The Ukrainian State Property Fund (SPF) in charge of putting large shares of 14 oblenergos up for sale has yet to receive the accounts from the Energy Company of Ukriane (ECU). ECU currently manages state-owned companies involved in distributing and generating electricity within Ukraine. Special legal procedures mandate that the SPF has the shares for each oblenergo on its books before the allocation schedule for auction can be established. While the reasons for this delay in process are not yet clear, this paper jam represents another hurdle in the upstream battle to get the oblenergos out from under inefficient public control.
Those in favor of privatization grow more pessimistic as this stumble was compounded with the rulings against privatizing Poltavaoblenergo (POON), Prykarpattiaoblenergo (PREN), and Sumyoblenergo (SOEN). Furthermore, the announced starting prices for 25% stakes in PREN of UAH 231 million ($27.2 mil) and of SOEN of UAH 209 million ($24.6 mil) are considered to be far over market value and further contributed to potential buyers withholding offers earlier this month. The SPF needs to get realistic in the pricing of these assets if they hope to make a sale at all in the coming months - a result Timoshenko certainly hopes to realize.
In other failures, the Kyiv City Administration announced a few days ago that it would be asking the Cabinet of Ministers to exclude Kyivenergo from privatization and leave the 50+1% stake of the company under state control. CEO of Kyivenergo Eduard Sokolovskyi corroborated the general opinion of doubt that the company’s privatization will go ahead in 2009.
The only good news is Yulia Timoshenko’s recent assurance that the Odessa Portside Plant (OPP) will in fact be privatized (despite the wishes of President Yushchenko and Valentyna Semenyuk-Samsonenko) This gives hope that politicians can then turn their focus to oblenergo privatization once OPP (a potential UAH 4 billion, or $470 million, deal if the SPF’s starting price is met) is off the books. For a wonderful discussion of the political intrigue being the OPP privatization effort see this article from BYuT Inform
Though we likely don't need a reminder, why is privatization so important for the operating efficiency of Ukraine's energy grid? “The sad truth is that during more than ten years of meek privatization of power companies, the government proved itself a poor owner. Having 70 percent of stock and even more, the government learned to bring potentially profitable companies to bankruptcy, lose cases in court and be careless of technological innovations — in other words, behave like an interim owner.” Nataliya Yatsenko of Zerkalo Nedeli.
Friday, September 25, 2009
Further Tribulations in Privatization Efforts
Wednesday, September 16, 2009
Obstacles Abound en route to Liberalization
Former State Property Fund Head Valentyna Semenyuk-Samsonenko recently weighed in with authority against the privatization of state-owned shares in 14 of Ukraine’s regional-level oblenergos.
Her announced motivation for filing court action against the sell-offs was the current lack of a state privatization program and a still-valid presidential decree declaring the sale of ‘strategic state businesses’ to be illegal. Her efforts paid off in part as the Ukrainian District Administration court recently prohibited the sales of state-owned shares in Poltavaoblenergo, Prykarpattiaoblenergo and Sumyoblenergo. She is fighting to have the Odessa Portside Plant included in this list – a prized asset with 15 current prospective bidders.
Other legislative demons plague the possibilities for privatization as well. Kommersant and Phoenix Capital announced that the Ukrainian Parliament may vote to suspend gas and electricity tariffs at current levels until 2011. The proposal was submitted by speaker of the Parliament, Volodymyr Litvin. With dire implications for the sustainability of the large generators, especially in light of Gazprom’s intentions to raise gas import prices to Ukraine higher than anticipated by Ukrainian generators, the move will no doubt win populist support, but will further hamstring attempts at generator solvency. Expert Yan Lipchinsky at Astrum in Kyiv estimates that no real privatizations will go ahead until after the January presidential elections.
