The regulations № 973-980 of the National Energy Regulatory Commission (hereinafter NERC) on implementation of the incentive regulation (RAB regulation) in Ukrenergo as of July 27, 2017 come into effect on January 11, 2018.
Dmytro Vovk, Head of NERC mentioned while approval of the regulations packages in summer the following: “It is a full package for implementation of the incentive tariff formation within SE Ukrenergo`s trunk power grids. The international institutions which provide loans to “Ukrenergo” have been waiting for the normative base package for quite a long time”.
Incentive tariff formation or RAB regulation (Regulatory Asset Base) is a system of long-term tariff design aimed primarily at encouraging investment in the expansion and modernization of grid infrastructure being quite widespread in the European countries.
Transition to the incentive tariff design is previewed by a list of both EU and Ukrainian strategic documents namely the Directive 2009/73/EU of the European Parliament and of the Council concerning common rules for the energy market and the Strategy for Sustainable Development of Ukraine until 2020.
As of today the energy tariff is designed on a “cost-plus” pricing strategy whereas the incentive tariff design previews the following:
- Energy tariffs design over the long-term period: first regulatory period – three years, further – 5 years. The tariffs will not increase during the regulatory period of the controllable expenditures;
- Establishment of the profit rate necessary for encouraging investments in the expansion and modernization of grid;
- Reduction in controllable expenditures not less than by 1%; penalties for exceeding the AIT indicator fixed at 1-minute level starting form the second regulatory period;
- Penalties for the SE “NPC “Ukrenergo” for the non-compliance with the requirements of the voltage and frequency levels within the grid starting from the second regulatory period.
Vsevolod Kobalchuk, CEO at Ukrenergo stated as follows: “Implementation of the incentive tariff design will allow Ukrenergo to perform the operational activities and play according to the common rules with the EU-partners. We would also like the Regulator to approve the investment programs for 3-5 years, not for one year as it is conducted now. Such step will make us more clear for the creditors whereas the implementation of projects is foreseen for a couple of years”.
The Ukrenergo will shift to the incentive tariff design under the following conditions:
1) assets evaluation which should be in an effect at the moment of transition to the RAB regulation;
2) 95%- investment program implementation for the year which comes before transition to the incentive tariff design (inclusive) .
Thus, Ukrenergo will focus on implementation of the above-mentioned requirements in order to shift to the RAB regulation. Ukrenergo is to initiate the transition to the incentive tariff design in 2019.
The incentive tariff design was implemented at first in the 90-s in Great Britain. Lately, many other countries in Western Europe, America and Australia shifted to it. As of today the RAB regulation is successfully implemented in many Eastern European countries as Poland, Czech Republic, Slovakia, Hungary, Romania, Bulgaria. It allowed them to reduce the tariff in the long-term perspective, to attract the investments and to improve the quality of the services.