The introduction of RAB will attract investors in the electricity sector and benefit the end-users

27/ 05/ 2020

Європейська Бізнес Асоціація рада запросити вас на онлайн-зустріч «Залучення іноземних інвестицій в електроенергетичний сектор»

Gepostet von European Business Association am Dienstag, 26. Mai 2020


On May 26, the EBA Energy Committee held an online meeting to discuss the possibilities of attracting foreign investment in the electricity sector.

As part of the electricity market reform, the National Commission for State Regulation of Energy and Public Utilities has unveiled a methodology for the transition to incentive tariffs. The European Business Association organized a professional discussion with the participation of the Regulator, government officials, and market participants to analyze the proposed methodology and find ways to increase the investment attractiveness of the energy sector.

Ukrainian power grids are in critical condition, the level of deterioration reaches 80%. Modernization of networks requires significant investment, so the introduction of RAB regulation is long overdue. According to the business, the introduction of a new system of tariff regulation will be the first step to attract investment in the power grids, which will contribute not only to the development of electricity but also other sectors of the economy.

The service life of power grids in Ukraine has either expired or is coming to an end, so the industry needs immediate reform and the creation of attractive conditions for investors. According to the representatives of the National Commission for State Regulation of Energy and Public Utilities, the introduction of incentive regulation in Ukraine began in 2012. The current methodology was developed considering the changes provided by the Law of Ukraine on the Electricity Market. Comments and suggestions can be submitted until June 1, after which public discussions of the document will be held. When considering this document, it will be extremely important for the Regulator to balance the interests of potential investors, existing licensees, and final consumers.

According to representatives of the State Property Fund, incentive regulation is important for the privatization of 6 oblenergos which are currently under public administration. Therefore, according to market experts, its implementation should consider motivational incentives for domestic and foreign investors to facilitate the privatization process. For its part, the European Business Association forms a statement and gathers the proposals of companies on improving the proposed methodology. According to the business, RAB tariffs will help attract the necessary investment to modernize power grids. At the same time, the implementation of the new model should take into account the international experience of countries where RAB regulation has been successfully introduced, namely to avoid the new and old division of the asset base and to introduce a single rate equal to the weighted average cost of capital – WACC.

As a result of the discussion, the participants of the meeting concluded that the transition to the new tariff regulation will not significantly affect the final electricity tariff, as the cost of distribution in its structure is only 15-20% depending on the region. It is also proposed to use adjustment factors to mitigate growth in regions where the distribution tariff is higher.

When balancing the interests of consumers, it should also be borne in mind that investing in the power grids will benefit the end-user, who will gain better electricity quality, cheaper connection, and reduction of unscheduled outages, and in the medium term may win also favorable tariffs due to lower operating costs, the loss reduction effect and the use of more efficient technologies. It is worth noting that even with the existing model of “cost +” the price of electricity distribution increases every year due to the deterioration of power grids.

For the reference:

Ruslan Kaidash and Olena Antonova – representatives of the National Commission for State Regulation of Energy and Public Utilities, Lyudmila Buimister and Victoria Hryb – MPs of Ukraine, Iryna Protopopova – Co-Chair of the Energy Committee, Olena Dzhafarova – Executive Director of VS Energy, Bohdan Yarmolenko – Partner of EY, Anton Myahkov – Head of Financial Planning and Analysis of the State Property Fund of Ukraine, Volodymyr Vlasyuk – Director of Ukrpromzovnishekspertyza took part in the discussion.

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