The only positive note for prospective oblenergo buyers is that auctions for export rights are to open up in October. Although only 100 MWs of electricity are planned to be opened at first, the other 400 - 450 MWs of transmission capacity should be available starting January 1, 2010. This is a significant, though admittedly fledgling, move towards a liberalized electricity market that is far overdue. The process will be quite interesting to watch as it plays out since speed bumps are, as always, expected.
Thursday, August 13, 2009
Privatization Momentum Building
Recent announcements from the Rada indicate that in September the State Property Fund (SPF) will begin the delicate process of privatizing controlling stocks of 15 of its large oblenergos upon which the country’s electricity grid rely. Included in the contracts of sales are requirements to modernize the facilities increasing their generating efficiency and safety and reducing their environmental impact.
Why now?
Most analysts agree privatization efforts failed in the past due to suspicion between Prime Minister Yulia Timoshenko and President Victor Yushchenko over the possibility of using the funds for populist campaigning in the upcoming election. Now, opinions have changed.
Government officials insist that they have been forced into large-scale privatizations by a shortage of credit funds and budgetary problems caused by the economic crisis. Unfortunately, previous sell-offs have been unsatisfying to say the least. “In 2008, plans to bring nearly $1 billion into the state budget by privatizing the SPF resulted in an actual inflow of around $60 million, according to the deputies.” Revenues measuring six percent of the expected yield is disheartening. Crisis conditions will also likely play into this upcoming sell-off, fetching lower-than-average prices for the oblenergos.
Other’s claim the auctions are a reloading tactic on the part of presidential-hopeful Yulia Timoshenko. The fact that her rival and the incumbent president Victor Yushchenko approved the privatization measures, however, largely discredits this stance; unless, of course, the two negotiated a private deal…
Yushchenko’s secretariat Alexander Shlapak, in confirming the President’s intent to support the effort, strangely made the argument that the oblenergos are largely in private hands already and the remaining government stakes are insufficient to exercise significant power – a statement which is simply untrue. The majority of those oblenergo shares up for sale are currently 70% SPF-owned.
Selling Strategy
Authorities do not plan to offer the controlling shares to the market all at once, but rather test the waters with initial limited offers. This process, they hope, will allow the fund to better assess asset values to avoid being scalped (although experts agree the stocks will undoubtedly be undervalued given current market conditions). “SPF plans to increase its price by selling one or two stakes, and then determine a time when the other stakes will be sold,” stated the head of SPF, Dmitry Parfenenko. This suggests that the bulk of the sell-offs may be further in the future than many would hope.
The President of the National JSC Energy Company of Ukraine, Volodymyr Zinevych, however, thinks that crisis-bred forces will overpower the effort. "Considering problems with funding and not the best situation on the market, I'm skeptic about the privatization of such a large number of controlling stakes in regional electricity supply companies," he told Interfax-Ukraine. He also voiced fears that potential buyers of the electricity supply companies would not be able to implement the investment commitments legally bound in the purchase contracts.
Oblenergos with export capabilities may be high on potential buyers’ lists. Burshtynskiy Energoostriv (Burshtynskiy energy island… though it’s definitely not an island), for example, which was incorporated into the UCTE in 2002, has an annual exporting capacity of 6-7 TWh per year which could be sold to Poland, Slovakia and Hungary. Those oblenergoes in Kharkin, Sumy and Poltava which are connected to the Russian Slobozhanskiy Energoostriv network could trade with Russia, south-western generators with Moldova, and the mid-western oblenergos could trade with Belarus.
While regional suppliers all over the country could theoretically export as well, Ukraine’s rapidly dilapidating power lines - wasting 2.5 times more than those in developed countries - dramatically cut into possible revenues.
I highlight export possibilities because of the recent legal revisions by NERC simplifying the procedure for exporting electricity by reducing the starting transmission price per capacity at export auctions. Kommersant sources claimed that these price changes could lead to as much as a 50% increase in export in first contracts alone. Zakhidenergo is predicted by Yugor Samusenko of Concorde Capital to be a particularly fruitful winner from this legislation as it is connected to the UCTE through Burshtynskiy Energoostriv.
