Research into policy and policy into practice: How the work of a Latvian university promoted concrete changes in the national electricity market

Over the last decades, Latvia has been able to become a leader in the EU when it comes to renewable energy and energy efficiency. The country is the 2nd greenest in the EU based on CO2 emissions, and has more than 2000 specialists employed in the field[1]. Recent data from 2019 shows that Latvia had the third highest share of renewable energy sources (RES - 40.97%) in energy consumption in the European Union (EU) after Sweden (56.4%) and Finland (43.1%)[2].

Hydropower is the largest renewable energy source, with 97% of the total production and the remaining 3% divided between wind and biomass[3]. The Baltic country participates in the SET Plan and is present in five IWGs (Positive energy districts, Energy systems, Energy efficiency in buildings, Energy efficiency in industry, and Batteries). In 2019, the Latvian government set ambitious targets in the NECP regarding the share of energy produced from RES in gross final energy consumption, aiming to reach 50% of the energy produced from RES by 2030.

While the current energy situation is auspicious, there is still an untapped potential that can be realized thanks to R&D in renewable energy sources in Latvia. As more intermittent renewable power sources (e.g., wind and solar) are introduced into the power system, this creates new challenges for both the power system operators and the electricity market participants. On the one hand, the unpredictability of intermittent generation forecasts significantly impacts electricity prices. On the other hand, developing new sources also opens up new potential research topics, such as energy utilization, generation and demand side flexibility, advanced forecasting techniques, and improved energy system modelling.

To provide a partial solution to this problem, the RTU Institute of Power Engineering at the Riga Technical University developed a software toolset for modelling, control, and planning of energy systems aiming at decreasing energy prices both for individual electricity wholesale market participants (e.g., storage and generator operators), and to end consumers at large. The software also aims to assist policymakers in their decision-making and reduce state support for renewable energy plants. These topics aim to increase the efficiency of electricity market operations, albeit from different perspectives.

In particular, the institute proposed and tested various methods and algorithms that storage operators can use to participate in an electric spot market effectively, particularly regarding the peculiarities of large-scale energy storage technologies, cascaded hydropower plants, and heating demand forecasting. As for policymakers’ assistance, decision-support is realized in the form of modelling, assessment, and recommendations related to the influence of large cogeneration plants on the electricity market and, subsequently, the options to change the support these plants are subjected to.

The toolset was developed in contract work for Latvenergo AS, a Latvian electricity and thermal energy generation and supply company. It included various modules, including “OptiBidus-HES” for cascaded hydropower plant modelling and “OptiBidus-TEC” for heating demand forecasting to support the decision-making process of combined heat and power plant operators. The real benefits of the optimization software are multiple. For example, the toolset enables efficient planning and operation of production and distribution and increases supply security for heat customers. Moreover, more accurate forecasts can reduce CO2 emissions due to more efficient planning and operation of production assets and heat distribution networks.

As for policymakers support of power plants, RTU’s research found that it is possible to reduce to 75% of the current level or application of payment correction without endangering the feasibility of continued power plant operation. In addition, the research authors concluded that the model could be further used for research purposes by incorporating it in large power system models or, with some modifications, more directly in reserve provision assessment. In this way, it could be possible to balance demand and supply at all times and address different sources of uncertainty inherent to electricity systems, such as forced outages and forecast errors[4].

The developed toolset was also widely used for scientific purposes: the authors participated in multiple conferences, and the research results have been published in numerous peer-reviewed scientific publications. Even further, the results of the electricity market price and combined heat and power plant support analysis were integrated by the Ministry of Economics of Latvia in their “Conceptual Report on Complex Measures for the Development of the Electricity Market”. Following the conceptual report, significant changes were made to the capacity payment system in Latvia.

In conclusion, this tale shows the great potential for further research in energy system modelling in Latvia to address the inherent uncertainties of electricity markets based on renewable energy sources and decrease electricity prices for different stakeholders. In fact, through the examples presented in this story, it is clear that applying well-functioning decision-making support methods, algorithms, and tools by power plant operators and policymakers can bring about several benefits from efficient electricity market operation to individual electricity wholesale market participants and to the end-consumer at large.




[4] Van Der Bergh K. and Delarue E., Energy and reserve markets: interdependency in electricity systems with a high share of renewables, Energy Institute – KU Leuven