Residents of Riga overpaid millions of euros for heating energy last year due to long-standing, unresolved systemic issues. An audit by the State Audit Office of Latvia reveals that inefficiencies in market regulation and tariff calculations have driven up costs for consumers.
The Cost of Energy Inefficiency
During the 2024–2025 heating season, Riga residents overpaid nearly 8 million euros for heating. Simultaneously, Latvenergo lost more than 6 million euros in potential revenue.
Auditors discovered that usable heat from Latvenergo combined heat and power plants (CHPs) was released into the atmosphere while more expensive heat from biomass boiler houses was purchased. Between July 1, 2024, and June 30, 2025, Latvenergo released 532,052 megawatt-hours (MWh) of cogenerated heat into the air.
Of that wasted energy, 270,334 MWh (51%) could have been supplied to Riga’s system. On 80 operating days—representing 36% of total days—heat was released without any market participation.
Market Failures and Outdated Regulations
The audit highlights that the procurement mechanism used by Rīgas siltums does not consistently ensure the use of the cheapest available heat. A significant portion of heat is purchased outside the approved daily market, which prevents the full use of low-cost offers.
Current tariff calculations are based on a methodology approved in 2010, before the liberalization of the electricity market. This outdated system fails to account for revenue from electricity generation in cogeneration or differentiate costs by production technology.
Natural gas remains a primary driver of high costs, costing about 2.5 times more than wood chips in Riga’s system. Though, limited competition and current market mechanisms prevent these lower biomass costs from being fully passed on to consumers.
Progress and Counter-Perspectives
Rīgas siltums CEO Kalvis Kalniņš noted that the heating market in Riga is unique in Europe and relatively fresh. He argued that while 8 million euros in savings were missed, the introduction of the market prevented roughly 25 million euros in overpayments.
The State Audit Office acknowledged that improvements introduced by Rīgas siltums since November 2025 have reduced wasted heat by 44%. Despite this, auditors maintain that fundamental problems persist, and the cheapest heat is still not consistently utilized.
Potential Future Developments
To improve flexibility and reduce waste, auditors recommend that market participants may need to expand heat storage capacity. Better utilization of cogenerated heat could potentially save 7.8 million euros and reduce heating tariffs by approximately 2.6%.
Future price reductions may depend on the regulator refining tariff calculation methodologies and strengthening institutional cooperation. Further development of waste-to-energy, renewable energy, and surplus heat solutions is likely necessary to reduce reliance on natural gas.
Frequently Asked Questions
How much did Riga residents overpay for heating?
During the 2024–2025 heating season, residents overpaid nearly 8 million euros.
What caused the waste of cogenerated heat?
Waste occurred because the procurement mechanism did not always ensure the cheapest heat was used, and fixed or minimum purchase volumes reduced market flexibility, leading to heat being released into the atmosphere.
Why is natural gas a problem for heating costs?
Natural gas and CO2 emission allowance costs are main drivers of high tariffs; natural gas is approximately 2.5 times more expensive than wood chips in the Riga system.
Do you believe outdated regulatory methodologies are the primary cause of rising utility costs in urban centers?
