The energy policy governance established in Latvia does not ensure targeted progress towards achieving the ambitious goals of the National Energy and Climate Plan (NECP) and does not offer a clear solution on how to finance the measures required to achieve the goals. Significant improvements are needed in the implementation of energy policy, monitoring of the achievement of goals, planned activities and indicators set by the NECP. Priority measures that would have the greatest impact on the achievement of the NECP goals should also be determined taking into account that funding is not sufficient for the implementation of all planned measures and there is not much time left until the deadline for achieving the goals, as the State Audit Office of Latvia has concluded in its audit.
BRIEFLY:
- Latvia lacks targeted energy policy governance, and the achievement of NECP goals is not facilitated.
- The implementation of the NECP planned measures requires additional investments of at least 13.1 billion euros. Currently, there is a lack of a clear plan and legal framework for attracting the necessary private financing for the remaining period of NECP implementation.
- A system for effective implementation and monitoring of energy policy has not been established. Responsible ministries do not ensure the fulfillment of certain tasks related to the implementation of energy policy although this is stipulated in the NECP and other laws and regulations.
- The potential of state-owned enterprises to achieve energy sector goals is not fully utilized while the development of renewable energy is hindered by administrative obstacles.
In total, Latvia has 18 valid policy planning documents that address energy and climate change mitigation issues. The NECP for 2021–2030 is the basic planning document for Latvia’s energy policy that sets out national goals and action lines to achieve the climate goals set by the European Commission (EC). The NECP has been developed in accordance with the principles set out in EC regulations and includes five main dimensions: decarbonisation, energy efficiency, energy security, internal energy markets, as well as research, innovation and competitiveness. Although the NECP was approved in 2020 and updated in 2024, it cannot be considered a full-fledged energy strategy, as it lacks a balance between the goals set by the EC and the needs of the Latvian economy, security aspects and ensuring affordable energy prices. Latvia’s energy policy needs a long-term strategic document that will guide the sector both towards achieving the NECP goals set by the EC and towards the overall development of the sector. In 2024, the Climate and Energy Ministry (CEM) began work on the development of the Energy Strategy until 2050.
“Latvia has committed to achieving very ambitious energy policy goals by 2030, which stem from our international commitments. We are currently close to the midpoint of the NECP implementation period, and if we continue in this way, Latvia risks not achieving the NECP goals within the specified timeframe. The goals are based on fixed deadlines, and there is a lack of interim indicators that would allow for regular assessment of progress and necessary adjustments. Moreover, two years after the establishment of the CEM, it still lacks effective instruments for implementing energy policy, and the Ministry of Economics still plays a significant role in the performance of certain energy functions. Although the CEM has taken the first steps in developing a long-term strategy, the State Audit Office of Latvia points out that significant action and coordination are required by all stakeholders such as state institutions, local and regional governments, entrepreneurs and the public,” states Mr Mārtiņš Āboliņš, Council Member of the State Audit Office of Latvia.
Most of the goals can only be achieved by carrying out additional activities and attracting additional funding. The impact of the planned NECP measures and activities on the achievement of the goals cannot be tracked. The necessary resources and their sources have only been partially identified for the planned activities. According to the calculations of the Ministry of Finance, the implementation of the measures described in the updated NECP requires additional investments of at least 13.1 billion euros, of which only 3.8 billion euros or 29.1% have currently been earmarked.
“Without attracting funding, the NECP goals cannot be achieved. Considering that four years have already passed since the approval of the NECP and six years remain until the results are achieved, it is high time to set priorities that would most contribute to the achievement of the goals under limited time and financial resources so that the NECP does not remain only at the level of a wish list. State budget resources are limited while current activities do not create confidence that attracting the required amount of investment from the private sector will be possible. If the goals are not achieved, EU sanctions may be applied to Latvia, which will not relieve it of its obligations but will be an additional burden on the state budget,” added Mr Āboliņš.
The existing institutional system does not ensure high-quality implementation and monitoring of the NECP. In the opinion of the State Audit Office of Latvia, the prevention of duplication of competences of two ministries, that is, the Ministry of Economics and the Climate and Energy Ministry, has not been ensured after the establishment of the CEM. Although the energy sector function has been deleted from the regulations of the Ministry of Economics, its responsibility for the energy sector currently remains, as certain institutions subordinate to it perform tasks related to the energy function.
The audit found that the implementation of certain tasks related to the implementation of energy policy was not ensured in accordance with the NECP and other laws and regulations. For instance, the implementation of the NECP planned measures under the responsibility of the Ministry of Economics and the CEM with a deadline until 2023 has been ensured only partially, the development of the updated NECP project was delayed, and the research planned by the CEM in the field of energy is not being implemented consistently although funding has been provided for this purpose. In fact, neither the planned permanent monitoring of the implementation of the NECP nor the supervision at the Cabinet level, which was planned as a tool for the effective implementation of the NECP, has been ensured, and it is not functioning. The development of the monitoring and reporting system will continue until May 2025. In its turn, the National Energy and Climate Council already ceased operations in 2021, and the Energy, Environment and Climate Committee established in 2023 does not meet regularly although such a requirement is set out in the Order of the Prime Minister.
The competence of state-owned enterprises is not fully utilised in reducing obstacles to the development of the energy sector and achieving policy goals. The current energy policy has not promoted a clearly understandable and targeted sustainable development of the energy system. Investments of individual state-owned enterprises in the development of energy infrastructure are mainly based on business interests with insufficient involvement in achieving the energy goals set by the government. Practically all the measures planned by the analysed enterprises relate to the field of energy security. It creates a risk that the results planned in the NECP in the field of energy independence will not be achieved.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
The audit provided 3 recommendations to the Climate and Energy Ministry and the Ministry of Economics for improving energy policy governance: (1) improve energy policy governance by defining priority measures to achieve the NECP goals, streamlining the monitoring and evaluation of the achieved results, as well as creating prerequisites for attracting additional private financing for the development of the energy sector; (2) reduce administrative obstacles and promote more active involvement of electricity producers in the development of renewable energy capacity; (3) improve the quality of energy sector development documents by including an electricity generation structure suitable for Latvian conditions, assessing capacity adequacy and electricity consumption forecasts in various energy sector development scenarios.
Additional reading: audit report summary.
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.