District heating and market economy in Latvia

From the Soviet time Latvia inherited a number of district-heating systems fuelled with Russian natural gas or imported heavy fuel oil. From a fuel efficiency point of view there is no reason to preserve the district heating systems unless the boilers are replaced by CHP. However, 50% of the electricity consumption is imported, and the import prices are low because the production prices in neither Estonia nor Lithuania fully include the long-term capacity costs. Thus, Latvia has two major long-term strategic choices to make: (1) should the country try to reduce the energy demand, and (2) should the country try to replace the import of electricity by domestic production. In implementing the latter solution Latvia could benefit from cogeneration, if the local district heating systems are preserved. This article seeks to form a strategy to develop the use of Latvian wood resources in local cogeneration. Even though cogeneration from a business economic point of view is not feasible with today's import prices, the Latvian balance of payments would benefit immediately from the implementation of such technologies.