Latvia’s energy transition is poised for renewed momentum. The IEA peer review of Latvia took place 18-25 September as part of Latvia’s accession to the IEA. It came at an opportune time for Latvia, which is in the process of updating its National Energy and Climate Plan 2021-2030, in line with more ambitious European Union (EU) climate and energy transition targets. The creation of a new Ministry of Climate and Energy in January 2023 will further support Latvia’s climate and energy goals by ensuring a more dedicated and systematic government approach to policy making and implementation. Moreover, given Latvia’s historic dependence on energy imports from Russia, its transition to clean energy sources offers an important opportunity to bolster energy security and lower energy prices.

The electricity sector is dominated by renewables, but more decarbonisation is needed in other sectors. Latvia has already made inroads on the share of renewable energy in its fuel mix, with sizeable shares of bioenergy and hydropower. Renewable energy sources dominate its electricity mix, accounting for around three-quarters of domestic generation.

Other sectors, notably transport and buildings, continue to consume large amounts of energy and rely on dated infrastructure that hinders stronger reductions in energy consumption and greenhouse gas (GHG) emissions. The government should, therefore, prioritise energy efficiency and fuel switching in these sectors.

Sectoral roadmaps would clarify pathways to meeting climate targets. Latvia’s national target is to reduce total GHG emissions (without land use, land-use change and forestry [LULUCF]) by 65% from 1990 levels by 2030. Latvia is still on track toward this goal as emissions had fallen by 59% in 2021, though most of this was achieved between 1990 and 1995, based on economic shifts after independence from the Soviet Union. Emissions in recent years have, in fact, been growing.

Unusually for an EU country, most of Latvia’s emissions fall outside of the EU Emissions Trading Scheme (ETS). As Latvia looks toward achieving its 2050 climate neutrality target, actions taken today will inform the pace and scale of the country’s energy transition. Notably, energy-related sectors would benefit from detailed sectoral roadmaps that clarify the government’s envisioned pathways to achieving 2030 and 2050 climate targets, including detailing policy levers, technology penetration and financing requirements.

Electricity will be the cornerstone of Latvia’s energy transition. Latvia’s hydro-dominated electricity system provides a favourable starting point to use clean electricity to decarbonise other economic sectors and meet the target of 57% renewables in total final consumption by 2030. To support electrification, the government should ensure an enabling investment environment for additional growth in renewable electricity generation, especially wind and solar. Though Latvia does not offer financial support for new electricity investments, the government should continue to streamline and remove bottlenecks in the permitting process and eliminate regulatory hurdles for new investments. Bringing wind and solar power projects online will also help reduce Latvia’s dependence on natural gas imports and can contribute to lower electricity prices; current efforts to develop offshore wind will support this outcome. The government will likewise need to clarify the role of natural gas co-generation plants in the energy mix over the long term, given their outsized role in ensuring system stability.

Latvia could achieve considerable energy savings by renovating its building stock. Latvia holds considerable potential to accelerate energy efficiency outcomes in the buildings sector, which will go a long way toward meeting climate targets and lowering energy bills. Latvia’s energy demand is dominated by an ageing building stock, which accounts for nearly half of total final consumption, with residential buildings alone accounting for a third of total consumption. There is a sizeable investment gap on the path to meeting Latvia’s renovation targets, and the country is almost exclusively reliant on EU funding for energy efficiency programmes. There is thus considerable work ahead to increase ambition, expand funding over longer time horizons, explore innovative financing mechanisms, cut red tape and increase consumer awareness. The recent energy crisis can serve as a mobilising force in this regard. 

The government should prioritise efforts to reduce energy consumption in road transport. Latvia’s transport sector, predominantly road transport, is also a major energy consumer. Around 95% of transport energy demand is met with oil products, indicating that Latvia has potential to both lower oil consumption and to switch from oil to alternative sources. Latvia’s car fleet is relatively old and uptake of electric vehicles (EVs) to date has been slow. Moreover, the use of public transport has generally been on a downtrend in recent years. The government has now placed a greater emphasis on lowering emissions from the transport sector, including through new EV incentives and a planned overhaul of the public transport network. Additional policies and sustained financial backing for efforts to lower energy demand in the transport sector will further help Latvia achieve its climate goals.

Energy security considerations will continue to dominate energy policy making. The energy crisis stemming from Russia’s invasion of Ukraine has had broad implications across Latvia’s energy system (from oil and gas to electricity and heating), which has historically been heavily dependent on and interconnected with Russia’s. Overall, Latvia has made considerable progress in unlinking its energy dependency from Russian imports in a short period of time, including by imposing bans on the import of electricity and natural gas from Russia in 2023. The government is also changing its storage model for oil reserves to further fortify its oil security.

These changes have created new vulnerabilities that Latvia needs to manage carefully. In electricity, Latvia will need to move forward with efforts to synchronise with the European grid on an accelerated timeline. For natural gas, Latvia will become heavily reliant on liquefied natural gas (LNG) supply as well as (soon to be expanded) gas storage. Meanwhile, Latvia will remain fully dependent on oil imports, and will have to manage supply diversification efforts (without Russian supply) accordingly.