Optimistic Scenario

Base Scenario

ENERGY SUPPLY RESOURCES

Both the imported (natural and liquefied gas, oil products, coal) and local fuel (wood and peat) are used in Latvia to provide fuel and energy (electricity and heat) to sectors of national economy, commercial users and residents. Small boiler houses burn local fuel and coal. The structure of the supplied energy resources in 2002 consisted of: oil product (light fuel, heavy fuel and other oil products)-27%, natural and liquefied gas 32%, fossil fuel (coal, wood and peat)-31% electricity of hydro plants (including import of electricity)-10%. The structure of consumption of energy resources in 2002 was: centralized heat energy 17%, oil products (fuel and liquefied gas)-29%, electricty-11.5%, natural gas 13.5%, fossil fuel (coal, wood and peat)-29%. Significant changes in the balance of energy resources in the nearest five years are not predicted in view of the existing heat and electricity supply capacities, large industrial, commercial and household energy consumers. The decrease of the demand of energy resources in 2002 can be explained by the decrease of the general demand for fuel in comparison with 2000. Table 23 Consumption of energy resources in Latvia* (Thousand tons of conditional fuel ktce**) Consumption of Energy Resources Energy consumption total of which: Natural gas and liquefied gas Light fuel products and other oil products Heavy fuel, oil shale Firewood, peat, coke and other types of fuel Coal Electrical power (HPS, wind generators and imported from abroad)
*Source: CSB and Ministry of Economics **1ktce = 0.02931PJ

1999 5730 1495 335 900 1300 120 580

2000 5259 1560 1366 406 1267 94 566

2001 5740 1980 1313 269 1475 123 580

2002 6466 1847 1610 233 2084 99 593

The decrease of the demand of energy resources in 2002 can be basically explained by the decrease of the general demand for fuel in comparison with 2001

4.1

Gas supply

An important place in the Latvian energy resource market belongs to natural gas. Because of growth of prices for heavy fuel oil, the share of gas has risen by 8% and equals to 34%. It is forecasted that the share of gas (as one of the ecologically cleanest types of fuel) in the total energy consumption of Latvia will continue to going up(consumption of natural gas might go up to .7-.9 billion m3 by 2005) bringing down, respectively, the share of heavy fuel oil. The largest consumers of natural gas are: Latvenergo CHPs and heat generation enterprises 60%, industry 25%, other consumers~15%. Riga region accounts for 82% of the total natural gas consumption of Latvia. Naturally gas is not used at all in Latgale region with the exception of Daugavpils city and Preili region. In Kurzeme, the biggest gas consumption is in Liepaja 11% (JSC, Liepaja siltums, JSC Liepaja Metalurgs), in Zemgale region Jelgava and Bauska region 4%

Structure of natural gas consumption in 2002

others 15% Industry 25% Latvenergo and heat generation enterprises 60%

Latvenergo and heat generation enterprises Industry others

Fig. 14 Gross natural gas consumption and natural gas structure in 2002

4.2

Fossil fuel supply

Oil products are used both as heating fuel and liquid fuel. Prices in the oil product market are fully liberalized and competitive. Free market Principe, with certain reservations, also function in the area of oil product deliveries. Oil products have an important share in the Latvian energy resources market- their market share is about 3340%, including heavy fuel 7%. Data on oil product deliveries for domestic consumption is summarize in table 24. Table 24 Oil product deliveries for domestic consumption 1997 Heavy fuel oil Light oil products, including Petrol Diesel Other Total 832 374 404 20 1630 Consumption in thousand of tones 1998 1999 2000 2001 733 350 391 101 1575 601 338 393 69 1401 233 337 430 67 1067 173 353 589 9 1124 2002 154 346 548 10 1058

It can be seen from Table 23 that: Consumption in light oil product decreased in 2002 by 5% comparing with 2001. Consumption of heavy fuel oil decreased by 81% in 2002 comparing with 1997. 14% of oil product consumption is related to heavy fuel oil, whereas of it are consumed by district heating companies and power plants. The biggest users heavy fuel oil are: heat generation 71.8%, industry 17.4%, and other consumers including (transport, construction, agriculture, forestry, hunting and fishing)~10.8%. Consumption is basically concentrated in Latgale region 25 % (mainly in Daugavpils and Rezekne), Kurzeme region 20 %(Liepaja, Venstpils cities and Saldus region). Contents of heavy fuel oil imported in Latvia are not environmentally friendly. This is because of its sulfur content, which is generally between 2 and 3% moreover it expedites the deterioration of boilers and chimneys.

Structure of Mazut consumption

Construction 1% Other consumers 5% Industry 17% Agriculture, forestry 3% Transport 1% District heating Transport Agriculture, forestry Industry District heating 73% Other consumers Construction

Fig. 15 Structure of heavy fuel oil, diesel oil, petrol and other oil 4.2.1 Coal Firewood and coal are evenly used across all regions. Coal is used in small boiler plant with a capacity usually bellow 3 MW .In most case these plants are local. Coal consumption decreased by 47% in 2002 comparing with 1997.The consumers of coal are district heating ~55%, household 34%, industry 8%, other (agriculture, forestry, fishing, hunting)~3% (see fig. 17).

Structure of Coal consumption

other consumers 3% Industry 8% Households 34% District Heating 55% District Heating Households Industry other consumers

Fig. 17 Structure of coal consumption 4.2.2 Peat Use of peat is concentrated around its extraction and processing sites. The main peat consumer in Latvia is CHP-1. Fuel peat accessibility for small and medium boiler plants will remain unlimited in the near future because of the available peat resources. Under the present conditions from a technical and financial point of view, application of fluidized bed boilers rated over 10 MW acceptable viability for peat burning. In Latvia there are not so many district-heating systems which respective loads, which have sufficient large peat resources at a short comparatively distance. Therefore no major shift in peat consumption would be anticipated in the near future.

4.3

Wood based fuels

Both the imported fuel from CIS and Poland (coal) and local fuel (peat and firewood) are used. The consumption forecast of firewood depends on the extent to which regions will manage to change from the extensive to rational use of wood fuel. In the total fuel consumption the share of wood is quite substantial, reaching25-30%. The biggest users of firewood are: household 39%, heat generation companies 25%, industry (mainly wood processing companies) and other user 36% (see fig. 16).