The legal entanglement these oblenergos will face with Energorynok, Ukrenergo and Ukrinterenergo will need to be resolved in the near future. Energorynok acts as the current single buyer of electricity for producers, Ukrinterenergo’s contracts currently stipulate export agreements and Ukrenergo is responsible for physical transfer of the electricity. New private owners will need to pay special attention to how these relationships evolve in the future.
Potential Disasters – Lessons from California
The Center for Energy Studies and press secretary of the Ministry of Fuel and Energy Konstantin Borodin noted that nearly all Ukrainian oblenergos belong to three groups of shareholders: the Surkis brothers, the group "Privat" (partially owned by Igor Kolomoysky) and the Russian businessman Konstantin Grigorishinu. The vast majority of these three financial groups control not only some stakes in oblenergos, but also the management of the enterprises. Given their intimate knowledge of the market and resources, they will most likely be the buyers of the shares.
Consolidated share may lead to better cohesion and efficiency in transmission, which could lead to lower prices for industry and consumers. The potential for collusion drastically increases as well. Readers may recall the results from swift electricity market deregulation in California in 2000/2001 where generators and traders essentially held the state hostage. Oligopolies (natural or unnatural) allowed them to declare false outages artificially driving up prices like experiences in the diamond market.
Fixed retail prices (like NERC currently dictates in Ukraine) and market-purchased wholesale power (like currently through Energorynok) allowed traders to exploit a legal loophole and reap extreme profits through arbitrage by exporting then re-importing the electricity to circumvent price controls. This allowed well-funded traders to sell on whichever side they chose.
As ironic fate would have it, supply shortages in the winter of 2001 caused wholesale prices to exceed the fixed retail prices. The California state budget naturally had to bail out producers facing unsustainable conditions at great costs. Ukraine is familiar with the burden of constantly subsidizing organizations laboring under price controls. Timoshenko of all people should appreciate the inefficiency after her recent quest across Europe to finance Naftogaz’s debts to Gazprom. Her populist base, however, may leave her supporting the rickety system at least through January’s election.
Resulting legislation in the US in the form of the Sarbanes-Oxley Act 2002 passed by Congress mandated much greater oversight of all energy trading and harsher. With privatization a reality for Ukrainian oblenergos, legislators should begin studying the evolving system’s implications for the future and crafting oversight accordingly. Further, modernization of facilities and transmission systems will help guard against surprise negative supply shocks.
Privatizations are a step in the right direction for the Ukrainian government. For the country to benefit from the move, however, the government must exercise a careful eye over the new players and their relative power in the market.
Thursday, June 25, 2009
Diggin Out of Debt
Fortunately, progress has been given a chance through Resolution No.1789. Here is the ambitious plan to retool Ukraine’s Wholesale Electricity Market over the next five years. For an overview of the current structure see the post below “Systemic Juice Leaks”. If successful, the system could resemble functional markets in neighboring countries to the west by 2015. The restructuring will occur in four steps, the first step already underway since the beginning of 2009:
1) Select generators will be allowed to enter bilateral private contracts with distributors and consumers. Other arrangements, levels of consumption and generation, however, will still be determined by Energorynok.
2) Moral hazard will be reduced through the introduction of a balancing market requiring bilateral contract participants to act mindful of consumption and generation levels.
3) All market participants will be allowed to engage in bilateral contracts, completely eliminating the wholesale electricity pool through Energorynok, allowing for exchange trading and demanding self-scheduling.
4) All electricity trading will be voluntary and, hopefully, transparent with opportunities for participants to engage in import/export activity with neighboring countries.
The hope is that by forcing participants to get themselves in sustainable order, the government will no longer have to perpetually subsidize the market, freeing it from debt issues and allowing consumers and producers to benefit from smoother transmission and universal lower costs. Unfortunately, moral hazard will still be of great concern as many of the oblenergos remain majority state-owned.
