Publication: Setting the Agenda for Further District Heating Reform in Ukraine
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2019-05
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2020-03-24
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Since 2015, Ukraine has taken major legislative and policy steps to reform its energy sector and introduce competition for natural gas and electricity services, in particular by establishing cost-reflective pricing, phasing out implicit tariff subsidies, and introducing the ability for consumers to change suppliers. Because of this transition towards market-based arrangements, the Ukrainian district heating (DH) sector has been faced with major technical, commercial, financial, operational, and institutional challenges. The main purpose of this report is to present an analysis of the status of DH sector reform and of the remaining challenges, and to identify proposals to address these challenges, so as to facilitate the emergence of a comprehensive DH sector reform agenda, including an alignment of key decision-makers and stakeholders around crucial reform components and a process to implement these reforms. The report is organized as follows: section one gives introduction. Section two provides an overview of the current situation of the DH sector including its relative weight in the country’s energy consumption in the heating services provided to the population, its financial situation, and the estimate of investments at the national level needed for modernization of the DH infrastructure. Section three analyzes the reform actions impacting the DH sector which have been implemented or initiated over the last few years, presenting the achievements as well as the limitations of these reforms. The outstanding key issues to be addressed as part of DH sector reform are analyzed in section four. Section five discusses two reform options for the DH sector which have been discussed among stakeholders for some time but for which there is no consensus. Section six identifies a list of reform actions for each major sector reform strategic priority, separating short term actions, and medium-term actions to be implemented in 2020 as part of a comprehensive package of reforms after adequate technical preparation and consultations.
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“World Bank. 2019. Setting the Agenda for Further District Heating Reform in Ukraine. © World Bank. http://hdl.handle.net/10986/33473 License: CC BY 3.0 IGO.”
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Publication Modernization of the District Heating Systems in Ukraine : Heat Metering and Consumption-Based Billing(Washington, DC: World Bank, 2012-03-20)District heating (DH) plays a critical role in meeting basic heating needs in Ukraine, but the sector faces serious challenges that must be resolved to avoid collapse. For DH companies, the primary concern is financial sustainability. Companies lack the revenue to invest adequately in DH networks leading to lower quality of service and higher operating costs. For customers, the primary concern is quality of service and affordability. Artificially low prices have resulted in the continued deterioration of DH supply assets (and gas supply assets) resulting in lower heat supply quality. Low DH prices have provided little incentive for investment in energy efficiency. As a result, Ukraine is one of the highest energy intensive countries in the world. Ukraine, together with other Former Soviet Union countries, did not follow the path chosen by their neighbors to modernize their DH sectors. Many countries of Eastern Europe enacted critical reforms in the 1990s to address problems related to affordability, quality of service, and financial sustainability similar to those now facing Ukraine. Evidence from these countries suggests that these challenges currently facing Ukraine, while difficult, are far from insurmountable. This study situates heat metering and consumption-based billing in the context of the various DH sector reforms needed in Ukraine. It builds on the work of previous studies including the recommendations of the 2010 Energy Sector Management Assistance Program (ESMAP)-funded study, prepared by the World Bank that identified how to improve the DH sector in Kharkiv. That study outlined the potential for investments in DH systems in Kharkiv and other similar cities in Ukraine in both heat supply and demand side. It also recognized that policy changes needed to be initiated in order to create the enabling environment for this potential to be realized.Publication Enhancing the Institutional Model for District Heating Regulation : Outside Perspectives and Suggestions(Washington, DC, 2012-12)Chapter one introduces the paper and briefly summarizes the main reform objectives and issues for District Heating (DH) in China. Chapter two presents relevant alternatives and lessons learned on approaches to regulatory practices in district heating internationally. Chapter three presents key findings and options for enhancing the institutional framework for DH regulation. Several Annexes complement the chapters by focusing especially on special topics raised by the