The regulator proposes to switch to a single electricity tariff for industrial and household consumers. What are the consequences of this? Andrian Prokip, doctor of economics, head of energy programs of the NGO "Ukrainian Institute of the Future" told about this in his post.
Recently, the National Commission for State Regulation in the Energy and Utilities Sectors (NKREKP) came up with an initiative to equalize electricity distribution tariffs regardless of consumer voltage classes. This is a kind of equalizer that energy policy in Ukraine has always suffered from. For the average citizen, the change is hardly noticeable. However, large industrial consumers of electricity speak negatively about this initiative. And here I will try to explain why. Moreover, this idea contradicts the principles of European policy and regulation (which we are obliged to implement) and, ultimately, the healthy logic of economically justified tariff formation.
In Ukraine, there are two voltage classes used for electricity distribution systems. The first is for consumers connected to lines with a voltage of more than 27.5 kV (or those who use more than 150 thousand MW∙h per month). The second is for consumers connected to lines with a voltage of less than 27.5 kV. It is clear that the first-class consumers are large industries that consume a lot of energy. In different European countries, the number of voltage classes is greater, and each of them has its own distribution tariffs. In Moldova, which I often use as an example for energy policy comparisons, there are three such voltage classes with corresponding distribution tariffs.
The distribution tariff for the first class is lower than for the second. There are reasons for this. First, these networks have lower losses: the higher the voltage in the network, the lower the losses in it and vice versa. In 2023, losses in networks of the first voltage class amounted to 4.13%, and of the second - 7.14%. Secondly, this is the usual market logic: whoever consumes larger volumes claims discounts. For example, in Vinnytsia, the distribution tariff for the first class is UAH 344.82/MWh , and for the second — 2,028.18; in Lviv — 311.75 and 1,631.03; in Dnipro — 226.41 and 1,328.03. Therefore, the tariffs are calculated based on the costs of electricity distribution by classes and volumes of this distribution. This means that the consumer for each voltage class must cover the costs associated with this distribution. And the number of first-class consumers is incomparably smaller than the number of second-class consumers, of which there are dozens or dozens in the region.
The idea of equalizing the distribution tariff is expected to reduce the tariff for second class by 25%, and naturally increase it for first class consumers. And here it is important that this approach violates the cost cascading principle of tariff construction, which is one of the basic principles of the European energy policy system. In fact, those who use them should pay for the losses in the networks.
In fact, this change will lead to another cross-subsidization — and this is a chronic disease of the Ukrainian energy sector. And consumers of the first class will cover the costs and losses of consumers of the second class of voltage.
The other side of the problem is that large consumers are often exporters and compete in the foreign market. The reduction of the tariff for the second class will somewhat reduce the costs and cost of production of small producers. But the latter compete only among themselves in the domestic market.
Finally, there is another group of beneficiaries of such a decision, and they will actually benefit the most - these are the companies that subsidize the tariff for the population under the PSO mechanism - mostly Energoatom (about 80%) and partly Ukrhydroenergo. These companies cover the difference between the real price of electricity (which in particular includes the fee for its distribution) and the fixed tariff (4.32 UAH/kWh).
Household consumers are exclusively the second class of voltage. And the reduction of the distribution tariff for the second class will reduce the real price of electricity, and therefore will reduce the costs of Energoatom and Ukrhydroenergo. These companies will have more funds: an average of 38 kopecks. for every 1 kWh. Thus, from the world by a thread - the giant capital. And this is in addition to the fact that these companies will accumulate a larger resource after the tariff increase from UAH 2.64 to UAH 4.32/kWh.