As a silver lining, if Ukraine cannot come up with funds to pay its bills in the near future wary politicians may be forced to continue selling off ownership shares.
It will be interesting to watch how those participants who are not allowed to engage in bilateral contracts early on respond when they suddenly have to manage their own affairs in full. While the plan likely is working piece-meal as insurance against full scale catastrophe, late bloomer participants could suffer on the steep of the learning curve against their wizened competitors.
Meanwhile, smart grid advancements are off and running in the US and European countries. While the possibilities are vast for well funded projects in developed countries, my position begs the question what kind of future these systems might have in reforming post-Soviet energy networks.
For those who have missed the hype, ‘smart grid’ refers to the movement bringing together computers and other monitoring systems with energy supply and distribution infrastructure to boost the efficiency of transmission from a multitude of sources to many unique consumers. New coordination technologies hold the potential to drastically reduce waste in transmission, empower consumers to better control use, and allow utilities to make more cost-effective decisions. For a more thorough discussion see this TIME article from April or David Talbott’s article from Technology Review.
It is also encouraging to see other networks in the developing world such as China investing in smart grid opportunities. Ukraine, with its historically strong engineering programs and globally renowned software programmers, could similarly begin renovating its messy energy systems and combat its troublesomely high unemployment. Political will, as always, however, will be the X factor in the movement’s growth.
While micro management metering systems to enforce ‘pay as you use’ programs for households are likely unaffordable for Ukraine at this delicate fiscal time and not feasible due to a lack of necessary infrastructure, investments in the macro side of the electricity grid could be both affordable and bring large, quick savings. If applied to big energy producers such as the thermal oblenergos and integrated into NERC’s pricing strategies, Ukrenergo’s distribution decisions and Energorynok’s purchasing plans, smart grid developments could significantly reduce waste and provide all participants with a buffer against insolvency.
Regardless, this liberalization period over the next 5-6 years provides an excellent opportunity for Ukraine to integrate smart technology into its electricity system. Two-way metering allowing both consumers and producers to be aware of supply and demand conditions could provide the transparency to further still eliminate inefficiencies.
As the US Energy Information Association notes, “Ukraine has sufficient generating capacity to supply more than twice its electricity needs, but the country’s ageing infrastructure is in need of investment and maintenance.” Were the necessary improvements to infrastructure and grid reconfigurations made, Ukraine would find itself able to bring in significant revenue from electricity exports and distance itself from the bear’s den to which it is currently so dependent.
Here is an overview of Ukraine's electricity connections with its neighbors
Wednesday, April 15, 2009
Illuminating Ukraine’s “Green Tariff”
In the past few entries I’ve paid lip service to the legislation titled “On Amendments to Certain Laws of Ukraine Concerning the Introduction of a Green Tariff” – informally known as the Green Tariff - and its possible implications for Ukraine’s energy future. Recently the Kyiv Post came out with an article detailing the policy a bit more.
The Verkhovna Rada has decreed that all energy produced from the following sources will be purchased by the Ukrainian wholesale energy market at a guaranteed markup above retail rates. That price will be 58.46 kopecks per kWh
If the president signs off on the legislation, this price will then also be multiplied by the below-stated “bonus” coefficients to determine what energy producers receive for their juice. Here’s a rough summary of the statute:
| Green Tariff Bonus Prices | Capacity | “Bonus” Coefficient |
| Wind | Up to 600kW | 1.2 |
| | 600 – 2,000kW | 1.4 |
| | Over 2,000kW | 2.1 |
| Biomass | | 2.3 |
| Solar | Overland facilities | 4.6 |
| | Roof facilities under 100kW | 4.4 |
| Hydro | Small stations | 0.8 |
I remain curious about the coefficient on small hydro stations. While they will still receive a price above the typical wholesale electricity market price, the perks are hardly as appetizing as the given alternatives. Environmental concerns for watersheds and hydro power market satiation (Ukraine already has fairly developed hydro power infrastructure) could play into this calculation.
