To increase Latvia's energy independence and ensure that heating is affordable and available to everyone in the coming season, rather than becoming a luxury item, the country must resume using domestic fuel-grade peat. For this to happen, amendments to legislation are required.
The sharp rise in natural gas prices, coupled with Russia’s invasion of Ukraine and the widespread refusal to continue purchasing Russian gas—viewed by many as a form of support for the war effort—has created an unprecedented situation over the last few decades: a serious energy resource deficit across the entire region. To address this, the plan is to find suppliers of liquefied gas and to increase the use of domestic resources.
“Finland and Estonia have already announced additional volumes for fuel-grade peat extraction to protect themselves against potential fuel shortages and to minimise the rise in fuel prices. Latvia should also utilise the experience of its neighbouring countries,” explains Uldis Ameriks, Vice-President of the Latvian Employers' Confederation and Chairman of the Board of Laflora. He points out that Latvia, like Estonia and Finland, shares a border with Russia, but that these neighbouring countries are already ahead of Latvia on the issue of energy security.
“Yes, the European Union's Green Deal contradicts the use of peat in energy production, but we are in an energy crisis, and everyone will need heating in the winter; therefore, all available resources must be used. This is being clearly demonstrated by Finland, an EU member state,” says U. Ameriks in response to a question about whether the return of peat to Latvia's energy mix contradicts the Green Deal. He emphasises that peat, like wood, is a local resource that does not need to be imported. “Fuel-grade peat is another domestic energy resource that can be used to diversify energy risks, especially in the current climate of rising prices,” adds U. Ameriks.
Peat resources are sufficient
Ilze Ozola, PhD in Geology and board member of the Lake and Bog Research Centre, reminds us that the volume of energy-grade peat extracted in Latvia in recent years accounted for only 1.4–2% of total production. In contrast, other EU member states have seen the complete opposite, with countries such as Estonia and Finland, as well as others, using peat for energy.
“Latvia stopped using peat for energy in 2001, although it was used in small quantities as an additive to wood chips during times of crisis, such as in late 2017 (when an emergency state was declared in the forestry sector due to prolonged rainfall, making it impossible to deliver wood chips from forests),” explains I. Ozola. She recalls that, in the past (between 1995 and 1997), Latvia produced an average of 320,000–400,000 tonnes of fuel-grade peat annually; additionally, it produced briquettes and pellets, which are currently only produced in Līvāni.
Peat producers in Latvia experienced their “golden age” in the 1960s and 70s, when, in line with overall USSR policy, over 7 million tonnes of peat were extracted annually. In recent years, 1 million tonnes of peat have been extracted from Latvia's bogs annually, used for the production of horticultural substrates rather than for energy.
Bogs cover at least 645,100 hectares in Latvia (approximately 10% of the territory). 70% of this area consists of natural bogs, while peat extraction takes place on 4% of the total bog area. Together, these contain about 1.5–1.7 billion tonnes of peat. Assuming an average peat accumulation rate of 2 mm per year, approximately 1.6 million tonnes of peat accumulate in Latvia's natural bogs annually.
Research conducted in recent years by scientists from the Faculty of Geography and Earth Sciences at the University of Latvia shows that the annual growth of the peat layer is greater, reaching up to 3–4 mm, with an average of 2 mm. Peat resources have not been precisely defined, but according to the Latvian Environment, Geology and Meteorology Centre, they could be 11.3 billion m3, or 1.7 billion tonnes. “Theoretically, Latvia could extract about 200,000 tonnes of fuel-grade peat annually (approximately 20% of total peat extraction), provided that the state grants heating producers permission to use this fuel without penalising them with CO2 quota costs,” explains Ilze Ozola, noting that the issue of heating in homes may become very pressing. “There is no basis for the claim that extracting fuel-grade peat will significantly increase CO2 emissions,” says I. Ozola in response to a question about a potential increase in CO2 emissions, emphasising that in an emergency, the priority is to get through the winter.
