After the audit, the State Audit Office of Latvia has concluded that there is potential to reduce the heat energy tariff in Riga, however, it is not used fully. In a situation where usable heat from the thermal power plant (TPP) of JSC Latvenergo enters the atmosphere, thermal energy produced in biofuel boiler houses is purchased without promoting efficient use of energy resources. For this reason, Riga population overpaid almost 8 million euros for thermal energy in the 2024-2025 heating season while JSC Latvenergo did not receive more than 6 million euros of potential revenues. In addition, due to the lack of cooperation among the parties involved and different interpretations of laws and regulations, JSC Latvenergo has had limited opportunities to offer cheaper heat more to Riga City on the days when the TPP was working in the electricity market. At the same time, without the participation of independent biofuel boiler plants in the Riga thermal energy market, Riga residents would pay an additional 25.2 million euros for thermal energy during the 2024-2025 heating season. It confirms that a cheaper heat tariff can only be ensured by an efficient heat market mechanism involving all market participants and respecting the principle of economic gradualness.
On 21 April 2026, at 10:00 a.m., the State Audit Office of Latvia will hold a press conference, where Auditor General Edgars Korčagins and Council Member of the State Audit Office of Latvia Mārtiņš Āboliņš will present the audit conclusions in more detail.
IN BRIEF
- In Riga, there is significant potential to reduce the price of thermal energy, but it is not used fully. During the 2024-2025 heating season, Riga population overpaid almost 8 million euros for heating while useful heat was discharged into the atmosphere.
- Complete exclusion of independent heat producers from the market would reduce the amount of heat output from cogeneration by only 51%, while a significant amount of thermal energy would have to be ensured by operating natural gas water-heated boilers at the tariff approved by the Public Utilities Commission (PUC) without the participation of these producers, which would generate an additional cost of 25.2 million euros for JSC “Rīgas Siltums” (Riga Heat) every year.
- Although the market improvements introduced by JSC “Rīgas Siltums” in November 2025 have already yielded results by reducing the amount of heat released into the atmosphere by 44%, the cheapest heat is still not purchased and the benefits of lower costs of independent producers are not fully reflected in the bills of residents.
- The outdated tariff calculation methodology approved by the PUC and insufficient cooperation among state institutions and enterprises do not allow using the advantages of cogeneration in full. Therefore, the tariff does not always reflect the actual, lower cost of heat production and does not protect the interests of consumers sufficiently.
“Heat in Latvia is a basic need which the population needs for about 200 days a year. That is why it is important for society that the heat supply is organised effectively and at the lowest possible price. There is potential to reduce heat energy tariffs in Riga, but it will be possible only when the problems known for years are finally solved by arranging market regulation, improving the tariff methodology, facilitating institutional cooperation and ensuring effective competition in the heat market,” emphasised Mr Mārtiņš Āboliņš, Council Member of the State Audit Office of Latvia.
The thermal energy procurement mechanism established by JSC “Rīgas Siltums” does not always provide the cheapest available heat in Riga.
Although procurement respects the principle of economic gradualness formally, a significant part of the heat is purchased outside the approved daily market, thus preventing the full use of the cheapest available heat offers. Guaranteeing any minimum or fixed volume, whether in a monopoly part or by offering a longer-term agreement in a market where independent producers also operate, reduces the flexibility of the heat market significantly and creates situations in which part of the heat produced by the cogeneration process is discharged into the atmosphere. To reduce the amount of wasted energy resources, as well as to increase the overall flexibility of the Riga district heating system and the size of the daily market, JSC “Rīgas Siltums” should motivate market participants to increase the possibilities of thermal energy storage.
The demand of the electricity market determines the operation of JSC Latvenergo CHP; therefore the amount of heat produced in the cogeneration process does not always coincide with the demand of the Riga heating system. During the period assessed in the audit, namely, from 1 July 2024 to 30 June 2025, JSC Latvenergo discharged 532,052 MWh of heat produced in cogeneration plants into the atmosphere, both due to the peculiarities of the procurement mechanism and due to the fact that there were situations when the amount of heat produced exceeded the demand of the system significantly. Of this amount, 270,334 MWh or 51% were discharged into the atmosphere at a time when it was possible to transfer it to the Riga heat supply system. It was not possible to transfer the remaining amount of heat to JSC “Rīgas Siltums” because the amount of thermal energy required for Riga was less than the amount of thermal energy produced by JSC Latvenergo. At the same time, the audit found 80 days or 36% of all operating days when JSC Latvenergo has discharged heat into the air without participating in the heat market. A total of 150,694 MWh has been discharged into the atmosphere during those days. From this volume, technically 87,179 MWh could be fed into the heating system of Riga.
