Riga Residents Overpaid Millions for Heating - Auditors

The State Audit Office concluded that there is potential for reducing the heating energy tariff in the capital, but this is only possible by addressing long-known issues — streamlining market regulation, improving tariff methodology, strengthening institutional cooperation, and ensuring effective competition in the heating energy market.

Auditors note that in a situation where usable heat from the combined heat and power plant of JSC "Latvenergo" is released into the atmosphere, heating energy produced at biofuel boilers is purchased, which does not contribute to the efficient use of energy resources.

For this reason, during the heating season of 2024–2025, Riga residents overpaid for heating energy by almost eight million euros, while "Latvenergo" lost more than six million euros in revenue, as emphasized in the audit. Furthermore, due to insufficient cooperation among the involved parties and differing interpretations of regulations, "Latvenergo"'s ability to offer Riga more cheap heat was limited, as established by the State Audit Office.

At the same time, without the participation of independent biofuel producers in the Riga heating energy market, residents would have paid an additional 25.2 million euros during the 2024–2025 heating season, auditors note.

As indicated by the State Audit Office, this confirms that a lower heating energy tariff can only be ensured by an effective market mechanism involving all players and adhering to the principle of economic efficiency.

According to the State Audit Office, the mechanism for purchasing heating energy created by JSC "Rīgas siltums" does not always guarantee the acquisition of the cheapest available heat in Riga.

Although the principle of economic efficiency is formally observed in purchases, a significant portion of heating energy is acquired outside the approved day-ahead market, which does not allow for the full utilization of the cheapest offers, emphasizes the State Audit Office.

Any guarantee of minimum or fixed volumes — both in the monopoly sector and in long-term agreements in the market segment where independent producers operate — significantly reduces market flexibility and leads to situations where part of the heat produced in cogeneration is released into the atmosphere, auditors add.

The State Audit Office emphasizes that to reduce the volumes of inefficiently used energy resources and increase the flexibility of Riga's centralized heating system, "Rīgas siltums" should encourage market participants to enhance their heat storage capabilities.

It is also noted that during the audit period — from July 1, 2024, to June 30, 2025 — "Latvenergo" released 532,052 megawatt-hours of heating energy produced in cogeneration into the atmosphere, due to both the peculiarities of the purchasing mechanism and situations where the volume of produced heat significantly exceeded the system's demand.

Of this volume, 270,334 MWh, or 51%, were released into the atmosphere at times when they could have been supplied to the Riga heating system. The remaining volume could not be transferred to "Rīgas siltums" as the city's demand was lower than the produced volume, auditors established.

The audit revealed 80 days, or 36% of all working days, when "Latvenergo" discharged heat into the air without participating in the market. On these days, 150,694 MWh were released into the atmosphere, of which 87,179 MWh could have been technically utilized.

According to the auditors' calculations, on days when cogeneration heat was available, its more complete use would have allowed "Rīgas siltums" to save 7.8 million euros, reducing the final tariff by approximately 2.6%, or 2.1 euros per MWh.

However, even the complete exclusion of independent producers from the market would only reduce the volume of released cogeneration heat by 51%. Without their participation, a significant portion of heat would have to be supplied by gas-fired water boilers at a tariff approved by the Public Utilities Commission (PUC), which would cost "Rīgas siltums" an additional 25.2 million euros annually.

The State Audit Office explains that the main reason for high heating energy prices remains the expensive natural gas and the costs of CO2 emission quotas included in the tariff since 2020. As a result, gas in Riga's heating supply is about 2.5 times more expensive than wood chips. However, the current market mechanism of "Rīgas siltums" and limited competition do not ensure the full reflection of the lower cost of wood chips in tariffs for end consumers, creating conditions for additional profits for market participants.

The State Audit Office acknowledges that the improvements to the market mechanism introduced by "Rīgas siltums" since November 2025 are viewed positively — they have partially eliminated the shortcomings of the purchasing system and allowed for more cogeneration heat to be supplied.

As a result, the volume of heat released into the atmosphere decreased by 44% compared to the previous year, and the price of purchased heating energy decreased. This shows that the enterprise is capable of forming a more efficient market, notes the State Audit Office.

Nevertheless, the implemented improvements only partially address the identified problems — Riga still does not purchase the cheapest heat, and part of the produced energy continues to be released into the atmosphere, auditors emphasize.

The State Audit Office also draws attention to the tariff calculation methodology applied by the PUC, which was approved back in 2010 — before the liberalization of the electricity market.

The methodology does not account for revenues from the sale of electricity produced in cogeneration and does not separate heating costs by production technologies. It is based on the proportional distribution of natural gas costs between electricity and heating production, although a relatively small additional volume of gas is required to obtain useful heat in electricity production.

Thus, cogeneration is significantly more efficient than water boilers, but this is not reflected in the approved methodology, which limits the possibility of reducing tariffs for end consumers.

"Unfortunately, the PUC has not fully protected the interests of users and has not ensured that services are provided at the lowest possible price reflecting the actual costs of heat production," noted council member Mārtiņš Aboliņš.

According to the State Audit Office, the PUC also did not assess the compliance of the methodology with the changed market conditions and did not analyze the reasons why "Latvenergo" can offer the same cogeneration heat at a significantly lower price than the approved tariff.

Furthermore, the regulator does not check whether the price corresponds to actual costs in a specific period and does not guarantee the economic justification of tariffs.

Auditors remind that when market conditions change, the PUC is obliged to revise the methodology to ensure the most affordable heating supply costs for the population.

The State Audit Office presented a number of recommendations for improving the heating energy purchasing mechanism of "Rīgas siltums" and the tariff methodology of the PUC, which should enhance competition and ensure cheaper heat purchases, thus leading to lower tariffs for residents.

"Heating in Latvia is a basic necessity: it is needed by residents for about 200 days a year. That is why it is important that heating supply is organized efficiently and at the lowest possible price," emphasized Aboliņš.

Today at 10:00, a press conference will be held at the State Audit Office, where State Controller Edgars Korčagins and council member Mārtiņš Aboliņš will present the findings of the audit in more detail.

As reported, last November, Saeima deputies created a parliamentary commission to investigate the reasons for the rising costs of centralized heating supply in Riga and the associated risks to energy security.

The turnover of the "Rīgas siltums" group in the last financial year (from October 1, 2024, to September 30, 2025) amounted to 239.625 million euros, which is 3.6% less than the previous year, while profit increased several times — to 19.888 million euros.

The turnover of the parent company "Rīgas siltums" for the same period amounted to 239.618 million euros (a decrease of 3.6%), while profit increased by 61.4% — to 6.373 million euros.

The group also includes SIA "Rīgas BioEnerģija".

"Rīgas siltums" is one of the main suppliers of heating energy in Riga. The company’s capital is 49% owned by the Riga City Council, 48.99% by the state, 2% by SIA "Enerģijas risinājumi. RIX", and "Latvenergo" owns 0.005% of the shares.