CONCEPT STRATEGY FOR COMPETITION INTRODUCTION IN DISTRICT HEATING SECTOR OF UKRAINE
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1 11/21/2016 FOOTER GOES HERE 1 CONCEPT STRATEGY FOR COMPETITION INTRODUCTION IN DISTRICT HEATING SECTOR OF UKRAINE GEORGIY GELETUKHA, PhD HEAD OF THE BOARD, BIOENERGY ASSOCIATION OF UKRAINE (UABIO)
2 Problems of heat energy market in Ukraine Due to monopoly of Heat Communal enterprises of DH sector and non-perfect legislation, the following problematic issues exist: Absence of preconditions for competition in heat supply sector. High prices for heat energy; Depreciation of fixed assets, high loss, low efficiency; Lack of own funds of DH companies; Absence of stimulation for increase of effective production of heat energy. Existing barriers for accessibility of independent heat producers (IHP) to heat networks. Absence/lack of investments due to existing non-perfect mechanism of tariff formation and setting ( cost +6% ). Proposed solution: implementation of competitive market of heat energy originating from most of European countries which are also going by this direction.
3 Model of competitive market of heat energy proposed for Ukraine Competitive heat energy market with single-buyer model. Lithuanian model of competitive heat energy market is proposed to be accepted as a base. Monthly auctioning among producers of heat energy. The auction price of heat energy shall not exceed reference price of Operator. Heat energy tariff for end consumers shall be lower, as a result of competitive of producers, in comparison with conditions of absence of such competition. Clear mechanism and non-discrimination rules of IHP connection to heat networks. Accounting unbundling of existing DH-companies. The reform of DH sector to create competitive heat energy market in Ukraine is necessary. Development of necessary text part of framework amendment legislation is expected during 2016, and supplementary regulations at first part of Working group under SAEE is working on these issues from February Group of consultants supported by MERP USAID project is developing the concept of competitive heat market from August 2016.
4 Independent producer Independent producer Independent producer What is heat competitive market? Present situation in the heat supply sector: Communal ownership Heat producer Transportation system Heat distribution to consumer Heat consumer Situation after competitive market implementation: Communal or private ownership Heat producer Communal ownership Transportation system Heat distribution to consumer Heat consumer
5 DIRECTIVE 2012/27/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL dated 25 October 2012 On energy efficiency Efficient district heating and cooling means a district heating or cooling system using at least 50 % renewable energy, 50 % waste heat, 75 % cogenerated heat or 50 % of a combination of such energy and heat. If estimate and analysis showed that the benefit exceeds the costs for the potential application of high-efficiency cogeneration and district heating and cooling, than the Member States shall perform appropriate measures for their development.
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8 Regulation of heat market and setting of heat tariffs DH companies set competitive prices while competition authorities monitor excessive profits based on competition law (Sweden, Finland, Denmark, Germany, Austria, Belgium, France, and United Kingdom). Under such tariff regime effective competition between DH and other heating solutions does not allow the prevailing heat suppliers to set heat prices that are too high (monopolistic heat prices). Alternative-based heat pricing as main pricing principle to promote DH against other heating solutions (like electrical heating in Norway and NG-based individual heating in the Netherlands). Heavy-touch ex-ante price control based on established methodology and approval of maximal prices by autonomous national regulator. At that, a DH company can deviate from the tariff fixed for it towards lower values (Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Bulgaria, and Macedonia). Heavy-touch ex-ante price control based on established methodology and approval of heat prices by autonomous national regulator. At that, a DH company cannot deviate from the tariff fixed for it (Russia, Belarus, Romania, and Ukraine).
9 Basic variants of DH system designs
10 Examples of application of models of heat energy market in the EU Single-buyer model Model of open networks Sweden Finland Estonia Latvia Lithuania Germany Denmark Norway Hungary Croatia The Netherlands Great Britain Italy Poland (mainly) Poland: Few large cities during few last years. New version of Law On energy, was adopted at 2013/2014 and permitted direct sale of heat energy to consumer.
11 Expected results of competitive market of heat implementation in Ukraine Establishment of competition in DH sector. Increase of heat production efficiency both for Operator and independent heat producers. Open heat network provision concept will be implemented based on non-discriminatory terms of connection. Increase of private investments in DH sector. Increase of natural gas replacement by biomass and other alternative fuels in DH sector. Increase of demand on biofuels and other alternative fuels in DH sector. Creation of new jobs in sectors of biofuels production, bioenergy equipment production.
12 Thank you for attention! Georgiy Geletukha tel./fax:
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