A case initiated with regard to the provisions that put an obligation on merchants selling electricity under mandatory procurement to use efficiently the thermal energy produced
On 30 June 2021, the 4th Panel of the Constitutional Court initiated the case “On compliance of Section 313(1) and (3) of the Electricity Market Law and paragraphs 21.3, 28, 30, 31, 48.4 of and Annex 3 to the Cabinet of Ministers Regulation No 560 of 2 September 2020 ‘Regulation on the production of electricity using renewable energy sources, as well as on price determination procedures and control’ with Article 1 and the first sentence of Article 105 of the Constitution of the Republic of Latvia”.
Section 313(1) of the Electricity Market Law provides: Electricity producers that are exercising the rights referred to in Sections 28, 28.1, 29, or 30 of this Law and are producing thermal energy in the cogeneration process have the obligation to ensure efficient use of thermal energy.
Section 313(3) of the Electricity Market Law provides for the Cabinet’s competence to determine the procedures by which the body appointed by the Cabinet shall inspect the utilisation of useful heat to ensure conformity with the conditions for the receipt of State aid laid down in this Law and the Cabinet regulations.
According to sub-paragraph 21.3 of the Cabinet of Ministers Regulation No 560 of 2 September 2020 “Regulation on the production of electricity using renewable energy sources, as well as on price determination procedures and control” (hereinafter – Regulation No 560), in order to sell electricity produced from renewable energy sources under mandatory procurement, it is necessary to ensure that the record of raw materials used for the production of biogas is kept using meters or a system of measuring devices that comply with the regulations setting out metrological requirements for measuring instruments and the procedures for metrological control thereof, if biogas is used for the production of energy.
Paragraph 28 of Regulation No 560 provides that the settlement period for the sale and purchase of electricity under mandatory procurement is one calendar month.
Paragraph 30 of Regulation No 560 provides that a public trader only procures from a merchant producing electricity in the biogas or biomass power plants referred to in sub-paragraphs 3.2 and 3.3 of this Regulation the amount of electricity which qualifies as that produced in cogeneration process in accordance with paragraph 31 of this Regulation.
Paragraph 31 of Regulation No 560 regulates the way in which the surplus of electricity produced in a biogas or biomass power plant, left over after the use of that electricity for ensuring operation of the power plant in accordance with the general scheme of electric connection referred to in Paragraph 25 of the Regulation, is determined in a settlement period.
Sub-paragraph 48.4 of Regulation No 560 provides that the State Construction Control Bureau of Latvia takes a decision to revoke the right to mandatory procurement granted to the merchant if efficient use of thermal energy has not been technologically ensured.
Annex 3 to Regulation No 560 contains the coefficient values showing the proportion between the electric and thermal capacity installed in a cogeneration unit for different cogeneration technologies. Those values are to be used in accordance with paragraph 31 of the Regulation to determine the amount of electricity produced in a biogas or biomass power plant in a settlement period.
Provisions of Superior Legal Force
Article 1 of the Constitution (Satversme) of the Republic of Latvia (hereinafter – the Constitution): “Latvia is an independent democratic republic.”
The first sentence of Article 105 of the Constitution: “Everyone has the right to own property.”
Facts of the Case
The case has been initiated on the basis of an application filed by the following companies: AS „ZIEDI JP”, SIA „AD Biogāzes stacija”, SIA „BIO FUTURE”, SIA „GAS STREAM”, SIA [company with limited liability] „Conatus BIOenergy”, AS „International Investments”, SIA „Agro Iecava”, SIA „RZS ENERGO”, SIA LATVIJAS LAUKSAIMNIECĪBAS UNIVERSITĀTES MĀCĪBU UN PĒTĪJUMU SAIMNIECĪBA „VECAUCE” [company with limited liability Training and Research Farm of Latvia University of Life Sciences and Technologies “Vecauce”] (hereinafter – the Applicants). The Applicants are merchants that were granted the right to sell under mandatory procurement the electricity produced using renewable energy sources. The contested provisions place them under a new obligation – to ensure that the thermal energy they produce is used efficiently. Furthermore, as of 1 January 2021, the Applicants are only entitled to sell under mandatory procurement the electricity which qualifies as that produced in cogeneration process. In situations where the Applicants fail to meet the actual overall efficiency ratios set by the legislature, they are forced to only sell a part of the produced electricity under mandatory procurement, selling the rest of the electricity at the lowest contract (market) price.
The Applicants note that this reduces the amount of their revenue and interferes with their right to own property as enshrined in the first sentence of Article 105 of the Constitution, as well as violates the principle of legitimate expectations, which is enshrined in Article 1 of the Constitution.
The Constitutional Court has requested the bodies which adopted the contested provisions – the Saeima and the Cabinet of Ministers – to submit a written reply stating the facts of the case and the legal reasoning by 30 August 2021.
- The case is to be prepared by 30 November 2021.
The Court will decide on the type of proceedings and the date of hearing once the case has been prepared.
The decision to initiate the case is available here.
Press release in PDF is available here.
Linked case: 2021-31-0103