In this paper we study development patterns of Latvian electricity market based on a newly developed computer-aided simulation model. A system dynamics approach was applied to simulate long-term development of electricity sector in the region under the existing policy design. Results show that despite the relatively large share of renewable energy sources in Latvian electricity generation mix, natural gas will remain its significant role in national electricity supply. Alternative policy strategies should be developed to allow achieving CO2 emission reductions greater than 30% by 2050.