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The state of the energy system in Ukraine is at risk of deterioration

06/ 08/ 2021
  The European Business Association draws attention to the crisis that may arise due to the adoption of a draft resolution of the Cabinet of Ministers on amendments to the Regulation on the imposition of public service obligations (PSO) on electricity market participants. Thus, the Cabinet of Ministers proposes to impose special obligations on tariff compensation for the public on distribution system operators (DSOs). It is worth noting that such a decision contradicts the legislation On the electricity market and jeopardizes the ability of distribution system operators to upgrade power grids that are worn out at 70% across the country. The draft CMU resolution provides for the actual participation of electricity distribution system operators in the PSO model, although (DSOs) are natural monopolies that operate at a regulated tariff and do not have adequate sources of funding for PSOs. Meanwhile, the draft resolution was drawn up in violation of the Law of Ukraine “On the Electricity Market” (Item 7, Part 5, Article 62), which provides for the creation of a refund mechanism for participants in the PSO mechanism. The current draft resolution does not provide for algorithms for refunding the expenditures of DSOs. This means that distribution system operators will not be able to invest enough in the modernization and upgrade of power grids. After the approval in 2020 of a new incentive method of tariff formation (RAB-regulation), which corresponds to modern world practices, the networks have received the long-awaited opportunities to upgrade the catastrophically outdated infrastructure. According to experts, the deterioration of grids in Ukraine reaches 70-80%, which is why the quality of energy supply is the worst in Europe. The reason for this was the chronic underfunding of the industry for many years. In 2021, 28 DSOs switched to incentive tariffs, thus committing to upgrading the grid, reducing SAIDIs (power outages) and energy losses. However, the projected funds to be paid by distribution system operators under the proposed PSO mechanism constitute a significant part of the companies investment programs and offset all the results of RAB regulation. The consequences will be the suspension of most investment projects started in 2021 and their significant reduction in the future. As a result, the distribution system operator will not be able to fulfill its obligations to consumers and the Regulator to improve the quality of electricity supply. The problem of power outages will remain at the old level, which contradicts the countrys strategy to modernize the electricity infrastructure declared by the Government, as well as the integration of Ukraine with the European energy system. Therefore, the European Business Association addressed a letter to the Cabinet of Ministers and the Energy Community, emphasizing that the proposed draft resolution of the Cabinet of Ministers is a gross violation of the Law of Ukraine On Electricity Market and the Law of Ukraine On Protection of Economic Competition. It should be noted that the adoption of the resolution will not solve the problems in the electricity market, but on the contrary, will only worsen the general state of Ukraines energy system.   Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

The European Business Association draws attention to the crisis that may arise due to the adoption of a draft resolution of the Cabinet of Ministers on amendments to the Regulation on the imposition of public service obligations (PSO) on electricity market participants. Thus, the Cabinet of Ministers proposes to impose special obligations on tariff compensation for the public on distribution system operators (DSOs).

It is worth noting that such a decision contradicts the legislation “On the electricity market” and jeopardizes the ability of distribution system operators to upgrade power grids that are worn out at 70% across the country.

The draft CMU resolution provides for the actual participation of electricity distribution system operators in the PSO model, although (DSOs) are natural monopolies that operate at a regulated tariff and do not have adequate sources of funding for PSOs.

Meanwhile, the draft resolution was drawn up in violation of the Law of Ukraine “On the Electricity Market” (Item 7, Part 5, Article 62), which provides for the creation of a refund mechanism for participants in the PSO mechanism. The current draft resolution does not provide for algorithms for refunding the expenditures of DSOs. This means that distribution system operators will not be able to invest enough in the modernization and upgrade of power grids.

After the approval in 2020 of a new incentive method of tariff formation (RAB-regulation), which corresponds to modern world practices, the networks have received the long-awaited opportunities to upgrade the catastrophically outdated infrastructure. According to experts, the deterioration of grids in Ukraine reaches 70-80%, which is why the quality of energy supply is the worst in Europe. The reason for this was the chronic underfunding of the industry for many years. In 2021, 28 DSOs switched to incentive tariffs, thus committing to upgrading the grid, reducing SAIDIs (power outages) and energy losses.

However, the projected funds to be paid by distribution system operators under the proposed PSO mechanism constitute a significant part of the companies’ investment programs and offset all the results of RAB regulation. The consequences will be the suspension of most investment projects started in 2021 and their significant reduction in the future. As a result, the distribution system operator will not be able to fulfill its obligations to consumers and the Regulator to improve the quality of electricity supply.

The problem of power outages will remain at the old level, which contradicts the country’s strategy to modernize the electricity infrastructure declared by the Government, as well as the integration of Ukraine with the European energy system.

Therefore, the European Business Association addressed a letter to the Cabinet of Ministers and the Energy Community, emphasizing that the proposed draft resolution of the Cabinet of Ministers is a gross violation of the Law of Ukraine “On Electricity Market” and the Law of Ukraine “On Protection of Economic Competition”. It should be noted that the adoption of the resolution will not solve the problems in the electricity market, but on the contrary, will only worsen the general state of Ukraine’s energy system.

 

Be the first to learn about the latest EBA news with our Telegram-channel EBAUkraine.

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