The bonuses have no end date at present, though they will be decreased in the future by 10, 20, and 30% of their present value for projects commissioned after 2012, 2019, and 2024 respectively. This structure encourages investments sooner rather than later and compensates for the risks associated with undertaking projects in a young alternative energy market.
From this figures one can see a great emphasis placed on attracting solar power investment. While potential for solar power no doubt exists in Crimea and Southern Ukraine, one can’t help but question the rationale that went into calculating these coefficients. With more than quadruple prices for solar-generated electricity, it’s possible that the next few years could witness an over-abundance of solar power plants as these guaranteed prices will allow solar managers to build and interminably maintain plants that generate less than ¼ of their electricity value in revenue. Effectively, it will still make economic sense under this price scheme to build solar panels on land that only sees 25% as much sunlight as its efficiently-located counterparts. The Ukrainian government (via tax payers) will continue to shell out for their maintenance, while only recouping a fraction of that value in electricity. This policy will not bring greater efficiency in its current form.
Perhaps the coefficient is simply an extra enticement to attract investors wary of the minefield processes required to obtain building permits for such operations. The subsidization could also, however, simply flow to wealthy domestic producers with connections who can dance through the 100+ steps required to obtain land and building permits ahead of foreign competitors. The fact that the Verkhovna Rada approved the law and its corrections with such a forceful majority raises suspicion. If the coefficients do become law in the near future, it will be interesting to see what kinds of developments backed by which financiers emerge.
The theoretical principle advocated in these subsidies is one discussed by Benthem, Gillingham and Sweeney in their paper “Learning-By-Doing and the Optimal Solar Policy in California”. They found that indeed photovoltaic production increased as the net present value per kW generate increased as a result of policy intervention. The effectiveness of the policies, however, depended on a few key variables, some of which translate to the Ukrainian case. These include available interest rates (with policies being more stimulating under high interest rates), the extent to which developers actually do “learn-by-doing” and thereby increase the efficiency of production and operation, and the subsidization lifetime.
The presently interminable subsidization lifetime on top of the high bonus coefficients will help offset painful interest rates (the discount rate of the Ukrainian Central Bank is currently 12%) and aid in boosting the attractiveness of projects. From a social perspective, eternal subsidization could hamper the “learn-by-doing” factor as under the current scheme managers won’t have to achieve self-sufficiency at all to remain in operation.
No doubt, Ukraine needs to stimulate investment and innovation in developing alternatives. From a strategic perspective, January’s debacle with Russia made very clear that Ukraine (like all other downstream purchasers of Russian hydrocarbons) needs safeguards against Russian brinkmanship. This policy also champions Ukraine’s need to ‘green up’ its energy sector. The Green Tariff’s pricing scheme, however, is a ghastly over-correction.
My hope is that once the dust has settled from the upcoming presidential elections, the time line for these bonuses can be renegotiated. Owners should have to plan projects that are economically viable in the long run. What ‘the long run’ means is up to economists and policy makers, but planners must be forced to keep their eye on free-market viability. A gradual decrease of bonuses to zero over time would achieve the best of both worlds by rewarding early entry to the market while also enforcing long term sustainability.
Tuesday, March 31, 2009
Systemic Juice Leaks
First off, some recent news summaries:
1) Ukraine will receive $560 million this year in exchange for carbon credits sold to Japan, all of which, according to Tymoshenko, will be applied to the reconstruction and modernization of boilers. (Bloomberg)
2) The EU has agreed to finance a plan to revamp the natural gas transit lines through Ukraine. “Throughput can be increased by 25% to roughly 150 bcm per year, on a cost-effective basis, with comparatively modest capital investment relative to all other alternatives,” said President Yushenko. While the EU projects these “modest” investments at 2.5 billion euro, Kyiv is estimating the repairs will require more in the ballpark of 5.5 billion euro. Here’s Barroso’s speech from March 23.
