EU Funds and the Future of Latvia's Energy Sector: Lessons from Neighboring Countries

We often hear that Latvia lags behind its neighboring countries in various economic indicators. The situation in the energy sector could become similar if Latvia continues to delay the development of significant support programs for new energy sources. Latvia must take more decisive steps to harness the potential of key EU funds, particularly the Modernization Fund and the Recovery and Resilience Facility.

We are looking to Lithuania and Estonia—countries that have taken significant steps in utilizing EU funds to promote the adoption of hydrogen and biomethane. By carefully studying these countries’ best practices, we can gain valuable insights that can help Latvia overcome its current challenges and make informed decisions regarding the use of available EU funds.

Lithuania is supporting the first three projects aimed at developing green hydrogen production for the transportation sector

Lithuania is using funds from the EU’s Recovery and Resilience Facility to implement several projects aimed at developing green hydrogen production, with a focus on public transportation in Klaipėda, Tauragė, and Vilnius. State funding has been allocated to three projects, which are to be implemented by the first quarter of 2025, creating a total of 5.25 MW of electrolysis capacity:

The Vilnius City Municipality has been allocated 5.6 million euros for 16 hydrogen-powered buses, which UAB “Vilniaus viešasis transportas” plans to purchase;
The Klaipėda State Seaport Authority and UAB “Klaipėdos autobusu parks” were allocated 4.8 million euros to purchase hydrogen-powered buses (1 bus in 2025–2026, 2 buses in 2027–2028, 12 buses in 2029, and 15 buses in 2030), as well as a green hydrogen-powered waste collection vessel that will consume 43,800 kg of green hydrogen starting in mid-2025;
An additional 2.9 million euros has been allocated to UAB “H2 LT,” which will produce green hydrogen for public transportation (UAB “Tauragės Autobusu Parkas”).

The Lithuanian Ministry of Energy has announced a call for proposals and is inviting applications for investments in green hydrogen production by the end of the summer

A total of 50 million euros from the EU Modernization Fund has been allocated for this purpose. It is expected that these investments will enable Lithuania to establish 65 MW of green hydrogen production capacity, with annual hydrogen production reaching more than 8,000 metric tons. Projects must be implemented by the third quarter of 2027 and are eligible for co-financing of up to 70%, not exceeding 770,000 EUR per MW of installed electrolyzer capacity.

Lithuania Revises Its Development Program for Renewable Fuel Production

The Lithuanian government has adopted a development program aimed at promoting the production of innovative fuels to help fuel suppliers comply with the requirements of Lithuania’s Alternative Fuels Act, which stipulates that consumers must be supplied with renewable energy, including biomethane and second-generation biofuels, so that by 2030 they account for 16% of final energy consumption in transportation. The program requires 154 million euros, which is to be allocated both from the EU’s Recovery and Resilience Facility and through private financing. Under this program, support is planned in three areas: biomethane production (for both new installations and the upgrading of existing biogas plants), the production of second-generation liquid biofuels, and the deployment of private electric vehicle charging stations.

More Than 14 Million Euros Allocated for Biomethane Project Development in Lithuania

According to Lithuania’s National Energy and Climate Action Plan, the country is expected to produce at least 950 GWh of biomethane by 2030. During the implementation of these projects, five biomethane production facilities are planned to be built, with a total capacity of approximately 27 MW, which could produce around 200 GWh of biomethane per year. The goal is for the biomethane produced to be used in Lithuania’s transportation sector, as well as by companies that consume large amounts of natural gas. The use of biomethane also solves the problem of waste management, since only raw materials of biological origin that cannot be reused are used to produce this gas; it eliminates the problem of odors caused by waste; and it creates added value for local communities, thereby promoting the development of a circular economy.

Estonian Government Extends Subsidies for Biomethane Production

Since 2018, the national electricity and natural gas transmission system operator, has been paying subsidies for biomethane production based on the volume of biomethane produced and consumed. In 2022, the total amount of these payments is 25.3 million euros. The Estonian government has now decided to extend the subsidies for the production of biomethane for transportation use until June 30, 2024, according to an order signed by Riina Sikkut, Estonia’s Minister of Economic Affairs and Infrastructure.

Estonia plans to continue using CNG buses powered by biomethane even after 2030

The EU plans to reduce emissions from trucks and buses by 90% by 2040. In addition, by 2030, 100% of city buses must be zero-emission vehicles. However, Liisa Pakosta, chair of the Estonian Parliament’s Committee on European Union Affairs, has stated that Estonia wishes to continue using biomethane, as it will help the country achieve its climate goals. Biomethane is widely used in Estonia’s public transportation system. For example, in Tallinn’s 350 city buses, 39% of the gas currently used is biomethane, while the rest is fossil natural gas. However, as Kaido Padari, head of Tallinn’s transportation department, has noted, the share of biomethane could reach about 60% by fall and 100% by next summer.