The article aims to assess the situation in Latvian power sector compared to other European Union countries and to suggest the direction of modernization of the electricity sector for the development of Latvian economy and provide consumers with resources, in accordance with the Union's common objectives in this sector. There are different forms of energy. Energy can be divided into two groups according to their sources: non-renewable and renewable forms of energy. Non-renewable energy sources are natural resources, which are formed very slowly, or slower than others. In order to address issues related to energy development and to propose the development of the overall direction of all European Union members, the European Commission has developed the energy development strategy until 2020, known as "A strategy for competitive, sustainable and secure energy". Latvia can introduce so-called "smart grid" system to implement an energy strategy.