In short, the investments will be for new pipeline, compression stations, communications systems, metering stations and storage facilities.
For a good discussion of the modernization efforts and the political aspects check out this article.
The Russian ambassador in Ukraine expressed his motherland’s less-than-satisfied opinion of stating that the plan “does not make any sense and looks like a deal signed by ‘a deaf man and a blind man,’” (Novosti)
Systemic Juice Leaks
This blog will focus on Ukraine’s electricity system.
Here’s a visualization of the basic financial structure I put together based on a recent analysis by the Austrian Energy Agency:
While the production techniques associated with generally old and inefficient power systems are troubling, one can see that the convoluted pricing systems established primarily by state decree add an entirely new facet to the problem. I have only included the large producers of electricity (large thermal generating companies – gencos, nuclear, hydroelectric, and some wind generators) as these are currently the only major players in the macro energy grid.
According to 2006 data from IEA's 2006 report, only 35-40% of all electricity sold is competitively priced – that which Energorynok purchases from the Gencos (I have been unable to find what percent is competitively priced now). All other sources sell their power at prices calculated by NERC based on an algorithm which includes the forecasted wholesale market price, transmission, distribution and energy loss in transit costs. NERC changes prices as it sees fit and often leaves them stable for many months at a time.
While still on a NERC-price formula, clean alternative energy producers (solar, wind, geothermal, small hydro below 10MW/year, biomass and biogas) are receiving a higher price than their rivals. The green tariff price for 2009 (which can be revised every year) is currently UAH .6624 ($.086)/kWh. From what I’ve been able to find, this price is calculated as follows:
“The Green Tariff shall be set at a level no more than double the average weighted tariff for electricity sold into the wholesale market, but no less than double the average tariff on electricity sold into the wholesale market the year previous to when the tariff was set.”
While this move perpetuates the artificiality of the Ukrainian electricity market, the government’s hope is that this will encourage significant private investment in alternative sources and bring future savings in greenhouse gas emissions and reduce dependence on imported fuels.
All purchases of wholesale electricity are conducted by Energorynok. The broker then sells the rights to the regional Oblenergos and select large industrial consumers. Distribution from the Oblenergos to retail customers is conducted based on a “cost-plus” segregated scheme that involves an interesting system of transfer payments and counterweights. First, there are two classes of purchasers known as first and second class consumers – households and industries respectively. Industrial consumers pay a higher price and compensate some of the cost of household consumers. Ukrainian households pay the lowest prices in the region; even lower than in Russia and Belarus.
Further, beginning April 1, 2009 as stipulated by NERC, households using over 400 kW hours per month will pay 3.1 times that of normal households - UAH 0.64 ($0.08) vs the normal UAH 0.19 ($0.03). (Sincome Capital Group) The purpose of this change is to counteract the negative impact the transfer payments have had on the energy system’s financial sustainability (Energorynok has had significant debt problems in past years) and to create incentives for conservation among consumers. Again, it’s not a free market solution, but an effective band aid on the route to reform.
Returning to the system's dynamics, Energorynok purchases electricity from producers through the above-described price scheme, but the juice actually flows to State Enterprise UkrEnergo which acts as the central distributor for the entire Ukrainian electricity grid. UkrEnergo is subject to deals made by Energorynok and has been mandated in the past to send power ad-hoc to ‘crisis areas’. These decisions have rarely been made with economic efficiency as a priority.
Suggestions
- Market liberalization in the electricity grid could bring enormous efficiency gains to the system. Freeing Energoatom and Ukrhydroenergo from NERC pricing would help create a rational blend from the current energy mixture.