MOHURD during this technical assistance activity. Annex one elaborates on chapter one, providing an overview of the current situation in China. Annex two introduces options for monitoring and benchmarking. Annex three discusses various methods for cost allocation of Combined Heat and Power (CHP). Annexes four, five, and six complements aspect of analysis on pricing and equity issues, a summary of options for competition among DH suppliers, and an example of red line impediments to energy efficiency innovation.Publication Heat Tariff Reform and Social Impact Mitigation : Recommendations for a Sustainable District Heating Sector in Belarus(Washington, DC, 2014-06)The Government of the Republic of Belarus (GoB) plans to increase district heating (DH) tariffs to cost-recovery levels and gradually phase out subsidies, replacing them with social assistance programs. Residential DH tariffs in Belarus are currently at roughly 10-21 percent of cost-recovery levels. DH subsidies are highly regressive, add costs to business, and create significant fiscal risks and macroeconomic vulnerabilities. The purpose of this report is to analyze the social, sectoral, and fiscal impacts of the proposed tariff reform, and to identify and recommend measures to mitigate adverse impacts of DH tariff increases on the households. The analysis shows that: 1) the burden of higher DH tariffs will fall most heavily on low-income groups; 2) the current system of subsidies is unfair, benefitting wealthy customers more than the poor; 3) cross-subsidies undermine the competitiveness of industries in Belarus; and underpriced residential heat places an increasing fiscal burden on the GoB and risks macroeconomic instability. The analysis shows that a negative social impact is manageable if a tariff increase is accompanied by countervailing measures to compensate for the loss of purchasing power, in particular of the poor, through targeted social assistance and energy efficiency programs. The rest of the report is organized as follows: Section 1 describes the GoB's plans for the sector. Section 2 analyzes the principal challenges in the sector that necessitate tariff reform. Section 3 discusses tariff reform options and the likely impact of pursuing each of these options. Section 4 concludes by recommending a reform action package that includes customer communication and engagement, social protection measures and investments in energy efficiency. The appendices contain material supporting the analysis in each section.Publication Unlocking the Potential for Private Sector Participation in District Heating(Washington, DC, 2014)The report analyzes barriers to and opportunities for private sector participation in district heating (DH) in the Western Balkan countries of Bosnia and Herzegovina, Croatia, Kosovo, and Serbia, as well as in Mongolia and Ukraine. Specifically, the report analyzes the legal and regulatory frameworks for public-private partnerships (PPP) and for DH in each of the countries,including an overview of the primary and secondary legislation, PPP preparation and approval processes, institutional setup of the DH sector, heat tariff-setting procedures, etc. In addition, the report describes international best practice for various business models for private sector participation in DH and provides country-specific recommendations to improve the attractiveness of PPP in the DH sector. Finally, the report provides an estimation of the investment needs in the DH sector by country and indicates selected investment projects, which are conservatively assessed at 1.5 billion dollars.Publication Mongolia : Energy Efficiency in the Electricity and District Heating Sectors(Washington, DC, 2001-10)The purpose of this Activity Completion Report is to sumarize the results of support from ESMAP to Mongolia in the rehabilitation of its electricity and district heating systems during the period 1994 to 1998. ESMAP ascertained the level and sources of losses in the electricity and district heating distribution systems in Ulaanbaatar; and propose a set of actions and investments to lower these losses to economic levels. ESMAP's research resulted in three main conclusions: 1) in the power distribution system in Ulaanbaatar, overall energy losses on the transmission and distribution (TD) system are following an upward trend, increasing from about 27 percent of the net energy supplied in 1995 to 30 percent in 2000. of these losses, about 14 percent are estimated to be technical losses and 16 percent are estimated to be non-technical losses. The major problems are occurring in the low-voltage system, as opposed to the mid-voltage system. the current cstomer relations setup and sales function must be changed for the company forto act on a commercial basis and for future privatization. 2) Water loss constitutes the major problem in the district heating system, with leakage rates well beyond internationally accepted standards. The heat loss resulting from transmission and radiation is not as serious as the water leakage. 3) This report indicates that integrating the analyses of the heat and electricity sectors would achieve higher returns.
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