2012 was uneasy for Ukrainian power industry: it had to fight for the configuration of the market, strategic goals of its development, tariffs and assets.
One of the most important events of the year was the passing at first reading of draft law No. 10571 on the liberalization of the power market by Ukrainian parliament. If the parliament manages to finally approve the document, power specialists will have to forget the old operation system and start selling power to consumers under direct contracts.
Many traders could appear on the market, although they are to give the long-expected freedom of choice to consumers and the high-quality service.
Not all energy companies like the switch to direct contracts, although another issue is a stumbling block: who will subsidize households (this is Hr 30-35 billion a year), subsidize heat supply companies for parallel generation of heat and power and the feed-in tariffs.
Draft law No. 10571 proposes to settle the problem via the creation of a fund for setting the cost misbalance, which will be replenished only by National Nuclear Generating Company Energoatom and public joint-stock company Ukrhydroenergo.
The ‘donors’ are shocked with the idea: Energoatom believes that the company will not be able to synchronously subsidize households and ensure the normal functioning and development of the nuclear sector. Energoatom is deep in debts: only a moratorium prolonged by parliament every year saves from claims to courts and opening bankruptcy cases. Crisis of indebtedness, which could be brought to the company, totals some Hr 600 million, although the debt of Energomarket state-run company to the operator over the previous periods reaches almost Hr 6 billion.
Would the sides manage to achieve a compromise is one of the key questions of the ‘agenda’ for 2013. The process of the introduction of the direct agreement model on the Ukrainian power market, the day-in-advance contract market, the balancing market and the market of additional services on the purchase of power cycling facilities could drag on for years.
In the middle of 2012, the Verkhovna Rada passed another document, which can transform the energy market. Law No. 4998-VI implies the introduction of the RAB (Regulatory Asset Base) tariff system for energy companies and a gradual retreat from the present expenses plus model.
The decision to switch the concrete company to the new tariff system will be made by the National Commission for Energy Regulation (NCER) and the first fruits will be seen in early 2014.
The government thinks that the switch to the RAB regulation will stimulate natural monopolies to reduce inefficient expenses, increase the quality of goods and allow attracting investment in the sector.
The introduction of the RAB regulation arouses many questions so far. For example, experts differ in opinions how to better assess the regulatory base of capital of energy companies. The RAB regulation does not work smoothly everywhere: if experience of Romania is taken as an encyclopedic example, in Russia the new system is being introduced with many slippages.
STRATEGY 2:0
One of the most discussed topics of 2012 was the upgrade of the Energy Strategy of Ukraine for the period until 2030.
The government started upgrading the document in early 2011, but the terms of the publication of the document were postponed many times: the Energy and Coal Industry Ministry attracted the Foundation for Effective Governance (FEG) created by Rinat Akhmetov, which roused indignation of some experts – the businessman is the owner of many energy assets.
When the draft upgraded energy strategy has been published, representatives of renewable energy, heat and nuclear energy, ecologists commenced a hot dispute. The State Agency for Energy Efficiency, NCER put forward their complaints on the draft strategy. Some remarks to the document were presented by the European Union and the United States.
First, many experts were surprised with macroeconomic indicators used for the calculation of the forecast consumption and production of electricity. Secondly, critics pointed at many cases of discrepancies in the document with current Ukrainian laws and international liabilities of the country. Thirdly, it was obvious that the drafters have underestimated the pace of development of renewable energy in the country.
Despite hot discussions, the Energy and Coal Industry Ministry decided not to considerably change the draft and tried to achieve its approval by the cabinet by the end of 2012. They failed to do this…
Now new ministers have come to the Energy and Coal Industry Ministry, and it is unknown if they will promote the upgraded energy strategy as actively as people of Yuriy Boiko.
Finally we have thousand of broken copies and the old unrealistic strategy of the country’s energy development.
LOCAL CONTENT RULE AND FEED-IN TARIFFS
In 2012 lawmakers regularly bombarded the parliament with draft laws that changed certain rules on the renewable energy market.
First, they wanted to expand the application of feed-in tariffs and adjust the rule of local content (the requirement to use domestic goods and its effective period).
Finally, market players agreed not to fritter away their energy and unit everything in draft law No. 10183 submitted by MPs Mykola Romaniuk, Yulia Liovochkina and Yuriy Miroshnychenko (the Regions Party).
However, this was only the start of a real fight. Dozens of amendments were made to the document, it was re-written and load statements were made. Finally, the bill passed by parliament in November completely rewrote the rules of the renewable energy market.
The document differentiated tariffs for small hydroelectric power plants, brought the tariffs for various types of solar power plants to the more optimal level and introduced the feed-in tariff for biogas power plants.
In addition, the law gave hope to the public that starting from 2014, the public will be able to earn on solar power generation without obtaining licenses and rep tape procedures which the license obtaining entails.
This is not a full list of positive innovations. However, the law has controversial clauses, in particular, the document introduced new principles of calculating the local content from July 2013: each of the plant’s sections which uses renewable energy has its own share of local content.
The share for wind power plants is 75% of the total cost of the plant and that for solar power plants – 95%, irrespectively if you buy the same equipment for one hryvnia or one million of hryvnias. Some experts believe that the approach is not fair.
However, Kvazar, Fuhrlander Wind Technology and other local equipment producers assure that there will not be problems with supplies of equipment it might be orders. New jobs will appear in the country.
It will be seen soon if they are right.
POWER ENGINEERING SPECIALIST VS METALLURGISTS
The Ukrainian Association of Ferroalloy Producers (UkrFA), Zaporizhia and Stakhanov ferroalloy plants, other electrical metallurgists were fighting with energy companies for the reduction of tariffs.
The fight was carried on using various ways, starting from official addresses and ending by rallies near the cabinet and NCER’s buildings. Finally, the government has decided that electrical metallurgists will not survive without any help and permitted to buy electricity at the wholesale market price.
No such luck! The council of the wholesale electricity market has actually blocked the realization of the government’s decision. Its meeting was postponed five times and when it was held, the decision the electrical metallurgists wanted was not made.
The zest of the situation is that neither cabinet nor NCER can influence the decision of the council of the wholesale electricity market. Energy companies and metal companies have grappled in a clinch. Zaporizhia and Stakhanov ferroalloy plants stopped production from December 1, 2012 and thousands of people lost their jobs.
Who is guilty? Top managers of the plants accuse the largest vertically integrated holding of the country – DTEK. Metal companies said that the holding is fighting against benefits, while it buys electricity for exports with a large discount.
The arguments of energy companies are clear: if metal companies obtain benefits, someone will have to pay them. Who and why should sponsor UkrFA’s members?
No one saw an obligatory schedule of modernization of electrometallurgical enterprises, and there are no guarantees that they will be able to reach the competitive level when the tariffs are leveled in the future.
A compromise is required. Are ferroalloy enterprises with tools and breakers able to find it?
