The single RAB-based rate applicable to both new and old assets is the only incentive for oblenergos to invest in the modernization of the existing baseload assets. This opinion has been expressed by Carlos Pascual, an ex-US Ambassador to Ukraine, and Senior Vice President at IHS Energy, in his interview to LB.ua.
"It is important to understand two key factors. First: Ukraine apparently needs to build a new electric energy system. To achieve this goal, investments of 10-15 billion US Dollars will be required, and transformation might take from 10 to 20 years. Second: Ukraine cannot afford to ignore the existing electric energy system; it should continue investing in the existing distribution system to improve its efficiency and reliability", - noted Carlos Pascual.
In his opinion, it is crucially important to provide for incentives for oblenergo to invest in the modernization of old equipment when RAB-based regulation is introduced. According to the expert, to achieve this objective, a single rate of return should be established for the entire asset base.
"I would like to underline why it is important to have a single compensation rate. Let say, you have determined two rates: a 20% rate for new assets, and a 5% rate for the existing assets. If you are an owner of oblenergo you understand that after 10 or 15 years all you existing assets will be fully depreciated, and you will not receive any compensation for these assets. It means that you have an incentive to invest only in new assets. It might seem logical but ultimately it will result in a crisis in the Ukrainian electricity distribution system", - believes Carlos Pascual.
According to Carlos Pascual, transformers have to be replaced, new substations need to be constructed, and power lines will have to be put in place.
"In other words, an argument in support of a single rate as opposed to two compensation rates is that a single rate will help avoid a situation where the existing assets are not maintained in a proper condition. It should be remembered that the introduction of RAB-based tariffs pursues two goals: ensuring the viability of the existing electricity distribution system and its transformation in line with the future needs. And it is impossible to choose between these goals", - stated with confidence Carlos Pascual, Senior Vice President at IHS Energy.
To recap, ex-US Ambassador to Ukraine Carlos Pascual made a presentation at the European Commission and EBA Joint Forum on investments, Fostering Investments in Ukraine, held in Kyiv on 17 May. Carlos Pascual was the Ambassador Extraordinary and Plenipotentiary of the United Stated to Ukraine in 2000-2003, and then worked at the Clinton Administration. Subsequently, he was engaged in energy and geopolitics matters at Brookings Intstitution, and coordinated international energy policy at the US State Department. Since 2014, he has been Senior Vice President at IHS Energy, an international analytics company and an energy subdivision of international consulting company IHS Markit.
A RAB-based methodology was approved by the NEURC in January 2018, and it provides for the application of an incentive rate of 12.5% to the entire asset base of oblenergos (both new and old assets). In the opinion of experts, the rate applicable to new assets should be higher. According to Vitaliy Hryhorovskyi, President of the Association of Distribution System Operators, RAB rates should be the same both for new and old assets and at least at 17% (the discount rate of the National Bank of Ukraine).
Who we are: About us, Contacts. How we write news and our principles: Editorial code. We did our best. If you found this valuable – please support us.
To request a correction, please send an email.