Latvenergo starts implementing the new growth strategy
April 1, 2022
This week, the Supervisory Board of Latvenergo AS approved the new consolidated medium-term operational strategy of Latvenergo Group for 2022-2026. As a result, the company has entered an ambitious and dynamic period, characterized by the keyword ‘growth’. The strategy identifies priorities for existing activities as well as new ones, and defines generation, trade, electromobility, distribution and sustainability targets accordingly. In the strategy implementation course, Latvenergo Group must become the leading provider of sustainable solutions in the energy sector.
Latvenergo Group's new strategy includes a dynamic vision of processes in external environment: the European Green Deal for an ambitious transformation of the habits of all sectors and society, the growing structural electricity supply deficit in the Baltic region, the need to reduce Latvia's dependence on external energy supplies dictated by geopolitical conditions.
Evaluation of the previous period strategy (2017-2022) implementation confirms its fulfilment and achievement of goals - some of them before the planned deadlines (trade, distribution), other will be continued (reconstruction of the Daugava HPPs), while some require increased ambition (diversification of the generation portfolio).
"The keyword of the new strategy is ‘growth’ - development in new business directions and geographical markets, which will increase Latvia’s economic benefits and promote climate neutrality. The Group has a strong foundation, enthusiasm and expertise to be confident of the further growth of Latvenergo's role and innovative approach in a dynamic energy environment that is developing faster than expected. If the previous strategy anticipated electromobility, solar energy and microgeneration as pilot projects, now we are the leaders in these fields in the Baltics. This is also the new strategy’s genetic code – energy generation form renewable sources, moving forward with the construction of wind farms and hydrogen research projects, geographical expansion outside the Baltics, so that in five years we would be ready and in a leading position for a new leap," says Ivars Golsts, Chairman of the Supervisory Board of Latvenergo AS.
Given their commitment to growth and the promotion of climate neutrality, in the strategy period from 2022 to 2026, the Group has set strategic priorities:
- an ambitious growth program to expand the generation portfolio with a focus on wind and solar energy across the domestic market;
- strengthening the position of the domestic market with both traditional energy products and new innovative services and products;
- geographical expansion with an integrated model (renewable e generation and trade);
- rapid growth in the electromobility segment of the domestic market;
- increasing the value of existing assets and strengthening business directions;
- distribution system - a secure and efficient two-way network, which is also applicable to the needs of self-generating consumers (so called, prosumers) and electrification.
Meanwhile, in accordance with the fulfilment of the strategic priorities and the general strategic goal*, specific objectives have been defined:
Generation objective. To make a decisive contribution to achieving the Green Deal objectives in Latvia by expanding and diversifying our generation portfolio with green technologies, thus reducing Latvia's energy dependence and moving towards climate neutrality in 2050. To implement renewable energy projects (WPP, SPP) in the domestic market and abroad, to launch the Power-to-X pilot project; to complete the reconstruction of the Daugava HPPs. The objective envisages growing the renewable energy generation portfolio by focusing on WPP and SPP, reaching a total capacity of 600 MW in 2026.
Trade objective. Strengthening Elektrum position as the most valuable energy supplier in the Baltics, focusing on portfolio growth in strategic customer segments, revenue diversification and the development of innovative, sustainable, and customer-oriented products and services in the energy and related value chain. Strategic leadership in microgeneration, power charging solutions for customers, electrification; launch of trade in Poland.
Electromobility objective. To promote sustainable and smart mobility for all by developing electrification in the transport sector. Key performance indicator to be achieved: 1200 - 1500 public electric charging ports built/acquired in the Baltics.
Distribution objective. Sustainable and economically justified service provision by efficiently managing resources and improving security and quality of the electricity supply, which is important for economic competitiveness and growth, while promoting climate neutrality goals.
Sustainability objective. In its operations, Latvenergo Group develops innovative products, services and processes that contribute to the implementation of the UN Sustainable Development Goals, including the targets on climate, CSR and research, development, and innovation. In the field of climate neutrality, the Group plans to increase renewable energy share in the generation portfolio to 80% in 2030, and to achieve climate neutrality in 2050, by reducing greenhouse gas emissions in the amount of 2.6 million tons by 2026 and 17.8 million tons by 2030 through diversification of the generation portfolio and other measures.
Along with the approval of the strategy, financial objectives of Latvenergo Group have also been set. Financial objectives are divided into four groups: profitability, capital structure, dividend policy and others.
The set financial objectives ensure:
- ambitious, yet achievable profitability, which is consistent with the average ratios of benchmark companies in the European energy sector and provides for an adequate return on the business risk;
- an optimal and industry-relevant capital structure that limits potential financial risks;
- a dividend policy that is consistent with the planned investment policy and capital structure targets;
- an investment-grade credit rating to ensure financing for the ambitious investment programme set out in the strategy.
Additional information on Latvenergo Group's financial objectives is available in the annex to this announcement.
"When starting something new, there is always joy and a belief of success - for me, as the new head of Latvenergo AS, this feeling is twice as strong. I know that the employees of the Group form a unique team believing in their own strength and ready to do their best to achieve common goals. The benefit is much wider - it is for the entire country and society, our security and independence - values that must be remembered every day," says Mārtiņš Čakste, Chairman of the Management Board of Latvenergo AS.
* On 9 November 2021, the Cabinet of Ministers approved the general strategic goal for Latvenergo AS: promote the competitiveness and growth of climate-neutral Latvia and increase the value of Latvenergo Group in the domestic market in the Baltics and beyond through developing and providing goods and services in the energy and related business value chains in a sustainable, innovative and economically sound manner and the effective management of resources and infrastructure that are strategically important for the country’s development and security.