Structure of firew ood consum ption

Heat generation companies 25%

Industry and other users 36%

Industry and other users Households Heat generation companies

Households 39%

Fig. 16 Structure of firewood consumption

4.4

Projection structure

Energy consumption in future will, from one side, be influenced by the growing demand in the national economy and, from other side, by the development and implementation of energy efficient technologies. Although the improvements in energy efficiency in general (see section Energy Efficiency) will not compensate the growing demand from households and industries; in the Base Scenario the consumption of primary energy in 2020 reaches 193 PJ, while in Optimistic Scenario, notwithstanding larger investments in energy efficiency due to the faster overall development it may slightly exceed 205 PJ (see fig. 25 and 26). Both Optimistic as well as Base Scenarios anticipate government to support the utilization of domestic energy sources. Available wood resources are sufficient to cover just some 15% and 14% of primary energy demand respectively in Base and Optimistic Scenario. The increasing utilization of peat in future will be connected with the introduction of advanced burning techniques (fluidized bed) in medium sized district heating boiler plants and CHP. According to the projections the peats share will reach 4% in Base and 5% in Optimistic Scenario. Slight differences between these cases arise from the fact that the Optimistic Scenario anticipates faster development of independent power producers. In Optimistic Scenario Cogenerations share in the total energy produced within district heating systems will reach 35%, while in Base Scenario it will be 40%. It is anticipated that natural gas will increase its share in fuel supplies due to its incremental advantages in cogeneration and the increasing share of cogeneration in district heating. In addition, it is expected that subsequent to improvements in general welfare individual heating systems will convert from currently solid fuels used to natural gas. The growing environmental concerns are considered as an important factor for this trend. Coal consumption will increase substantially after that the considering power plant in Liepaja is commissioned. Projected changes in demand will largely decrease heavy fuel oils share in the primary energy supply. In 2020 it will drop to 13% or 12% respectively in Base and Optimistic Scenarios. Comparatively, the rapid development of cogeneration and commissioning of Liepaja CCP will considerably decrease Latvias dependence on electricity imports. In Base Scenario electricity import in 2020 will cover approximately 1% of the total primary energy supplies. In Optimistic Scenario, however, due to the higher domestic demand share of import is anticipated around 3% of the TPES (see table 25, table26, Fig. 20 and Fig. 21).

Table 25 Primary Energy consumption Base Scenario, PJ

1997 Natural gas Heavy fuel oil Coal Peat Wood Other Hydro Electricity imports Total 57.34 38.49 7.71 3.45 20.21 1.82 8.39 9.46 146.87

1998 59.62 36.78 7.38 4.95 20.28 1.11 8.40 9.53 148.04

1999 61.99 35.24 7.08 5.20 20.40 1.62 8.40 8.95 148.89

2000 65.26 33.29 6.70 5.22 20.18 2.04 8.40 7.99 149.09

2005 75.60 28.52 5.69 5.67 21.93 4.19 8.42 6.79 156.83

2010 79.42 25.02 4.57 6.25 23.68 6.00 11.34 7.30 163.58

2015 83.71 22.02 25.62 6.90 26.03 7.76 11.36 0.05 183.46

2020 89.59 19.17 24.40 7.76 29.13 9.68 11.38 1.71 192.83

Table 26 Primary energy consumption Optimistic Scenario, PJ

1997 Natural gas Heavy fuel oil Coal Peat Wood Other Hydro Electricity import Total 58.12 39.32 6.10 7.94 15.12 3.96 8.39 9.32 148.28 1998 61.11 38.37 5.87 8.09 15.52 4.05 8.40 9.38 150.78 1999 64.22 37.66 5.67 8.26 15.93 4.14 8.40 9.60 153.88 2000 68.03 35.93 5.43 8.12 16.12 4.16 8.41 9.30 155.50 2005 80.12 31.82 4.73 8.47 18.71 4.75 8.42 8.41 165.44 2010 84.29 29.17 26.06 9.07 21.46 4.98 11.35 0.09 186.47 2015 89.49 27.08 25.17 9.84 24.72 4.88 11.37 3.59 196.13 2020 94.66 24.76 24.24 10.71 28.63 4.58 11.39 6.13 205.10

Primary Energy Consumption in 2020 - Base Scenario,PJ

Hydro 6% Electricity imports 1% Other 5% Wood 15%

Peat 4%

Wood Peat Coal Mazut Natural gas Electricity imports Hydro Other

Coal 13% Natural gas 46% Mazut 10%

Fig. 20 Primary Energy Consumption in 2020- Base Scenario

Primary Energy Consumption in 2020 - Optimistic Scenario, PJ

Electricity imports Hydro 6% 3% Other 2% Wood 14%

Peat 5%

Wood Peat Coal Mazut Natural gas Electricity imports Hydro Other

Coal 12% Natural gas 46% Mazut 12%

Fig. 21 Primary Energy consumption in 2020- Optimistic Scenario

4.5

Environmental Protection

Air quality is affected by emissions from combustion of fossil fuel, evaporation of volatile organic compounds, and by photochemical and other processes in Latvia and beyond its borders. The largest part of the emissions is produced by the energy and transport sectors. 4.5.1 Emissions of pollutants The largest part (73%) of emissions by stationary sources is from boiler houses. Emissions from stationary sources have declined since 1990 by 60% or since 1998 by 27%. The largest reduction of emissions was in the 1990 1992 period, mainly due to a fall in production. During 1998 2000, the reduction in emissions can be explained by the use of fuel with lower sulfur content by large heatproduction enterprises in cities. Sulphur dioxide emissions have decreased by one-third, and volatile organic compound emissions have slightly increased. Pollution from stationary sources in 2000 is illustrated in fig 22. (go through again sources Environmental Indicator in Latvia).

% contribution of total emissions of nixious substances to the atmosphere from stationary sources
Sulphur dioxide Nitrogen oxide Carbon oxide Added value of the sector VOC 5.00% 0.82% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 33.82% 58.30% 53.66%
Series1

0.00%

Fig. 22 % contribution of Total emissions of noxious substance to the atmosphere from the stationary sources in 2002 4.5.2 Main measures The Program objectives will be achieved by promoting efficient energy supply systems that are based on environmentally friendly fuels. In addition transition towards the EU regulations in field of standards relating to environment pollution will be reinforced. The national program anticipates increasing domestic electricity generation, which in turn will generate additional pollution. In order to reduce these effects it I planned that new fuel burning technologies will be introduced in newly constructed and reconstructed plants together with advance cleaning of flue gas and water preparation. In future relative reduction of Sulphur dioxide emissions will be ensured by wider use of low Sulphur content HFO instead of presently use of low quality heavy fuel oil. Options for co-operation between the Baltic States in arranging heavy fuel oil cleaning should be discussed. Reducing the Sulphur content would at the same time reduce vanadium content. Sulphur dioxide emissions in coal power plants will be limited by application of lime flue gas cleaning technologies, which reduce Sulphur dioxide emissions by 95% The Geneva Convention protocol on Sulphur sets 1980 a base year for Sulphur dioxide emissions. In Latvia in 1980 emission of 60.25 thousand tons of Sulphur dioxide was registered. As it may be seen from table 26 the base level is expected to be exceeded in 2000, while substantial reduction is anticipated. This will be

achieved by transforming fuel supplies wider use of natural gas and wood fuel, as well as by implementing technical measure that reduce SO2 pollution. Table 27 Projected Sulphur dioxide emissions, 1000 tons 2000 Base Local heating Boiler plants Cogeneration Total 16.8 40.8 7.3 64.9 Optimistic 16.9 36.7 10.9 64.5 BASE 11.7 27.3 7.6 46.6 2010 Optimistic 11.7 25.1 17.3 54.1 Base 6.7 16.9 12.3 35.9 2020 Optimistic 6.3 17.4 18.7 42.4

