On 29 September Latvia’s Saeima passed in the final reading amendments to the Law on Measures to Reduce Extreme Rise in Energy Prices that are intended to include additional support measures for households and businesses during the upcoming winter season.
The law states, among other things, that the first 100 kWh of electricity will be provided to households for a fixed tariff that does not exceed 160 EUR/MWh. For electricity consumption above 100 kWh households will pay in accordance with the price listed in their contracts.
If the volume of electricity consumed by households exceeds 500 kWh, these households will receive additional support they are eligible to if they use electricity for heating purposes. This support will be provided automatically – the compensation will be automatically transferred to electricity traders. This support requires funding of EUR 67 million.
Businesses will receive compensation equal to 50% of electricity price above 160 EUR/MWh. Electricity traders’ revenue lost to reduced electricity consumption is planned to be compensated from the state budget.
As for households that consume electricity, state traders will receive compensation in the amount of above 108.75 EUR/MWh. The difference between the market price and 108.7 EUR/MWh will be covered by state compensation. Support will be provided to households automatically – the compensation will be transferred to the natural gas traders. This support requires funding for EUR 10.89 million.
Heating under 150 EUR/MWh will be maintained for already approved support. In it the state will compensate 50% of the price that exceeds 68 EUR/MWh. The part that exceeds 150 EUR/MWh will be compensated by the state at 90%. This support will require funding of EUR 87 million from the state budget.
The Ministry of Economics mentions in the annotation to the law that if heating energy tariff is set at 340 EUR/MWh, the state support will help compensate 62% of the heating bill to the end user.
Support will apply to the period between 1 October 2022 and 30 April 2023.
According to the ministry, due to the major increase of heating energy tariffs and because heating energy tariff in multiple municipalities will exceed 300 EUR/MWh, it was decided that the mechanism that provides for compensation of cost growth at 50% is no longer sufficient and creates a risk of many households being unable to pay for heating, which risks leaving them without heating or in debt.
A similar situation and risks for households are observed in electricity supply, where the expected average price for households is estimated at 270-280 EUR/MWh this heating season.
On Tuesday, 27 September, Minister of Economics Ilze Indriksone mentioned during a government meeting that now that prices of energy resources have reached unprecedented levels due to the geopolitical situation and other factors. Without support from the state households are at risk of failing to cover heating their respective heating costs. Local businesses, on the other hand, become at risk of becoming less competitive then their closest neighbours.
Latvian Chamber of Commerce and Industry (LTRK) and Latvian Employers’ Confederation (LDDK) voiced support for the legislative draft at a previous government meeting.
LTRK board chairman Jānis Endziņš said on Tuesday that this support will help businesses avoid a socioeconomic and even a security crisis. He said if nothing is done and businesses enter insolvency states, the loss in taxes and unemployment benefits would cause the country to lose far more.
Minister of Finance Jānis Reirs mentioned at the government meeting that currently support measures are based on current forecasts. If anything changes, the government is prepared to review and increase support.
All administrative functions related to all new support measures are entrusted to the State Construction Bureau of Latvia.
More on this topic: Latvian government approves additional support measures for households and businesses