EC supports energy,security in Latvia

RIGA - The European Commission has authorized, under EU state aid rules, the extension of aid to Latvia that will be used by the government to grant, by way of tender, funds necessary for the construction and operation of a 400 MW thermal power plant, to be constructed between 2015 and 2025, reports a press release from the European Commission Representation in Latvia.

The measure's intention is to help ensure that the future electricity demands in Latvia will be met by available supplies, and to reduce the dependency on gas as the dominant fuel source. The Commission found the measure to be compatible with Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU) that allows, under certain conditions, aid for the development of economic activities or regions.

In particular, the aid is proportionate and contains safeguards minimizing potential distortions of competition. Competition Commissioner Neelie Kroes said "The EU has repeatedly recognized the exceptional circumstances of the electricity market in Latvia.

I am satisfied that the new thermal power plant will contribute to the security of electricity supply in the Baltic region without unduly distorting competition." On Dec. 2, 2009, Latvia expressed its intent for the project subsidy for the construction and operation of a new power plant. In order to diversify Latvia's energy mix, the plant should be fed on either LNG, re-gasified in Latvia, or on solid fuel such as coal, lignite or peat, mixed with at least 10 percent biomass.

The financial aid would be granted in the form of a direct grant through a competitive tender, the winner of which would be obliged to operate the plant at least 6,000 hours a year. Although in principle market forces should provide the incentives for the construction of conventional plants, the Commission found that, in view of the effective isolation of the Latvian energy market, the security of electricity supply could constitute an objective of common interest, in accordance with Article 107(3)(c) of the TFEU. The Commission also took into account Latvia's increasing dependence on gas as a dominant fuel source after the closure of Lithuania's Ignalina nuclear power plant at the end of 2009.

Moreover, the Commission's investigation found that the competitive selection process would minimize the aid required and limit distortions of competition. The Commission therefore concluded that, in the specific circumstances of the Latvian electricity market, the aid for the construction and operation of a conventional power plant is an appropriate and proportionate step towards ensuring the security of electricity supply in Latvia for the coming years.