To reduce emission of nitrogen oxides in power plants it is planned to install advanced burners, recirculation of flue gas and multistage burning process that in total will reduce NOx pollution by 50%. For deeper NOx cleaning catalytic process will be applied. By introducing technical measures for NOx reduction also in small boiler plants in 2020 it is possible to reduce its emissions by additional 750 tons in Base and 725 tons in Optimistic Scenario. The Geneva and Sofia convention protocol sets 1987 as the base for NOx pollution. At that time in Latvia 13.52 thousand tons of nitrogen dioxide was emitted by stationary sources. Table 28 indicates that this level will be exceeded in 2020 indicating the need for introduction of deeper flue gas cleaning, while it should be mentioned that base year statistics, contrary to those presented for 2020, did not reported pollution from local sources. Table 28 Projected nitrogen dioxide emissions, 1000 tons Base Local heating Boiler Cogeneration Total 3.7 7.3 1.9 12.9 2000 Optimistic 3.6 6.9 2.3 12.8 Base 3.9 7.0 2.3 13.2 2010 Optimistic 3.7 6.7 3.8 14.2 Base 4.0 7.5 3.2 14.7 2020 Optimistic 3.6 7.5 4.1 15.2

The International Convention signed in 1992 in Rio de Janeiro envisages measures to control and limit CO2 emissions. CO2 pollution can e reduces by energy efficiency improvement and fuel substitution, where natural gas plays an important role. In the case that the proportion of natural gas and heavy fuel oil in 1995 are maintained in 2020, the emission of carbon dioxide would be supplemented by additional 640.000 tons. Significant improvements are achieved also because of the extensive wood fuel application comparing with heavy fuel oil in 2020; reduce CO2 emission by 1.1 million tons. In 1990 CO2 emission from energy production were recorded at 15.96 million tons (see fig. 23).
Carbon dioxide em isions from energy production, 1000 tons 20000 15000 10000 5000 0 1900 1995 2000 2010 2020 Base Optimistic

Fig. 23 Carbon dioxide emissions from energy production, 1000 tons Ash collection in power plants will be arranged by mean of mechanical or electrical filters with 99% efficiency. That is the expected to reduce substantially emissions of acid ash and vanadium pentoxide. Large volume of gypsum and slag (in total approximately 200.000 tons per year) will be generated by Liepaja coal plants flue gas cleaning system. These residues should be used in road and construction and manufacturing of building material. The plants planning should take into account utilization or disposition of gypsum slag. New facilities as well as those where reconstruction will be carried out are planned to have reflexive water supply system, which would ensure efficient water utilization.

LEGISLATION AND REGULATORY FRAMEWORK

Law on regulation of entrepreneurial activities in energy sector has been passed and it regulates rights and obligations of enterprises that operate as natural monopolies with the intention to protect consumer interests, promote business development within energy sector and ensure implementation of the governments policies. Law on the protective zones protects various (including electric lines, district heating networks, gas pipelines, gas storage, etc) facilities from undesirable actions and ensures safety of their operations or protects environment and humans from such facilities. Until new standards and regulation are accepted by Latvia authorities, in Latvia former USSRs standards regulations, technical etc. norms and instructions are applicable provided that these are not in contradiction with Latvian laws or the cabinet of Ministers decisions (LR CM decision No. 337 of 14.08.1992) New norms and standards are being elaborated by recently established Latvian electro technical commission and technical committee of Thermal energy, gas and water technology. Due to the lack of financing very few regulations, norms and instructions have been prepared. PVAS Latvenergo and PVAS Latvijas Gaze have financed the preparation of regulations on technical Exploitation of Electric and Technical Appliances, Regulations on thermal energy supply and utilization, Regulation on the protection of electric Networks, safety regulation in gas supply, regulation on gas supply and utilization and Latvia Republic Standard on polyethylene gas pipes.

5.1

Integration in European Union

The Republic of Latvia on June 12, 1995 in Luxembourg has signed EU Treaty that has been ratified by law in parliament on the 31 of August 1995. By this action Latvia has declared its orientation towards European Union, which requires harmonization of Latvias laws and regulation with respective acts in EU. The Treaty sets for a close co-operation between Latvia and EU with the Objective to enhance the development of Latvias national economy. Such co-operation based on common interests should strengthen economical ties in the widest possible extent. Law on European Energy Charter Treaty ratified by the Saeima (Parliament) on September 13, 1995 is one of the most important documents relating to the energy sector in Latvia. By this law the European Energy Charter Treaty signed on December 17, 1994 in Lisbon was accepted. By signing the Charter Latvia committed itself to a number of obligations including easing transit of energy and energy resources through its territory, eliminating any discrimination relating to origin of products or their destinations, excluding any unreasonable impediments, prohibitions or dues. For Latvia these are extremely important due to the large volumes of oil and gas transit. Collaboration between Latvia and EU based on market principles should be directed to promote and develop integration of national energy markets into EU. This co-operation shall particularly address: The formulation and planning of long term energy strategies; Energy conservation, efficiency promotion and development of indigenous resources; Reduction of environmental pollution caused by energy production, improvements of energy distribution and supply, diversification of energy supplies, interconnections with the European networks; Better accessibility to the energy markets and promotion of energy transit; Modernization of energys sector infrastructure, education, management and transfer of know how and technology; Prices and tariffs, tax policy; Formulation of conditions for the operation of energy companies; Regional co-operation of Baltic state within energy sector and particularly in insuring security of energy supplies. The government is responsible for the integration of Latvia into the internal market of EU and this process should carried out according to recommendations and requirement of European commissions white Book that was issued with the intention to formulate a program for the gradual implementation of pre-ascension Strategy.

