From 1 January 2022 onward it is planned to reduce the mandatory procurement component (MPC) for electricity by about 60%, as decided by the government on Tuesday, 30 November.
According to the Ministry of Economics, during a closed meeting the government reviewed the ministry’s report and conceptually passed the proposal to reduce the average MPC rate by about 60% from 1 January 2022 onward. This means reducing it to 7.55 EUR/MWh. This is intended to provide support to all electricity users – households and legal persons.
According to the decision published by the Public Utilities Commission (SPRK), if the government passes the proposal from the Ministry of Economics, MPC for electricity produced using gas by CHP plants will reduce to 0.00020 EUR/kWh. This is nearly five times less than now. MPC for electricity produced from renewable resources will reduce to 0.00176 EUR/kWh, which is 4.7 times less than now.
Minister of Economics Jānis Vitenbergs said in a press-announcement that, considering the unpredictable rise of electricity prices and the negative effect from Covid-19 pandemic on households and enterprises, it is necessary to do everything possible to provide support to Latvian households and businesses to help them cover electricity expenses.
«I am happy to see the government reviewing expected MPC costs in response to the current electricity wholesale price trends. This will help partially compensate electricity price rise for consumers with reduced MPC rate,» says the minister.
The ministry notes that reduction of MPC is significant to better protect the most vulnerable groups of Latvian residents and support the international competitiveness of Latvian businesses.
The reduction of the average MPC rate is possible thanks to natural factors, including the future outlook for wholesale electricity price, reduction of electricity procured as part of mandatory procurement, slow increase of electricity consumption, as well as directing the grants provided by the state budget to reduce the MPC rate. This solution will help ensure this solution provides a neutral effect on the general government debt.
The ministry also reminds that on 22 September 2020 the Cabinet of Ministers reviewed conceptual report regarding complex measures to resolve the MPC problem and development of the energy market.
After the 30 November meeting of the Cabinet of Ministers, Minister of Finances Jānis Reirs told journalists that the reduction of MPC by about 60% would help ensure 8% to 10% reduction of electricity bills for end consumers.
He also said this decision will not have an effect on future budgets. At the same time, Reirs said there is a risk of there being an effect on the 2024 budget, but it is not expected to be large.
Latvian government conceptually passes proposal for 60% reduction of MPC
