World Bank Recommends District Heating in Ukraine to Adopt Consumption Based Billing

March 20, 2012

Kiev, March 20, 2012 – The World Bank today released a new study on “Modernization of the District Heating Systems in Ukraine: Heat Metering and Consumption-Based Billing”.

It is widely recognized that current tariffs for district heating are significantly below costs and the implied subsidy is not sustainable. By drawing on examples of successful district heating reforms in other countries in the region, the study shows that Ukraine’s district heating sector requires tariff increases and investments in energy efficiency to ensure financial sustainability and improved quality of service. District heating tariffs should cover the full cost of gas as well as the cost of necessary investments to modernize the system. In order to ensure the affordability of district heating services, the study recommends implementing consumption based billing and reducing heat consumption by about 50 percent through investments in energy efficiency to compensate for the required price increases. In addition, targeted social assistance is necessary to help low income households to cope with the needed tariff increases for energy services.

“Recognizing the need for heating tariff increases because of higher fuel costs, we focused our analysis on mitigating measures that can limit the impact of tariff increases on households, particularly by providing targeted subsidies to poor consumers, introducing consumption-based billing, and decreasing heat losses in buildings,” said Qimiao Fan, World Bank Country Director for Ukraine, Belarus, and Moldova.

The study outlines a multi-step process for Ukraine to consider. In the short term, the necessary step in improving efficiency of heat consumption is the introduction of heat metering with temperature controls and consumption-based billing. Building-level heat meters should be installed in all Ukrainian buildings that use district heat together with temperature controls at individual heat substations. Consumption-based billing should become obligatory.

“We believe that individual heat substations and heat meters could be installed in all Ukrainian buildings connected to the district heating system within 5 years,” said Laszlo Lovei, World Bank Director for Sustainable Development in the Europe and Central Asia region. “The potential savings would be significant for consumers and the economy in general”, he added.

“Based on the World Bank’s experience in neighboring countries, installing individual heat substations with temperature controls would reduce final heat consumption by 15-25 percent,” noted Yadviga Semikolenova, World Bank Energy Economist and the lead author of the study.

The study also finds that a comprehensive, nation-wide energy efficiency program needs to be put in place. In the short term, a conducive legal and regulatory framework needs to be created to facilitate energy efficiency investments on the demand and supply side. The framework should include a tariff structure that allows recovering investment costs, as well as awareness building for the population. In the medium to long term, it is important to start implementing energy efficiency measures in buildings. Insulating roofs and basements as well as replacing windows and outside doors could further decrease heat consumption by 35-40 percent. Recent research shows that these energy efficiency measures in Ukrainian buildings could be achieved within 10 years.

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