Integration of laws and regulations in energy sector may not be separated from application of competition regulations. For instance, the Union attitude towards government support for the elimination of competition distortions is very important. Legislation in regard to transparency of prices should also be supplemented with competition rules, which in some cases may even foresee certain sanctions. Energy policy is as well closely integrated with environmental policy in other sectors. Legislation in EU forms on elimination of obstacles in the creation of its internal market with the main objective to ensure free movement of goods, uninterrupted supplies and improve energy sectors competitiveness. Legislation envisaged in the commissions white Book resembles this approach in a way which formulates required preconditions for the operation of Europes integrated internal market. Functioning of energy markets determines environment for individual enterprises and need for further restructuring of the economy. Legislation stipulates the following main principles: Market environment and transparency of price formation, which will elaborate competition distortions and ensure equal rights; Guaranteed free exchange of energy resources within the limits of internal market according to the terms of Treaty, whereas Directive on Electricity and gas Transit promotes such an exchange within EU; Development of open electricity and gas market markets, in order to achieve deeper integration and form transparent and non- discriminatory conditions for sector functioning. Latvia as well as other associated countries of Central and Eastern Europe may need comparatively long time to harmonize its legislation, as here national economy was centrally planned, while electricity and gas were controlled by the state owned enterprises that are not used to transparency. Latvia needs to restructures these monopolies in order to create competition and market conditions. Existing structures of these monopolies should be transformed to resemble new market environment. In addition, to promote energy conservation and contribute to stabilization of carbon dioxide emission, principal objectives within the energy sector are also connected with the improved efficiency consumption, rational and reasonable utilization of natural resources. In Latvia the energy sector is dominated by public monopolies. Even that a few draft laws have been prepared and discussed within the government, there are many areas to elaborate on for integration into EUs internal energy market. Competition laws in EU are important in promotion of internal markets integration. Secondary legislation is completely connected with the application of competition laws. The EU regulations relating to government assistance, for instance to gas sectors are very important in elimination of competition distortions and guaranteeing equal right to all market participants. Besides the secondary legislation will ensure price transparency and will create new system for tariff approval and will influence consumer preferences. In defining pre-accession strategy within the energy sector the white book establishes seven main areas that are important for the harmonization of legislation during the first stage of integration and require the implementation of primary and secondary legislation. In order to promote the competition in oil extraction the white book requires establishing free and nondiscriminating access to the EUs oil resources. Competition in the licensing of hydrocarbon extraction and production is envisaged by the Directive 94/22 Ec on the conditions for granting and using authorizations for prospecting, exploration and production of hydrocarbons that sets equal condition for hydrocarbon exploration and extraction. The commission is not experienced in harmonizing legislation within this area as the directive entered into force on July, 1995. The directive itself does not limit to any extent sovereignty of the member states over their oil and gas resources. The member states will still retain their rights to dispose resources individually as well as receive respective income, although it is required to exploit these recourses without discrimination, according to the internal market principles. Extensive technical and legal foundation is required to ensure opportunity of receiving authorization for prospecting, exploration and production of hydrocarbons to all the enterprises possessing proper intellectual and material resources. After and if oil deposit will be found, Latvia as well as other countries and Eastern Europe should guarantee that authorizations are granted objectively and transparently and decisions are based on either of two main principles:

System of concession cycles according to which authorizations are granted after the respective states have published the invitation for applications in the official journal of EU. Open door system according to which authorization are granted for formerly applied for territories. In order to ensure an efficient prospecting, exploration and production of EUs hydrocarbons resources the Directive 94/22/EC requires the member states to grant authorization for the prospecting, exploration and production of hydrocarbons in non discriminating and open procedure. The main Objective of the Directive is to guarantee that all enterprises having proper abilities are allowed to apply.

5.2

Security of supply and reserves

According to the communities legislation in regard to the security of supply the member states are required to maintain stocks of three main oil products. The member states are free to choose an institutional structure for implementation of reserve system. There are two main groups: Countries that have established an organizational, which fulfils this function set by law and is in charge for centralized reserves; Countries where maintenance of reserves is responsibility of oil companies. Latvia has all conditions required for maintaining such reserves although in the free oil market, where establishment of a special state operated oil companies are not anticipated, it is rather difficult to create an appropriate institutional structure. In order to comply with the Directive, respective requirements should be integrated into licensing of oil companies by supplementing general procedure with requirement in relation to the maintenance and the use of reserves. Institutional and technical structures should be created in order to: Elaborate a system for emergencies, consumption limitation, disposal and distribution of reserves, etc. Guarantee proper maintenance of reserves. Carry out a periodical checks of reserves. Guarantee the harmonization of emergency systems and co-operation between the community and countries of central and Eastern Europe. The member states including Latvia and other countries of Central and Eastern Europe will be required to maintain stocks of oil product equal to 90% consumption. Special measures are envisaged in order to eliminate the interruptions in supply: administrative creation of stock, consumption limitation, transfer of stock obtained from consumption limitations to countries with large shortage. A general action plans for emergency situations was elaborated in 1996 by the ministry of Economy Department of Energy with the assistance of the European council and EBRD that laid down the foundation for definition of objectives in preparation and implementation of measures to avoid emergency situations. Main tools in achieving this objective are the reduction of energy consumption, supply diversity, utilization of domestic and renewable energy resources. It is anticipated that a special law will integrate conditions for management of emergency situations while a secondary act will regulate the implementation of tasks as stipulated by the law. In this way legislation in Latvia will include EU Councils: Directive 68/414/ EEC - on minimum stocks of crude oil and/or petroleum products; Directive 73/238/EEC - on measures to mitigate the effects of difficulties in the supply of crude oil and petroleum products; Directive 76/491/ECC - on information and consultations of price of crude oil and petroleum products; Representative decisions relating to this area and corresponding to Latvias conditions.

5.3

Price transparency

The commission regulates the level of price transparency by the council directive, which according to the Communities procedure guarantees accountability on price information to the final industrial gas and electricity consumers. The existence of such level of price transparency enables the industrial consumers to choose between producers and suppliers. In order to implement these requirements, Latvia should have: A statistical or a similar institution. To guarantee confidentiality of commercial information. A system for verification of data and information. In the area of electricity and gas price formation requirements of the EC Councils directive 90/377/EEC on transparency of gas and electricity prices have already been integrated into Latvia legislation. Respective norms are established by the law on regulation of Entrepreneurial Activities in Energy Sector and secondary legislation issues in the connection Decisions of the Energy Supply Regulation Board on traffic calculation methods.

5.4

Gas and electricity transit

European Chapter Treatys p.7.1 requires each of the Treatys members states undertake all the necessary steps in transit promotion. Directives 90/547/EEC and 91/296/EEC on electricity and gas transit establish an obligation to guarantee transit of electricity and gas through the main network and introduce and appropriate system for implementing this obligation. Electricity and gas transmission companies are requested to inform the Commission and respective countrys institutions on any request for electricity and gas transit, initiate negotiations on terms of transit and advices the contract signing or reasons of refusal. Taking into account the above as well as the present process of PVAS Latvenergo. (Latvias electricity generation transmission and distribution monopoly) restructuring and privatization integration of EC Councils directive 90//547/EEC in Latvias legislation will be completed by 1999. Taking into account the above as well as the present process of PVAS Latvias gaze, integration of EC Councils directive 91/296/EEC in Latvias legislation will be completed during 1998 1999.

