USAID and BRDO experts suggest that Ukraine uses a binary-rate system to calculate connected power capacity

USAID and BRDO experts suggest that Ukraine uses a binary-rate system to calculate connected power capacity
October 03, 2016.

Rates for 1 kW of connected power capacity for consumers connecting to electricity supply networks should be calculated based on real net value of the connection with adjustment on inflation.

Kyiv, Octrober 3, 2016. It is necessary that all potential amendments to Article 21 of the draft law 4493 “On Electric  Energy Market” be closely monitored by the civil society in order to assure that key provisions ensuring positive effect of the bill remain in the final draft. This is the case of method of calculating rates for 1 kW of connected power, said USAID Leadership in Economic Governance Program, Better Regulation Delivery Office (BRDO) and project organization “Power Grids & Systems” representatives at a press briefing in Ukraine Crisis Media Center.  “Our warning is that even if this model is accepted, it should be adopted in its initial version, such as it is at present. If adopted, it would put an end to several channels of income, so there are stakeholders who may be negative opinions about it,” said Dmytro Boyarchuk, USAID Leadership in Economic Governance (LEV) Program expert.

The experts explained that in a binary-rate system of connection to electricity supply networks calculation of the connection cost is based on a rate per 1 kW of connected power and a rate per 1 km of power lines. This approach allows defining an exact cost and time needed to carry out connection – two things of key interest for an investor at the very start of his project. “In the end, the procedure should be the following: the customer who wants to connect to electricity supply networks goes to the website of an electric energy distributing company, clicks on the map the place where the energy should be supplied and indicates what power he needs. After that, an online-calculator in just some seconds shows him how much it will cost and how much time it will take […] The cost of 1 meter of power line for any voltage type is clear, the price of 1 kW for any voltage type is clear, so it is easy to make these calculations, there is methodology how to do it”, – noted Oleg Palayda, director of project organization “Power Grids & Systems”.

According to the experts, the licensees and the National Commission for state regulation of energy and public utilities already consider the possibility of accepting this methodology as a basis. However, there are polemics on how the rates for 1 kW of connected power should be calculated. Civil society experts suggest that calculation should be based on a real net cost of the connection with adjustment on inflation, said Dmytro Boyarchuk. “The methodology offered by licensees is based on assets value. According to our preliminary calculations, this will be more expensive”, he noted. “Assets value depends directly on replacement cost estimates. It is possible that in the end we will get transparent mechanism of connection, but connection cost will be very high because of high replacement cost estimates”, added Oleksiy Orzhel, BRDO expert.

Experts also propose to ensure the possibility for businesses to receive compensation of costs spent on connection to power grids. “Businesses have always asked themselves why they should capitalize the “oblenergo” [regional energy suppliers] at their own expense to become their customers, if the latter actually earn money on them. If there will be support to the idea of expenses compensation through introducing so-called RAB-tariff for the “oblenergo”, this would encourage investors and would boost business development”, explained Mr. Orzhel. “It is necessary that the customer who connects pays only for himself, for the power that he consumes and for the network component that he uses. If the
“oblenergo” wants to build a more powerful substation or power line, it can do it through existing mechanisms, using its own money or through an investment program”, said Mr. Palayda. According to him, RAB-regulation would motivate regional distributing companies to construct power lines with bigger reserve of power that would facilitate connection of new customers when needed. “If we adopt this methodology, Ukraine will get into top-20 countries according to this parameter of connection to electricity networks,” he added.