Ukraine initiates 3.5x increase in household power rates

The Ukrainian power sector regulatory commission adopted a resolution to increase gradually the rates for electricity consumed by households by 3.5 times over the next two years to an average level of UAH 1.23/KWh, which covers all power production and delivery costs. At the first stage starting in April 2015, the increase will be about 40%, on average. In the subsequent four semi-annual stages between September 2015 and March 2017, average rates will be adjusted by 23%-26%.



Alexander Paraschiy: The event is encouraging for Ukraine's entire electricity sector as it will enable it to access more funds for investment projects, as well as start long-awaited reforms on the wholesale power market and in the power distribution sector. Potentially, this is a good news for the listed power GenCo Centrenergo (CEEN UK).



In particular, the power rate adjustment unlocks about UAH 5 bln p.a. at the first stage and up to UAH 40 bln p.a. aggregately. These funds can be used to finance construction and renovation in the power sector to radically improve the stability of Ukraine’s power system and energy independence. They can also be partially used to decrease power rates for industrial consumers, or at least ensure that their rates won't increase in the next two to four years.



Due to a lack of adjustment of household rates, currently they cover just 29% of electricity costs, according to the regulator’s estimates. The rest is cross-subsided by industrial consumers. Currently, cross-subsidization adds 36% to the average industrial electricity bill. Low household rates, and huge cross-subsidization, were the key factor that prevented reforms in the energy sector during the last nine years. The last significant adjustment in household power rates was a 60% increase in 2006. Therefore, however painful this could be for households, the initiative is a real breakthrough in the Ukrainian electricity sector.

Источник: Конкорд Капитал