- The Green Tariff is a possible exception to market liberalization as it will likely encourage an influx of alternative sources to the market where currently very few exist. As of 2006 only 1% of electricity came from alternatives. Apart from wind generators in Crimea and hydro electric dams on the Dniper alternative sources have been largely unexplored. With further investment stimulated by the Green Tariff, the alternative sector could bloom into a more significant contributor to Ukraine's energy grid.
- If NERC continues to regulate prices (which it more than likely will for the foreseeable future), it must do so in a way that covers costs for producers and brokers, and also allows for some profits for investment in improving systems. If such practices are adopted Ukraine will not have to depend on transfer payments and international aid for infrastructure improvements, let alone operating costs. As is, Energorynok cannot be weened off state funding since prices are set by NERC. If Energorynok had autonomy to buy and sell as a more privately-minded enterprise, it would be less likely to face continued problems with indebtedness which the Ukrainian government has been forced to cover.
- Unified management of Energorynok and Ukrenergo would also increase communication and understanding between the two which could streamline efforts and help both guard again indebtedness.
Sunday, March 22, 2009
General UA Energy Efficiency Update
Some nasty statistics from the Kyiv Post :
1) Ukraine consumes as much natural gas as the entire continent of Africa – 60 billion cubic meters last year alone.
2) Only one percent of Ukraine’s energy consumption comes from alternative sources.
Domestic Action:
1) The Ukrainian government will sell off approximately $1.1 billion in assets in April or May of 2009 invested in regional energy companies. The companies in question are Poltavoblenergo, Prykarpatoblenergo, Lvivenergo, Chernihivoblenergo, and Sunyoblenergo, of which the Ukrainian government owns about one fourth of the shares in each. While generating significant revenues for distressed government, the move also hopes to bring future efficiency gains usually associated with privatization.
2) Russian gas price increases are finally turning heads towards alternatives. One biogas entrepreneur has seen sales of his pig and cattle manure utilization equipment increase dramatically, signing four contracts already this year, matching sales for all of last year. Unfortunately, significant hurdles remain such as installation costs of approximately $2 million and labyrinthine bureaucratic processes to registration. The Cabinet of Ministers did, however, announce back in February that they plan to simplify the procedures for organizing and receiving permits for biogas projects.
3) The “Green Tariff” plans were overwhelmingly approved by Ukraine’s Parliament back in September of 2008 as an effort to encourage investment in alternative energy sources.
“The Law obliges wholesale electricity market of Ukraine to purchase electricity generated at the power plants with use of alternative sources of energy through special “green” tariffs which are to be adopted by the National Electricity Regulatory Commission of Ukraine. “Green” tariffs are available for 10 years period.”
The impacts of this tariff will be interesting to monitor in coming years. While definitely beneficial for the energy independence movement and for encouraging development of alternative energy sources (who wouldn’t be enticed by a guaranteed 100% markup over market price energy!), the market distortions caused by this system will likely manifest elsewhere. Future prices to consumers will likely increase unless government subsidizations continues to dilute true costs. Surprisingly little information is available on this legislation so I will continue to dig.
Foreign Investors:
1) The World Bank is digging back into the Ukrainian energy system with a $200 million “UkrainePower Transmission Project” intended “to improve the security, reliability, efficiency and stability of electricity supply through the rehabilitation of transmission substations and the strengthening of the power transmission network.” The project will be working with UkrEnergo, the chief manager of Ukrainian energy transmission, the National Energy Regulatory Commission and the Ministry of Fuel and Energy.
The Power Transmission Project comprises five key components: rehabilitation of transmission substations, strengthening of the transmission network, stabilization of the Crimea Regional Power Grid, institutional development of UE, and implementation of the Wholesale Electricity Market concept. It is expected that investments under the project will (a) reduce the amount of electricity not delivered to consumers due to network failures by 35 GWh per year; (b) reduce transmission losses and peak capacity requirements by 14MW; and (c) improve voltage quality in dozens of transmission substations across the country. The project estimates predict savings of $38 million per year from efficiency improvements.
