Due to long-standing issues that have remained unresolved for years, residents of Riga overpaid millions of euros for heating energy in the previous year, according to an audit by the State Audit Office of Latvia.
The audit found that there is potential to reduce heating tariffs in the capital, but only if known problems are finally addressed—by improving market regulation, refining tariff calculation methodology, strengthening institutional cooperation, and ensuring effective competition in the heating energy market.
Auditors noted that usable heat produced at the Latvenergo combined heat and power plants (CHPs) is being released into the atmosphere, while heat generated in biomass boiler houses is being purchased instead, which does not promote efficient use of energy resources.
As a result, during the 2024–2025 heating season, Riga residents overpaid nearly 8 million euros for heating, while Latvenergo lost more than 6 million euros in potential revenue. The audit also found that due to insufficient cooperation between involved parties and differing interpretations of regulations, Latvenergo had limited opportunities to offer more affordable heat to Riga.
At the same time, without the participation of independent biomass heat producers in the market,
residents would have paid an additional 25.2 million euros during the same heating season.
According to the auditors, this demonstrates that lower heating tariffs can only be achieved through an efficient market mechanism in which all participants are involved and the principle of economic merit order is respected.
The audit concludes that the procurement mechanism established by Rīgas siltums does not always ensure that the cheapest available heat is used. Although procurement formally follows economic merit order principles, a significant portion of heat is purchased outside the approved daily market, preventing full use of the lowest-cost offers.
Guaranteeing minimum or fixed purchase volumes—both in the monopoly segment and through longer-term agreements in the competitive segment—reduces market flexibility and leads to situations where part of the heat produced in cogeneration is simply released into the atmosphere.
To reduce wasted energy and improve flexibility in Riga’s district heating system,
auditors recommend encouraging market participants to expand heat storage capacity.
During the audit period (the 1st of July, 2024 – the 30th of June, 2025), Latvenergo released 532,052 megawatt-hours (MWh) of cogenerated heat into the atmosphere. Of this, 270,334 MWh (51%) could have been supplied to Riga’s heating system, while the remainder exceeded actual demand.
The audit identified 80 days—36% of the total operating days—when Latvenergo released heat into the air without participating in the market. On those days, 150,694 MWh of heat was wasted, of which 87,179 MWh could technically have been used in Riga.
According to calculations, better utilization of available cogenerated heat could have saved 7.8 million euros and reduced the heating tariff by approximately 2.6% (about 2.1 euros per MWh).
However,
even completely excluding independent heat producers would reduce wasted cogenerated heat by only 51%.
Without these producers, a significant portion of heat would have to be generated using natural gas boilers at tariffs approved by the Public Utilities Commission of Latvia, increasing annual costs by 25.2 million euros.
The audit highlights that the main driver of high heating costs remains expensive natural gas and CO₂ emission allowance costs, which have been included in tariffs since 2020. As a result, natural gas is about 2.5 times more expensive than wood chips in Riga’s heating system.
However, the current market mechanism and limited competition prevent these lower biomass costs from being fully reflected in consumer tariffs, instead enabling additional profits for market participants.
The State Audit Office acknowledges improvements introduced by Rīgas siltums since November 2025,
which have helped reduce inefficiencies and increased the use of cogenerated heat. As a result, the amount of wasted heat has decreased by 44%, and procurement prices have improved.
Nevertheless, these improvements only partially address the fundamental problems. Riga still does not consistently use the cheapest available heat, and some cogenerated heat continues to be wasted even when it could be utilized.
The audit also criticizes the tariff calculation methodology used by the regulator, which was approved in 2010 before electricity market liberalization. It does not account for revenue from electricity generation in cogeneration or differentiate costs by production technology.
Although cogeneration is significantly more efficient than standalone boilers,
this advantage is not reflected in tariff calculations, limiting the potential for lower consumer prices.
According to audit board member Mārtiņš Āboliņš, the regulator has not fully ensured consumer protection or achieved the lowest possible prices that reflect actual production costs.
The State Audit Office has issued several recommendations to improve both the procurement mechanism and tariff methodology, aiming to strengthen competition and ensure lower heating prices for residents.
“Heat is a basic necessity in Latvia—it is needed for about 200 days a year. That is why it is crucial that district heating is organized efficiently and at the lowest possible cost,” Āboliņš emphasized.
In response, Rīgas siltums CEO Kalvis Kalniņš stated that Riga’s heating market is relatively new and unique in Europe, and that improvements have already been made.
He noted that while the audit identified 8 million euros in missed savings, the introduction of the market itself prevented about 25 million euros in overpayments. He also stressed the need to further increase the share of cheaper cogenerated heat and reduce reliance on natural gas by developing renewable energy, waste-to-energy, and surplus heat solutions.
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