LIBERALIZATION OF GAS AND ELECTRICITY MARKETS

Latvia will establish such regulatory framework regulation functioning of the electricity market that it will ensure: Objective open and non-discriminating procedure in granting authorizations or tender organization for construction of new production facilities. Those vertically integrated companies separate bookkeeping of their production transmission distribution transaction and make it available at least to before mentioned public institution or other independent institution established by state. Electricity companies fill publicized and audit their books according to effective laws. Functioning of the systems operator set up as body administratively independent form other production or supply functions and responsible for the systems functioning exploitation and development of transmission networks as well as their interconnection with other systems. Objective open and non-discriminating procedure in granting authorization or tender organization for construction of new production facilities will be established with the objective to promote competition. Separation of bookkeeping in regard to production transmission and distributions will be applied to vertically integrated companies in order to guarantee transparency of their operations and accessibility of their records by designated institutions. The systems operator concept will regulate procedure which will be applied by transmission and distribution companies to offer their networks at reasonable costs taking into account existing capacities of transmission and distribution network and expand options for consumer choice. Liberalization of gas and electricity markets fits within scope of energy supply regulation boards functions which according to law on regulation of entrepreneurial activities in energy sector grants licenses for production transmission and distribution of electricity gas and thermal energy. According to effective legislation energy supply regulation board in 1996 issued its official procedures fro licensing. This documents established conditions for open and non- discrimination granting of licenses free third party access to networks as well as other conditions as required by EU directives 6.1 Hot water boilers Measures should be implemented in order to ensure that hot water boiler fired with liquefied or gaseous fuels are not exploited if it doesnt correspond to requirements of the Councils directive 92/42/EEC on efficiency requirements in regard to new hot water boilers fired with liquid of gaseous fuels. The law on energy efficiency will stipulate procedure for implementation of measures in issuing certifications to the boilers corresponding to harmonized standards as well all the measures connected with such certification (Directives Annex III) Conditions as set by the white book for the pre-accessions first stage in regards to hot water boiler in Latvia will be implemented gradually until the year 2002. Taking into account present condition in thermal energy production at present it is not possible to insure that hot water boiler will not be used if they dont correspond to the directives 92/42-EEC There are not prohibition limitations or any other impediments in application of any of appliances or hot water boiler or provision of any services that correspond to the directives requirements 6.2 Sulphur content of certain liquid fuels The white book defines measures to be carried out by the associated countries, which are included in the communities directive 92/12/EEC on sulphur content of certain liquid fuels. The objective of this directive is to reduce pollution, which in turn is connected with the fuel quality and to improve environment. The directive 93/12/EEC prescribes that sulphur content of diesel sold within the community should be below 0.5% weight %. According to the directive the members states should prohibit sale of diesel fuel,

which exceeds mentioned limits the member states are also required to prohibit sales of volatile oil products sulphur content of which exceed 0.2 products that correspond to the directives requirements. The directive 93/12EEC will be implemented by the year 2002 with introduction of respective import regulations. 6.3 Use of substitute fuel components in petrol The Councils directive 85/536/EEC on crude oil savings through use of substitute fuel components in petrol prescribes that the members states may not prohibit limit or impede by any other means production sales and free movement of petrol mixtures containing organic oxygen compounds provided that contents of organic oxygen compounds doesnt exceed limits as set by the directives appendix. These mixtures should be used according to the safety standards applicable of ordinary petrol used for unmodified ignition engines in vehicles that are in use or are being presently sold. Latvia will promote the production, sales and the use of mixture for use ignition engines, particularly with regard to indigenous alternative (ethanol, etc) resources.

THE LATEST DEVELOPMENT

The Creation of electricity market; Creating legal preconditions for the creation of gas market;

The most topical issues of the energy sector in the context of ascension to the EU are:

Creation of oil stock. The existing regulatory documents are amended and new laws are developed to meet these objectives see (box below). Harmonization of legislation with the EU directives The chapter on Energy in the EU accession negotiations with the European Commission was closed in December 2001.The keys fields of legal harmonization with the EU laws are: oil and oil stocks, security of supply, energy efficiency and introduction of market principles in the energy sector; Security of supply and creation of oil product reserves. On August 14, 2001 the cabinet of the Minister adopted the concept on formation of the State Oil Product Reserve. According to the concept, a package of regulations and amendments to the current legislation had to be drafted. The cabinet of Minister on January 29, 2002 adopted Regulations No 40 On Statutes of the Energy Crisis Management Centre, on March 12, 2002, Regulations No 106 On the procedure of energy supply and fuel sale to users during energy crisis AND ON March 26, 20002 Regulation No. 138 On the procedure of creation and use of oil product stock. On May 28, 002 the cabinet of Ministers adopted regulations No. 218 On Energy Information System Electricity sector. The Energy policy in the sector of electricity was adopted in the Cabinet of Ministers on September 11, 2001. On the basis of the amendments to Energy Laws adopted in Saeima on May 10, 2001, the Cabinet of Ministers on January 8, 2002 adopted Regulation No 9 Requirements for co-generation plant and the procedure of settling the price for purchase of excess of electricity . On January 15, 2002 the Cabinet of Ministers adopted Regulations No 28 On the total capacity for installation in 2002 and specific volumes of each type of electricity generation, if renewable energy sources are used in electricity generation and Regulation No 29 The procedure of installation and dislocation of electricity production capacities if renewable energy sources are used for electricity generation On December 24, 2002 the Cabinet of Ministers approved Regulations No 173 On annual consumption of electricity o obtain the status of a qualified user in 2003. In 2003 the status of the qualify user may be obtained by energy users with annual electricity consumption not less than 20 million kWh per year. Draft regulation on total volumes of capacity installation in 2003 and concrete volume of each type of electricity production if renewable energy sources are used for electricity generation has been developed and submitted to the Cabinet of Ministers; Gas sector. The Cabinet of Ministers during the meeting on October 23, 2001 accepted the concept developed by the ministry of economics On liberalization of the gas market in the republic of Latvia in connection with the Directives 98/30/EC of the European Parliament and Council concerning common rules for the internal market in natural gas. The aim of the concept is to encourage competition in the area of natural gas supply in Latvia and to harmonize the regulatory documents with the requirements of the European Union. The Action Plan to implement the concept has been developed

BARRIERS FOR ENERGY EFFICIENCY IMPROVEMENT

There are several reasons that not all energy efficiency measures, which are attractive from a macroeconomic point of view, are actually implemented. One of the first reasons is that measures that are attractive from a macro-economic perspective are not necessarily economically attractive for an individual enterprise or household. However, other factors play a role as well: Lack of incentives: The prices paid by firms or households might be much lower than the true macro-economic prices, as a result of subsidies and non-payment. Particularly in Latvia. Europe energy prices are still lower than economic costs. In some cases, incentives have even encouraged energy use. In the residential sector the absence of monitoring and control equipment (metering) implies that there is hardly an incentive for energy efficiency. Lack of capital: One of the important barriers for energy efficiency improvement in Latvia in the study period could be capital availability - certainly in the context of the transition process. But also in more general terms, capital for energy efficiency improvement is often scarce and investments need to compete with other investments. Profitability barriers: Investors sometimes use stricter criteria for their decisions than optimal from a social-economic perspective. Reasons for this can be uncertainty or the availability of other more attractive investment options. In many studies priority is found to be given to investments in mainstream business. Information barriers and lack of expertise: Often, cost-effective energy efficiency measures are not invested in because of a lack of information. This is especially important for households. However, lack of information can also play a role in the industrial sectors. In Latvia, the lack of good management to improve energy efficiency has been identified as a major obstacle to improvement. Lack of willingness to invest: Firms or households may not be interested in energy efficiency improvement. For example, for most industries and firms energy costs constitute only a very small share of total costs, making efforts in this area of only minor importance. In addition, financing bodies often prefer large projects to a multitude of small ones because of the lower transaction costs. Measures to improve energy efficiency tend to be small and diffuse.