Risking production
“In the current circumstances, for the 2022 season, Laflora plans to extract 80 MWh of energy-grade peat,” Uldis Ameriks replies when asked if they plan to extract so-called ‘brown’ (fuel-grade) peat. He points out that the potential volumes of energy-grade peat extraction could be higher, provided that district heating companies conclude purchase contracts for such products immediately. “For this to happen, amendments to regulations are needed – at least temporarily, not to classify fuel-grade peat as a fossil fuel and to exempt it from the cost of purchasing CO2 emission quotas,” states U. Ameriks.
He does not rule out the possibility that there might be real demand from abroad for the purchase of fuel-grade peat. “It would be nonsense if Latvia extracted fuel-grade peat and exported it, for example to Estonia, only for Latvia to then import electricity from its neighbour that had been produced using that same exported peat,” expresses U. Ameriks. At the same time, he notes that peat extractors need to know as soon as possible what the demand for fuel-grade peat is likely to be, as the peat extraction season has already begun.
If the state changes the conditions, it will be used immediately
“The industry is already in an emergency situation, at times even bordering on panic, because no one can predict what will happen to the prices of energy resources, including biomass, in the next heating season,” says Andris Vanags, Chairman of the Board of Gren Latvia, describing the situation. He predicts that wood biomass prices in the coming heating season will be higher than last year, though by how much remains unclear.
“In this situation, even wood chip suppliers are only prepared to sign short-term contracts, especially since high natural gas prices are encouraging a transition to greater use of wood,” explains A. Vanags. He admits that district heating companies will not be able to completely abandon the use of natural gas by the start of the new heating season – this would require replacing existing boilers and the appropriate infrastructure.
“Consumers should expect much higher heating bills in the coming season. The return of peat to district heating would allow for less wood chip consumption, thereby reducing the pressure on the prices of this resource, making wood chips more accessible to those heating companies whose existing technologies do not allow the use of fuel-grade peat,” explains A. Vanags. He points out that Latvia is part of a single European market, and other countries are planning to increase the use of wood in energy, so the price of this resource will also likely rise. However, for fuel-grade peat (which is mixed with wood chips in certain proportions), it is possible to fix a price for the entire heating season right now, and peat producers can extract this resource during the summer.
“For now, we are in no hurry to sign contracts with peat producers,” A. Vanags replies when asked if the company will sign contracts for the supply of fuel-grade peat for the next heating season. He is quick to add that the cost of fuel-grade peat will make up only 1/3 of the total costs, because when using this resource, the company would have to pay a natural resources tax and purchase CO2 quotas, which are bought through the emissions trading system (1 tonne of CO2 costs approximately 90 euros), accounting for the remaining 70% of costs. “It is precisely because of the state's tax policy that using peat as an energy resource is not economically viable,” concludes A. Vanags.
The state must react immediately
Viktors Valainis, Executive Director of the Latvian Association of Large Cities and a member of the Saeima, emphasises that municipalities are aware of the risks and concerns regarding the next heating season and are therefore calling for the swift implementation of amendments to the Energy Law and the Natural Resources Tax Law. This would prevent a situation where heating companies using fuel-grade peat would still have to purchase CO2 emission quotas, as currently, peat is effectively classified as coal, even though it is a slowly renewable energy resource. (Editor’s note: The mentioned legal amendments were rejected in the Saeima.)
“The second problem is that not all district heating companies can technologically use peat as an energy resource, and solving this issue requires capital investment. However, by also using EU structural fund support programmes, this can be achieved by the new heating season,” says V. Valainis. In his opinion, under the circumstances where Russia has launched an invasion of Ukraine, the previous positions regarding the use of peat for energy must be abandoned. “We should be looking at what we can do in the country to intensify the use of domestic energy resources and reduce the need for imports,” adds V. Valainis.
“Attitudes and outlooks must change. The situation as it was before 24 February, where almost the entire EU Green Deal was based on the Nord Stream 2 gas pipeline, no longer exists and will not return; new geopolitical issues must be addressed,” emphasises V. Valainis. He explains that decisions on the return of peat to Latvia's energy mix must be taken immediately, not sometime in the autumn, when it will have less impact on the upcoming heating season – heating tariffs, the public's ability to pay for heat, and consequently, the increase in total debt for district heating.
Article first published in the 17 May 2022 issue of the magazine ‘Dienas Bizness’