12th International Symposium on District Heating and Cooling

production and provide for marginal profitability levelthat is not lower than the level defined by the Cabinetof Ministers on the base of calculations by the centralbody of executive power in heat supply.If heat tariffs do not cover the cost of heat and marginalprofitability level, the body that has set the tariff shouldprovide for the compensation according to effectivelegislation. That is, if the tariffs for heat from thermalpower station and boilers that are approved by the localgovernment on the basis of heat producer calculation,and they are lower than economically sound costincluding marginal profitability level, the localgovernments must compensate the losses from thelocal budgets.Meanwhile, the Ministry of Economy elaborated thedraft that specifies binding of the household servicestariffs to energy prices. First of all, it means heat, hotwater and gas supply to households. The currentsystem of tariff setting reduces the competitiveness ofUkrainian industry, since industry is forced tocompensate for low households tariffs.The procedure to raise the heat tariffs is rathercomplicated and time consuming, as follows:1) The district heat supply company receives officialnotification from NERC on gas price increase. Onlyafter that the company may start developing theproposal on the heat tariffs increase.2) The new heat tariffs have to be approved by thefollowing authorities: Commissions of the MunicipalCouncil (mis‘krada) and regional council (oblrada). Thetariff proposal has to be reviewed by several instancesas listed below:Trade unionsAntimonopoly CommitteeDepartment for Price AdministrationDepartment for the Protection of Consumer RightsPublic hearings3) Municipal Executive Committee (misk‘vykonkom)has to approve the new heat tariffs as well.4) The tariff changes shall be publicized via officialmass media of Municipal or Regional Council. If duringa month there are no official protests from the Office ofPublic Prosecutor, the company is entitled to apply thenew tariffs.The above steps clearly show how cumbersome anytariff increase can be in practise.3.2. Market DriversArticle 54 of the state budget of Ukraine for 2006 andthe Cabinet of Minister‘s Decree No.207 of 9 March,2006 stipulate for subsidies from the state budget tolocal budgets. No less than 75% of the subsidy must beThe <strong>12th</strong> <strong>International</strong> <strong>Symposium</strong> on District Heating and Cooling,September 5 th to September 7 th , 2010, Tallinn, Estonia219directed to energy saving in heat, water supply andsewerage. But according to monitoring results, thefunds are allocated to other purposes. Only fourregions used the funds for energy saving. Otherregions used from 7% to 40% instead of the required75% to energy saving.Other measures of energy saving that would beappropriate include:replacement or reconstruction of steam and gasboilers with efficiency that is lower than 89%;improvement of heat pipes insulation to decreaselosses in transmission pipelines;installation of heat meters; and,Installation of co-generation equipment.Another stimulus for companies to introduce energysaving technologies is outlined in the Law of Ukraine―On Heat Supply‖. According to the Article 8, ―in caseheat supply or heat transportation companies introduceenergy saving measures that result in saving of heatlosses, the body of executive power, that is entitled toregulate heat tariffs according to the Law, may leavethe tariffs unchanged for the three consecutiveyears‖.[4]3.3. Main BarriersIn general, there are a number of decent laws andregulations that would support DHC development, butthey are not implemented properly, as mentionedabove already.Therefore, there is little if any incentives to businessoriented development of the heating services, but thesystems are run at minimum investments and reducedtechnical performance. The DH companies are solelyoperation organizations, mainly departments of themunicipality. The municipalities take care of billing andcollecting based on subsidized lump sum tariffs, and oninvestment decisions.There are many privileged customer categories thatenjoy reduced costs of DH services. In Odessa, forinstance, 25% of the customers in year 2006 enjoyedsuch privileged heating prices. Their billings weredecreased by 20, 30, 50, 75 or even 100%, whicheffectively destroys the business opportunities of DH.Individual and autonomous heating in every apartmentseems the most favourable option for consumers. Insuch a case they do not pay for heat and hot water butonly for gas and cold water. In addition, they canregulate temperature in their apartments and do notsuffer from overheating in spring and insufficientheating in winter. But sometimes it is impossible toinstall autonomous boilers in every apartment, becausethere is not enough space for heating equipment andthe vertical ventilation ducts are not designed for fluegases. Therefore, it would be appropriate to install one