NEW INSTRUMENT IN PROMOTING CHP DISTRICT HEATING AND ENERGY EFFICIENCY IN LATVIA

Until now, many organizations, authorities and other parties have been involved in preparing projects. Experience and studies are numerous throughout the country, and huge economic and environmental potentials have been demonstrated, especially revealed by bilateral assistance. Consequently, the options for synergy in future work are promising. Action to pursuit this synergy could be new co-operation between Latvia and some countries around the Baltic Sea Recent international agreements and recommendations in energy & environment policies support the initiation of new activities in the field of energy efficiency in Latvia. Focus is now increasingly on concrete financial measures and economic mechanisms which may trigger the implementation of projects in CHP, district heating and energy efficiency. Region on concrete projects and new mechanisms. An example may be the formation of the 'Baltic Chain' co-operation (Chain being an acronym for clearing house and information network) between agencies, institutes and local and national authorities in ten countries, plus IEA. This project ran from 1999 to 2001 and it was funded by the countries involved and supported by EU Interreg II C. The co-operation was intended to be transparent and concrete and aimed to facilitate investments, reduce transaction costs and assist in implementation of small-scale projects. This may give benefit to the economic and social development as well as cost-effective environmental achievements, It may include preparations for the use of new mechanisms according to the Kyoto Protocol obligations, which are pending on all countries involved. 'Baltic Chain' comprised four tasks that are discussed in the following: 1. Outlining a long term vision for sustainable energy in Latvia; 2. Developing national strategies in promotion of CHP, district heating and energy efficiency; 3. Creation of an overall co-ordinate information network; 4. Establishment of a clearinghouse (project bank) for the whole BSR. CHP, district heating and energy efficiency in recent policy statements. CHP and district heating have moved into political focus recently. The reasons are several, e.g.: CHP and district heating are technologies, which allow for energy efficient and economical utilization of bio-fuels, natural gas and other fossil fuel. Environmental benefits are several, and especially the possible reduction of CO2 emissions is interesting in fulfillment of Kyoto Protocol obligations. CHP and district heating are decentralized technologies close to local actors. Today, in Latvia like in other countries there are difficulties in attracting large and favorable investments to this type of projects, and there are economic and other barriers, which hinder the implementation and even make maintenance of existing projects difficult. The district-heating share of total heat supply is considerable in Latvia. The future of this infrastructure is important, and the options new CHP capacities are closely linked to district heating network. Many district heating networks in Latvia are at the moment in a difficult situation, both technically and economically. An increasing share of CHP production being fixed to simultaneous heat supply poses requirements to the whole electricity system; this may be solved in end use management and by complementary power production. Interaction hydropower and corresponding electricity demand inside especially Norway and Sweden may develop further to more ideal division of labor between countries in the Baltic Sea Region power system, to the mutual benefit of all parties regarding cost/effectiveness and environment. For all reasons, it is the role of Latvian Government to take an action, to some extent interaction with international or regional co-operation, and possibly to some extent in co-operation with - and assisted by local actors, financial institutions, and the energy industry.

10 FINANCING THE DISTRICT HEATING PROJECT IN LATVIA

In Latvia one of the very important tasks of district heating is to keep the tariff low in order to make heating affordable for their poorest customers. At the same time they have to cope with withdrawn subsidies and are requested to pay all their cost. Therefore it is becoming increasingly important to improve the efficiency of these systems and long-term loans are needed if the impact of the investment cost should be kept at affordable level Whether credit lines or separate project loans are used for these investments all International Financing Institutions, request a full feasibility studies demonstrating the viability of the project. A feasibility study should be managed by the client in order to get his full responsibility of the input of these studies. A full feasibility study shall cover many aspects of the project and included investments. The full content should be specified in terms of references (TOR) for each project, but normally, the following aspect should be covered: Past and present situation; technical (maps, drawings etc.); financial, institutional and environmental facts. Proposed investment within financial limits: why they are priorities that they are leas cost solution to the problem and finally, what are the investment costs and benefits from the proposed investment. Financial analysis to demonstrate the company (agency) is capable of repaying the loans and can survive in a competitive environment. For district heating companies, special attention must be paid to tariffs structures and levels. Environmental analysis to demonstrate that the project fulfils the national guidelines as well as those for the lender.

Institutional analysis to demonstrate that the owner has capacity to implement and operate the new investment and also the overall activities in manner that loan service can be guaranteed. Each respective municipality on its own must arrange detailed planning and programming. Each municipality having district heating should elaborate a detailed concept for development of this important infrastructure component. These program based on analysis of present situation and consumption projections have to set a development scenarios for the district heating systems; and contain respective investment programs; otherwise it may happen that a substantial investment are made into individual components of the system that presently seem to be the most urgent, though actual result will differ considerably from those anticipated due to negligence of other component of the system. In many towns, a general development guideline should be reviewed and within the following years, it should be decided whether centralized district heating system is maintained or developed, otherwise it should be decentralized. Each municipality and district heating companies must elaborate these plans of development and concept programs. The government by simple recommendations or through its administrative tools must carry out this implementation in the form of regulation, taxes, etc. The program envisages commissioning of the following co-generation capacities: Installation of gas turbines in HP Andrejsala (2000) and HP Imanta (2003); Reconstruction of Riga CHP-1; construction of a new natural gas fired block that will replace the existing equipment; Development of independent power producer. 10.1 The Energy Efficiency fund The financial resources of the Energy Efficiency Fund consist of 3.6 million of EUR allocated by the EU PHARE program. The loans are issued to local government and private borrowers to finance different energy efficiency projects with the assistance and mediation of the State Treasury, Latvian Mortgage, and Land Bank, and Parex Bank, Until now, the fund has extended loans for implementation of 16 projects, preparatory work to finance 4 projects has been started and loan agreements and technical supervision agreements have been signed, further co-operation is negotiated.

