The Incentive Tariff Formation Methodology adopted on August 26, 2020 by the State Regulator NEURCU, with the division of the company's assets into an “old” base with a 3% rate of return and a “new” base with a rate of return of 16.74%, does not have the economic incentives to invest as expected market participants and experts, says statement DTEK.
“The regulator did not take into account the position of the market and experts in full. The adopted approach does not correspond to the European practices of introducing incentive tariff setting, which does not create an opportunity to attract external financing for the renewal of assets and to advance in the Doing Business rating due to cheaper connections, ”the energy holding noted.
According to DTEK's calculations, the required volume of investments for a full renovation and modernization of Ukrainian electric grids is estimated at USD 1000-1200 /km, while the methodology proposed by NEURC limits investments at about USD 450 /km.
According to NEURCU, in accordance with the new methodology, electricity losses in the networks of distribution system operators “should decrease by at least 1% in the first voltage class and by 3.5% in the second voltage class annually, the SAIDI indicator (average duration of breaks in power supply) should decrease evenly over 13 years from 466 to 150 minutes in urban areas and from 960 to 300 minutes in rural areas. ”
Incentive regulation is a tariff setting mechanism based on long-term tariff regulation. This method is aimed at attracting investment for the construction and modernization of the infrastructure of transmission networks, and stimulating the cost efficiency of distribution and supply companies.
NEURC has been considering the possibility of switching to such a tariff setting since 2012.