National Association of Regulatory Utility Commissioners Energy Regulatory Partnership Program with The National Commission for Energy State Regulation of Ukraine The Fifth Visit in the Framework of Partnership Program NERC of Ukraine News in the

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National Association of Regulatory Utility
Commissioners Energy Regulatory Partnership
Program with The National Commission for Energy
State Regulation of UkraineThe Fifth Visit in
the Framework of Partnership ProgramNERC of
Ukraine News in the Field of Regulation
Sergey Titenko NERC Chairman 21-25.05.2012Kiev
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• Change of NERC Status and Structure

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Establishment and Legal Foundation

• National Energy Regulation Commission implemented
  its activity in 08.12.1994 23.11.2011
• it is central executive body with special
  status
• Chairman and five Commission Members
• Maximum staff 412 people
• On 23.11.2011 according to the order of the
  President of Ukraine of 23.11.2011 1059 the
  National Commission for Energy State Regulation
  of Ukraine (NERC) was set up
• it is a state joint body reporting to the
  President and the Parliament of Ukraine
• Chairman and six Commission Members
• Maximum staff 412 people
• NERC authority
• state regulation of natural monopolies and
  economic agents activity that are working at
  adjacent markets of electricity and oil and gas
  complex

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The Main Tasks of NERC

• Electricity market reform transfer to the
  market of bilateral contracts and balancing
  market
• Reform of natural gas market according to the law
  of Ukraine On natural gas market functioning
• Improving tariff regulation of natural
  monopolies. Transfer to incentive regulation of
  electricity and gas distribution companies taking
  into consideration service quality indicators
• Development and promotion of renewable energy

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• Electricity Market Reform

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Simplified Model of Existing Wholesale
Electricity Market of Ukraine
System operator/ Transmission company
Wholesale electricity market
Generators

• According to the model of single buyer
  wholesale electricity market is operating in
  Ukraine since 1996
• Competitive sector on the base of TPP price bids
  is about 41.
• NPP, HPP, WPP and CHP operate according to
  regulated tariff

Single buyer market operator
Supply companies on regulated tariff/distribution
and supply companies on non-regulated tariff
Retail market
Electricity
Services
Customers
Settlement
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The Existing Market Model Drawbacks

• Limited competition at generation market
• Limited competition at supply market
• Non-market pricing
• Lack of market operation forecast, non-favorable
  investment climate

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Simplified Electricity Market Target Model
According to the Proposal of Draft Law On
Principles of Functioning of Electricity Market
of Ukraine
Day ahead market
Ancillary services market
Balancing market
Bilateral contracts market
Generators
Market operator
System operator/Balancing market operator
Retail market
Supply companies
Electricity
Services
Customers
Settlement
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Additionally it is Envisioned by the Proposals to
the Draft Law

• To strengthen protection of rights of customers
  information support
• To provide non-discriminatory access to
  electricity network
• To regulate the procedure of providing permits
  for construction of generating capacities and
  conducting tenders for construction of new
  generating capacities
• To organize monitoring of power supply security.

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• Natural Gas Market Reforms

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Targets of Reforms

• To increase efficiency of companies in the field
• To develop competition
• To increase investments into the field
• To provide free choice of suppliers by the
  customers

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Natural Gas Market Changes

• The law of Ukraine On principles of
  natural gas market functioning was enacted from
  24 July 2010 that defines
• NERC authority in the field of natural gas market
  entities activity
• Principles of free gas trade, customers rights of
  protection and their selection of natural gas
  supplier
• Obligation of unbundling natural gas
  transportation, distribution and supply
• Principles and approaches to provide fair and
  transparent access to Unified gas transportation
  system of Ukraine and underground gas storage
• Responsibility of natural gas market members in
  case of violation of rules of providing activity
  at natural gas market and conditions of
  agreements

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Enacted Regulations

• natural gas retail prices setting for
  households
• natural gas pricing, calculation and setting
  prices for economic agents involved in its
  production
• access to Unified gas transportation system of
  Ukraine

• Orders

• gas transportation and supply via distribution
  pipelines
• gas transportation by major pipelines
• gas injection, storage and extraction from
  underground storage

Tariff calculation methods
Normal agreements

• gas transportation by major pipelines
• natural gas supply according to regulated
  tariff
• natural gas storage (injection, storage and
  extraction)
• natural gas distribution (by distribution
  pipelines)
• natural gas purchase and sale (among owners and
  suppliers)
• algorithm of funds distribution, that are
  received at current accounts with a special
  requirement to be used by natural gas suppliers
  of last resort

Mechanism of cost allocation

• about defining the rate of qualification of
  natural gas consumers

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• Improvement of Natural Monopolies Tariff
  Regulation

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The Main Principles of Incentive
Regulation(According to the Law of Ukraine On
Natural Monopolies)

• Minimum interference transfer to long-term
  regulation
• Incentive of investments setting fair return on
  investments
• Taking into consideration quality indicators in
  tariff formation methodology and introducing
  provided services quality standards
• Improving customer service quality

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Scheduled Implementation Stages

• Preparation period
• Introduction of corresponding amendments in
  legislation as for giving NERC authority to
  define regulated asset base and regulatory
  depreciation
• Development of legal framework (methodology of
  tariffs calculation on the basis of multiannual
  incentive regulation)
• Assessment of fair cost of company assets used in
  regulated activity regulated assets base
• First regulatory period (3 years)
• Introduction of rate of return on invested
  capital
• Revenue accrual base the fair assets costs
• Benchmarking of distribution companies
• Preparation to implement the system of financial
  incentives to improve service quality
• The following regulatory periods (4- 5 years)
• Service quality indicators
• Individual tasks on reduction of inefficient
  costs according to the benchmarking results

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• Renewable Energy Development

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Current Incentives Mechanisms of Alternative
Energy Development

• Setting green tariff for electricity generated
  from alternative resources
• WEM obligation at legislative level to buy the
  whole volume of electricity generated from
  alternative sources of energy, and opportunity to
  sell according to direct contracts (prototype of
  green certificates) with consumers or
  oblenergo)
• Obligation of transmission and distribution
  companies to connect generators of electricity on
  alternative sources to the network
• Tax and customs incentives
• Incentive credits
• State subsidies

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Growth Dynamics of Alternative Energy
Facilities Installed Capacity in 2009-2012
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Green Tariff Value

• Minimum fixed values of green tariff were set
  by NERC Decree 857 of 23.07.2009

Minimum fixed value of green tariff, UAH cop./kWh Minimum fixed value of green tariff, UAH cop./kWh Minimum fixed value of green tariff, UAH cop./kWh
Electricity generated from wind Electricity generated from wind Electricity generated from wind
Installed capacity up to 600 kW Installed capacity from 600 kW to 2000 kW Installed capacity above 2000 kW
70,15 81,84 122,77
Electricity generated from biomass Electricity generated from biomass Electricity generated from biomass
134,46 134,46 134,46
Electricity generated from solar Electricity generated from solar Electricity generated from solar
Ground facilities Facilities installed on roofs with capacity above 100 kW Facilities installed on roofs with capacity below 100 kW
505,09 484,05 463,00
Electricity generated from small HPPs Electricity generated from small HPPs Electricity generated from small HPPs
84,18 84,18 84,18
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• Thank you!