Taking into consideration the essential increase of competition in the financial market and the necessity to provide more attractive loans to borrowers, the Ministry of Economics and LDA have developed and submitted to the EC Delegation in Latvia the draft strategy on the future work of the Fund. It foresees a substantial decrease of the initial requirements and evaluation procedures with regard projects and borrowers that submit their projects to the Fund. At the same time the new draft strategy foresees that the fund after signing the loans agreement will provide to the borrower a significant technical assistance in the area of implementation of energy efficiency projects (energy audit and management, project management, procurement procedure, etc.) 10.2 Science and education The objective in education and science is to ensure that specialists of adequate qualifications are available for employment in the energy sector. In Science the objective is the development of energy equipment and systems, the increase of operational efficiency and environmental protection. Specialist with University degree in the field of energy are educated at Riga technical University (RTU), as well as at several department of Latvia agricultural University (LAU) Energy specialists to obtain an intermediate qualification are trained in Riga Technical college and partly by Kandava agricultural college, Liepaja polytechnic college and Daugavpils college of Railway Transport. During recent years the process of vocational training is not satisfactory. Of about 15 vocational secondary schools and college, only Vilanu secondary vocational school is still active in the field. In order to ensure the required number of specialists the PVAS Latvijas gaze and the state stock of company Latvenergo run training centre to requalified existing industrial and agricultural specialists. Until now the necessary number of listeners has been ensured on the account of restructuring of industrial and agricultural enterprises. However, at present the number of potential listener is falling. The requalification of engineering personnel is carried out at the training centre of PVAS Latvijas gaze, in collaboration with the Energy and Electro technical Department of RTU. The training of specialists in the field of energy is connected with the use of quite complicated and expensive equipment. The current order of allotting funding fails to account for specifics requirements of specialist training. Budgetary means at the disposal of government are limited. There is a shortage of special technical literature and teaching aids in Latvian language. The average age of doctors employed in science is approaching a dangerous mark (up to 60 years of age). Equipment, computer hardware and instrumentation used by scientists are worn and obsolete. 10.3 Key activities in the education field Training of specialist to obtain higher and vocational education for employment in the energy sector, improving qualification, organizational development of a professional training system: In order to improve training facilities of specialist in energy sector the best training personnel should be employed in formation and development of Energy Institute, the Institute of Electrical Engineering and power Electronics as well as I developing institute of Heat, Gas and water supply technology and the department of Heat Energy in RTU. To organize an Energy Efficiency Centre operating on permanent basis at the Energy Institute.

The raining centre of PVAS Latvijas gaze, The Training centre of PVAS Latvernergo in co-operation with RTU should carry out advanced professional training courses of specialist: The development of material and technical facilities of higher and vocational training institutions, improvement of financial system: To bolster material and technical facilities of the training institutions that are connected with a prioritized sector of the national sector of national economy- the energy sector which ensure he development of the national economy in general at an accelerate pace.

To improve the financing system of the education by considering the cost differences in training specialists in different sectors. Preparation and publication of a specialized technical literature in Latvian language:

to devise a subject plan and a schedule for selecting, translating and publishing specialized energy literature in Latvian during the year to come; to show list of eventual authors and organize working groups for the preparation of the aforementioned literature;

to earmark financial resources for preparing and publishing the above literature. The Energy institute of RTU shall co-ordinate the planning and publishing of specialized and training literature required y the energy sector. Improvement of teaching staff, training system as well as of syllabi and course curriculums: to redesign and adjust study plans in accordance with alteration in the duration of the study courses;

to emphasize the training of principal specialists for employment under the free market conditions (costumer-oriented service etc.). Perfection of a funding system of specialists and lecturers: to continue improving the labor remuneration system for specialists employed in the energy sector or providing training for employees in the sector.

10.4 Key measure in Science

The following activities within the National Program should be outlined: The selection and fostering of direction for the development of science have to be prioritized in Latvia as well as in Baltic countries. The sustenance of the existing highly developed research potential in the following main directions: The optimization of development of energy system (Institute of physical energy). Dynamic simulation of energy systems (Dispatch Centre Baltija). Synthesis of automated control equipment and systems of energy installations (RTU). Optimization of medium and low capacity thermal energy equipment and systems (RTU). Improving combustion technologies for different types of fuel (RTU). Ventilation and air conditioning systems (RTU). Environmental protection (RTU and Latvia University). Training of scientific and pedagogical staff of highest qualification (Doctor of Science, Habilitated Doctors of science). Formation of special fund to create incentives for young scientists. Development of material and technical facilities in science.

10.5 Financial resources required for education

The training cost of energy specialists are covered from state budgetary means, disbursed by the ministry of education and science. Table 28 demonstrates annual training of specialist who attends a higher educational establishment irrespective of the department. Annual training costs of a student of a higher educational establishment irrespective of the department, 2002. Table 29 Item Salaries Social payments on the part employers Service costs Energy, water and inventory Book and literature Scholarships Costs 264 98 57 240 14 102

Social insurance of student of students Equipment upgrades Investment in Scientific universities Total

97 28 9 909

To determine the annual cost of and engineer in conformity with experience of European countries and latest trends in training specialists for an energy sector (procurement and usage of complicated and expensive equipment), general costs shall be increase by a factor of 2.247 to reach Ls 2207. The difference between the necessary amount and actually disbursed amount equals about Ls 1300. The requirement number of specialist in accordance with the forecast carried out by the principal energy companies (Latvenergo and PVAS Latvijas gaze), which project decrease in number of specialist due to the privatization process. The forecast is based on the principle analogy, taking into account experience of other countries, number of population, as well as other factor in compliance with the above forecast: The training of 83 engineers will be required Ls 108.000 for the period 2001-2010.

The necessary additional financial support for vocational training of specialist allowing the current financial disbursement proportion reaches Ls 54.000 during the period of 2001-2010. To ensure the process of qualification improvement, the Energy Efficiency Centre under the auspices of RTU Energy Institute will require Ls 24.000 annually during the period 1996-2010. To carry out the vocational training the Training Centre of the PVAS Latvijas gaze and the Training Centre of the PVAS Latvenergo in co-operation with RTU will require additionally Ls 30.000 per year during the period of 1996-2010. For the preparation and publication of specialized technical literature in Latvian language the following funding is necessary: Ls 80.000 per year for the period 2001-2010.

10.6 Investments
Table 30 Science and education sub - program 2001 - 2010 Higher education Secondary vocational school Energy Efficiency Centre Professional Training Specialized literature Science Total Financing Foreign loans Other funds 5.96 15.50 1.08 0.54 0.24 0.30 0.80 3.00 5.96 2011 - 2020 2.81 1.40 0.62 0.78 2.08 7.80 15.50 Total

10.7 Financial Resource, Schedules and Sources

This section summarizes investments expressed in 1995 prices envisaged under the National Heat program.

