Battle for getting electricity

20-11-2018

Source: biz.nv.ua

The National Commission for State Regulation of Energy and Public Utilities (NKREKP) have to approve the rates for non-standard connection to electrical networks after November 19.

A proposed single tariff of 3,500 UAH per 1 kW is already a big step forward. But this is still not the balanced solution expected by the market and potential investors.

The problem is that it is very difficult to interact with oblenergos, which are monopolists, to connect facilities with a capacity higher than the standard one (more than 50 kW and more than 300 m from an electric substation). It is necessary to conclude a contract on connection to electrical networks, which should be supplemented with technical specifications. Oblenergos determine the scope of works and, accordingly, their cost independently because the information on networks status is restricted, so it can be overestimated.

For more acceptable cost estimates, investors are usually proposed to “negotiate” reducing the connection costs for some reward in the next room. At the same time, even the owners of energy supply companies do not control all the corruption in this area. But, honestly speaking, not all investors are capable and want to “negotiate”.

As part of the energy sector reform, it was decided that oblenergos became a “black box” to eliminate the “human factor” problem. Investors should not be interested in what works will be performed. There is a single tariff to pay for access to electrical networks, which oblenergos should distribute among all attachment points to make necessary reconstructions and provide customers with electricity. With this approach, investors can include the costs into their financial models in advance. To calculate the project cost recovery, it is necessary to understand how much you have to pay and when you get a connection service. These rules were provided in Article 21 of the Law on the Electricity Market.

The NKREKP was supposed to implement these rules in March this year. Actually, there was their first attempt earlier, and it was a real failure. The Commission approved differentiated rates by regions. As a result, the connection cost has become incredibly high even compared with the current situation along with all informal “wishes” of oblenergos. It turned out to be absurd: in Kyiv, the connection of 1 kW of capacity would cost from 3 thousand hryvnias (excluding VAT), and in the Poltava region – up to 9.4 thousand hryvnias. What crazy investor will do something in Poltava, if the connection here costs fabulous sums? This Commission’s decision was stopped and not published by market efforts.

Then, there were delayed changes in NKREKP’s membership, and, finally, the commissioners again have come close to solving this pressing problem. I would like to emphasize once again that the rate of 3,500 UAH per 1 kW proposed by the commission is quite acceptable as a calculated value. Now we need just to balance it with adjustment factors. There are not many of them.

First, it is necessary to take into account the general load of voltage classes of a particular oblenergo. For example, Kyivoblenergo’s electric substations are heavily loaded, and the Chernihivoblenergo doesn’t have such a load, since there is no such economic activity. This is not the consumption level that was in the USSR when the appropriate infrastructure facilities have been created. Accordingly, there is no need to perform expensive works, and hence, it is possible to use a lower load factor.

Second, oblenergo’s substations are not designed in such a way that all customers can connect all their facilities simultaneously, because this is potentially impossible. Here is a simultaneity factor. For example, it is higher for electric heating facilities. And where there are no regular consumers, for example, in the domestic sector, it is accordingly lower.

Another element of non-standard connection is a linear component. This is directly a cable connecting an oblenergo’s substation and a customer’s facility. An investor who will look for a potential location for his facility should understand that the less the distance between his land plot and networks, the less he will pay for the linear component. This is a good principle to find the best location. In addition, there are connection category and phase factors. The more capacity additions, the more expensive the connection is. Three-phase connection is more expensive than the single-phase one. This is a fact of life, and nobody argues with that.

These factors will result in an adequate basic rate. Somewhere, for example, in loaded Kyiv, it will remain unchanged. Somewhere, the load and simultaneity factors will reduce it by half or three times. Then the system will work properly, and this will provide additional incentives for investors, for example, to think about launching their businesses in a more depressed region, rather than trying to place it in the Kyiv-Svyatoshinsky district, which is already absolutely packed with facilities.

Therefore, it is important for us not to discredit the absolutely right idea of establishing the rate, but at еду same time, to balance it properly. And oblenergos have to include adequate costs in this rate, so they could provide a service on connection to electric networks. And then we will adjust the rate according to the inflation index, and it will work perfectly normal.

We are now talking not only about problem attachment points, but also about the ease of doing business in the country. Recently, the World Bank announced results of the Doing Business rating, in which Ukraine increased its progress by 5 positions from 76 to 71). At the same time, nothing has been done by the ‘getting electricity’ component, and Ukraine lose 7 positions (from 128 to 135). Currently, the connection process includes 5 procedures. When a single adequate rate, which is known in advance, is introduced, he number of required procedures will be reduced to one or three: applying and paying when all the works are performed and supplying electricity. This will provide much more positions in Doing Business. There will be no need to “bring something” to relevant officials. And this will really improve the investment climate.

 

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