According to the auditors’ calculations, on days when cogeneration thermal energy was available, its fuller use would allow JSC “Rīgas Siltums” to save 7.8 million euros during this period by reducing the final heat supply tariff by approximately 2.6 % or 2.1 euros/MWh. However, even a complete exclusion of independent heat producers from the market would reduce the amount of heat output from cogeneration by only 51 % while a significant amount of thermal energy would have to be provided by operating natural gas water-heated boilers at the tariff approved by the PUC without the participation of these producers, which would generate an additional cost of 25.2 million euros for JSC “Rīgas Siltums” every year.
The main cause of high heat energy prices remains the expensive natural gas prices and the cost of CO2 emission allowances, which have been included in the tariff since 2020. As a result, natural gas in Riga’s heat supply is about 2.5 times more expensive energy resource than wood chips. However, the market mechanism established by JSC “Rīgas Siltums” and limited competition in the market share do not ensure that the lowest cost of wood chips is fully reflected in the tariffs of final consumers but creates prerequisites for the formation of additional profits for market participants.
At the same time, the improvements in the thermal energy market introduced by JSC “Rīgas Siltums” from November 2025 are welcomed. They have made partial addressing of the shortcomings of the procurement system and transferring more heat from cogeneration possible. As a result, the amount of heat released into the atmosphere has decreased by 44% compared to the previous year, and a lower price of purchased heat has been ensured. So the company is able to build a more effective market. However, the improvements introduced address the main problems identified in the procurement system only partially. The cheapest heat is still not purchased in Riga and part of the heat produced in the cogeneration process was discharged into the atmosphere at a time when it was possible to transfer it to the Riga heat supply system. In addition, the new market mechanism still does not ensure that the benefits of lower heat production costs of independent producers are fully reflected in the bills of residents.
The methodology for calculating the thermal energy tariff used by the PUC, which was approved in 2010 before the establishment of markets for liberalisation and balancing and activation of the electricity market, also has a significant impact on the price of thermal energy.
The methodology does not take revenues from the sale of electricity in cogeneration and shall not distinguish between the costs of thermal energy according to the production technology – cogeneration or water-heated boilers into account. It is based on the proportional attribution of natural gas costs to the production of electricity and heat. However, the production of electricity requires a relatively small amount of additional natural gas to obtain useful thermal energy at the same time as the production of electricity. In this way, cogeneration is more effective than water-heated boilers significantly. Yet, the methodology approved by the PUC does not take this into account by preventing the full use of the benefits of high-efficiency cogeneration and limiting the possibilities of converting lower production costs into a lower tariff for final customers.
“Unfortunately, the PUC has not safeguarded the protection of the interests of users in full and has not ensured that public services are available to end-users at the lowest possible price, which reflects the actual cost of heat produced,”" concluded Mr Mārtiņš Āboliņš.
The PUC has not assessed the compliance of the tariff calculation methodology with changing market conditions and has not assessed the reasons why JSC Latvenergo can offer the same cogeneration heat on the market at a much lower price than the approved tariff fully, also in cases when part of the cogeneration heat is discharged into the atmosphere. The PUC also does not verify that the price of heat sold corresponds to the actual costs of cogeneration during the period in question and does not ensure that the tariff reflects economically justified costs.
The PUC justifies non-revision of the methodology by the division of mandate between the PUC and the Competition Council. State institutions and enterprises are reluctant to take the initiative by waiting for action from other stakeholders. The State Audit Office of Latvia stresses that the PUC has not only the right, but also the obligation to revise the tariff setting methodology due to changes in the market situation and economic rationale to provide customers with heat supply at the lowest possible price, which reflects the actual costs of heat production.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
By implementing the recommendations provided by the State Audit Office of Latvia, the thermal energy procurement mechanism of JSC “Rīgas Siltums” and the methodology of the thermal energy tariff for cogeneration of PUC will be improved. It will create preconditions for compliance with the principle of economic gradualness and strengthening of competition in the Riga thermal energy market. As a result, the thermal energy procurement mechanism will ensure the purchase of cheaper thermal energy on the daily market and lower heat tariffs for citizens.
Additional reading: audit report summary, infographics.
The audit also produced an interim report entitled 'Untapped opportunities in retrofitting of housing'.
About the State Audit Office of Latvia
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General. Upon discovering deficiencies, the State Audit Office of Latvia provides recommendations for their elimination, but it informs law enforcement authorities about potential infringements of the law.