Concept for Introduction of Competition in District Heat Supply
On October 26, Diana Korsakaite, Chief of Party of the USAID Municipal Energy Reform Project in Ukraine, took part in the meeting of the Task Force on the creation of a competitive heat market chaired by Serhii Savchuk, Chairman of the State Agency for Energy Efficiency and Energy Saving. The Concept for the Introduction of Competition in District Heating of Ukraine was presented and approved at this event. The document was developed by SAEE jointly with the USAID Project.
The main feature of the Concept is the introduction of financial unbundling for all district heating utilities. This means that these companies will be obliged to maintain accounting records and establish separate tariffs for all types of licensed activities (production, transportation and supply of heat energy). Following the discussion, the Task Force members decided to take the presented Concept as the basis for the development of the relevant legislative acts. You can find more details on the Concept here.
On the Concept
The main feature of the Concept is introduction of financial unbundling for all district heating utilities. This means that these companies will be obliged to maintain accounting records and establish separate tariffs for all types of licensed activities (production, transportation and supply of heat energy).
A “unified buyer” model will be used for creation of the competitive heat market. This model envisages that all heat energy producers, main and independent ones, sell heat to a so-called operator – the company which services the heating networks. The operator acts as a unified buyer of this heat energy, which it transports to the end user.
This model provides for organizing auctions among all heat energy producers of the monthly. The winner of an auction is the party that offered the lowest heat price. The heat energy price at which it is purchased from the independent buyers at the auction must not exceed the maximum tariff for heat energy production of the main producer. Should there be equal prices for heat energy from a renewable energy source and from a gas source, priority should be given to the producer using the renewable source.
Another important condition for the functioning of the competitive heat market is ensuring the uninterrupted access of independent producers to the heating networks. The Concept envisages that the heating network operator is obliged to connect to the heating networks the plants of all independent heat producers upon the condition of their compliance with the technical requirements, as well as with quality and reliability of production and supply.
The Concept also encourages gas substitution with alternative fuels by utilizing private capital through the market methods. The investment risks in this case will not be transferred to the end user and will not increase his/her payment for heat energy.