In 2012, Lithuanian district energy provider AB Kauno Energija embarked on an ambitious renovation, conversion and expansion investment programme. Celebrating over 50 years of service to Kaunas, the second largest city in Lithuania, the company reduced consumer prices to some of the lowest in the country. Changes in national legislation have encouraged increased heat competition and energy efficiency, reduction of distribution losses and a switch to biomass fuel.

Until 2012 the company was obligated to purchase at least 80% of the heat consumed in the city’s integrated heat network from UAB Kauno termofikacijos elektrinė (KCHP), a 170 MW electric capacity gas-fired combined heat and power (CHP) plant in the city. In 2012, Kauno Energija produced slightly more than 6% of the heat supplied to the integrated city network. In addition, over 92% of its own heat production used imported fossil gas as fuel.  However, by the end of 2012 with the purchasing obligation between KCHP abolished, three new independent heat suppliers, each having built new biomass-fired heat plants, entered the Kaunas heat production market. Kauno Energija too embarked on an ambitious 56 million EUR investment programme, partly funded with EU structural funds to increase the share of renewables in the company’s heat production to 23% by 2020 and expand the district heat market and its own relative share. After two years, Kauno Energija spent over 42 million EUR in numerous network refurbishments and boiler replacement projects, including 72 MW of new biomass heat capacity for the integrated city network. The results have been significant, radically changing the Kaunas heat market while lowering prices by a 14.5% decrease compared to 2013, placing Kaunas on the second lowest rate in Lithuania in 2014.

Last year the company produced over 21% of the total heat supplied to all networks, up 80 GWh in 2012, purchasing just over 1 TWh heat from eight independent producers including KCHP, still the dominant supplier. Kauno Energija more than doubled its heat share to the integrated city network, from just over 6% in 2012 to 16% in 2014. Furthermore the share of fossil gas dropped to 71%, having been replaced by cheaper solid biomass and a fraction of biogas and peat. Other benefits include a reduction in fuel and electricity consumption per MWh heat produced, a reduction in heat losses in the distribution networks and an 11% reduction in the amount of water needed to supplement the network. More GWh of their own heat was supplied but at a lower rate.

The decrease in the comparable expenses has led independent producers of heat, from which the company buys and distributes the heat to the consumers, to reduce the cost of sold heat. All of this adds up to around a 27% reduction in operating costs compared to 2013, increasing the profitability of the company despite a 22% drop in revenue from heat sales.