Table 31 Thermal energy efficiency subprogram, 2002 LVL million 1996-2000 Base Scenario Group of measures Efficiency improvement in generation Network reconstruction Efficiency improvement in buildings Total Financing sources Foreign loans Other funds Optimistic Scenario Group of measures Efficiency improvement in generation Network reconstruction Efficiency improvement in buildings Total Financing sources Foreign loans Other funds 38.50 86.70 5.00 130.20 52.08 78.12 103.70 287.00 81.80 472.50 141.75 330.75 11.00 194.00 163.20 368.20 110.46 257.74 153.20 567.70 250.00 970.90 304.29 666.61 Table 32 Gas supply subprogram, 2002 LVL million 1977-2000 Reconstruction of production and operation facilities Construction of metering stations Reconstruction of main pipelines Construction of side pipe line and substations Compressor station construction Construction of distribution pipeline and pressure reductions points Gasification of households Purchase and installation of gas meters for industrial consumer, modernization of metering appliances Installation of telemechanics system Reconstruction of distribution of pipelines and pressure reduction points Reconstruction of Incukalns underground gas storage Reconstruction of Riga LPG export terminal Reconstruction of and modernization of gas filling stations Fixed asset purchases 1.77 2.78 1.39 2.13 3.07 3.04 3.65 2.03 9.49 0.34 6.30 2001-2010 2.91 1.78 29.37 2.61 12.07 4.46 6.77 6.87 20.10 3.13 1.59 11.84 2011-2020 3.49 2.14 35.25 3.13 14.48 5.35 8.13 8.25 24.12 3.76 1.91 14.21 Total 8.17 2.78 5.32 66.75 5.74 29.62 12.85 18.54 17.15 53.70 6.89 3.84 32.85 23.10 59.10 6.20 88.40 35.36 53.04 85.10 262.90 77.40 425.40 127.62 297.78 33.60 174.40 104.00 312.00 93.60 218.40 141.70 496.50 187.50 825.80 256.58 569.22 2001-2010 2011-2020 Total

Total Financing sources Foreign loans Other funds

35.99 10.80 25.19

103.50 31.05 72.45

124.20 37.26 86.94

263.70 79.11 184.59 Table 33

OIL Products Subprogram, 2002 LVL, million Legislation and regulatory framework Oil product import terminals Elaboration of reserves system Exploration of oil deposits Total Financing sources Foreign loans Other 1997-2000 0.70 7.00 2.00 14.00 23.70 23.70 2001-2010 13.00 5.00 10.00 28.00 28.00 2011-2020 3.00 10.00 13.00 13.00 Total 0.70 20.00 10.00 34.00 64.70 64.70 Table 34 Wood fuel subprogram, 2002 LVL million Technology development Total Financing sources Foreign loans Other sources 1997-2000 1.00 1.00 1.00 2001-2010 3.00 3.00 3.00 2011-2020 3.00 3.00 3.00 Total 7.00 7.00 7.00

Table 35 Peat subprogram, 2002 LVL million Rehabilitation of peat processing industry Technology development Total Financing sources Foreign loans Other Sources 1.00 2.10 2.00 4.00 2.00 4.00 5.00 10.10 Table 36 Alternative energy Subprogram, 2002 LVL million Technology development Total Financing sources Foreign loans Other sources 1977-2000 0.10 0.10 0.10 2001-2010 1.00 1.00 1.00 2011-2020 1.00 1.00 1.00 Total 2.10 2.10 2.10 Table 37 Science and education subprogram, 2002 LVL million Higher education Secondary vocational education Energy Efficiency centre Professional Training (workers) Specialized literature Science Total Financing sources Foreign loans Other funds 1997-2000 0.61 0.31 0.12 0.15 0.30 0.60 2.09 2.09 2001-2010 1.08 0.54 0.24 0.30 0.80 3.00 5.96 5.96 2011-2020 2.81 1.40 0.62 0.78 20.8 7.80 15.50 15.50 Total 4.51 2.25 0.98 1.23 3.18 11.40 23.55 23.55 1997-2000 3.00 0.10 3.10 2001-2010 5.00 1.00 6.00 2010-2020 5.00 1.00 6.00 Total 13.00 2.10 15.10

Table 38 Subprogram Overview, 2002 LVL million 1977-2000 Thermal energy efficiency Base Scenario Optimistic Scenario Gas supply Oil products Wood Peat Alternative energy Science and education Total Base Scenario Optimistic Scenario Financing sources Foreign loans Base Scenario Optimistic Scenario Other funds Base Scenario Optimistic Scenario 96.19 112.91 221.61 246.69 335.45 349.58 820.01 852.98 309.56 326.42 754.14 793.48 741.20 788.91 1 795.76 1 893.15 88.40 130.20 35.99 23.70 1.00 3.10 0.10 2.09 317.80 359.60 425.40 472.50 103.50 28.00 3.00 6.00 1.00 5.96 1 155.46 1 202.56 312.00 368.20 124.20 13.00 3.00 6.00 1.00 15.50 1 063.70 1 119.90 825.80 970.90 263.70 64.70 7.00 15.10 2.10 23.50 2 536.97 2 682.07 2001-2010 2010-2020 Total

Economic and social effects The implementation of the national heat program in Latvia will result in: ensuring regular and secure heat supply, ensuring quantitative and qualitative adequacy of heat supply to the requirement of the national economy and population; ensuring maintenance and development of heat system in pursuance of identified requirements, which are aimed at mitigating its environmental impact; ensuring increase in the efficiency of energy supply and drop in specific consumption of energy resources.

The national economy in general will benefit due: The declining cost of energy resources and energy capacity of product and services, which in its turn will add to the competitiveness and will release a financial resources for investing in national economy; The creation of new jobs, thus down not only social payment from the national economy budget but also increase the revenue and raise the living standards of population; The implementation of individual sub-program that will enhance the volume of export, thus improving Latvia foreign trade balance, as well as affording additional tax proceeds.

By implementing the National Heat program, the energy intensity of the gross domestic product in 2000 price will be reduce from 16.53 kWh/Ls to 9.93 kWh/Ls in Optimistic or from 16.55 kWh/Ls to 10.41 kWh/Ls in Base Scenario.

11 SOURCES
1. Latvian National Energy Program, 1997. 2. Commission of the European Union Communities; European Energy to 2020: a scenario Approach SEC (95) 2283. 3. Commission of the European Communities; white paper An Energy Policy for the European Union COM (95) 682 final. 4. Commission of the European Communities; white paper preparation of the associated countries of Central and Eastern Europe for integration into the internal market of the Union. 5. European Bank for reconstruction and development, Transition Report Infrastructure and saving 1996. 6. European Commission. DGXVII; Energy in Europe.1996 Annual Energy Review. 7. European Commission Green Paper Towards a European Strategy COM (2002) 769 final. 8. ICE Energy Indicator for countries of Europe and CIS 1997. 9. Jones Christopher; Recent Trends and Development in European Policy, Regulatory Policy Institute, 1993. 10. International Conference Investment in Energy in The Baltic Sea Region Riga, Latvia, 1999. 11. Geo-2000 Alternative Policy Study for Europe and Central Asia: Energy-related environmental Impacts of policy scenarios. UNEP/DEIA&EW/TR.99-4. 12. Latvia Statistical Bureau; Consumption of energy resources in Households in 2001 Latvia, 2003. 13. Latvia Statistical Bureau; Energy Balance in 2002 Latvia, 2003. 14. Ministry of Economics of Republic of Latvia Economic Development of Latvia (Report), Riga, 2002. 15. Latvian Environment Agency; Environmental Indicators in Latvia Riga, 2002.