In this paper we study development patterns of Latvian electricity market. It is done based on a newly developed computer-aided simulation model. System dynamics approach was used to simulate long-term development of electricity sector in the region under the existing policy design. Results demonstrate that renewable energy sources have a high potential to integrate in the electricity generation balance. Important preconditions for this to happen are: presence of appropriate support measures, a continuous technological progress and fossil fuel price increase. Under such scenario around 70% carbon dioxide emission savings can be achieved by 2050.