One of the main benchmarks for the investment attractiveness of any country in the world is the World Bank's Doing Business report. The ranking is calculated by the bank's experts and the country's place is determined by the performance in a number of parameters. One of the factors that affects the place of a particular country in the ranking of Ease of Doing Business, according to the methodology, is the indicator of ease of connection to the grid (Getting electricity).
For example. In the Doing Business 2016, Ukraine was in 83rd place, and the parameter that interests us the most (Getting Electricity) our country showed up on the 137th place out of 188.
The introduction of a new model of the electricity market in Ukraine and relevant regulations of the Electricity Market Law, Resolutions of the National Energy and Utilities Regulatory Commission (NEURC) allowed to slightly improve the situation with connection to the grid. Namely, NEURC’s Resolution “On Approval of the Distribution System Code" №310 of 14.03.2018 and "About the statement of the Methodology (order) of formation of a payment for connection to system of transfer and system of distribution” №1965 of 18.12.2018, have also made matters more simplified and allowed Ukraine to take the 128th place in the Doing Business 2020 in terms of Getting Electricity.
However, this is not enough. The very low rating of Ukraine in this specific area, one hundred and twenty-eighth place (!!!), pulls Ukraine down in the overall ranking of Ease of Doing Business. As a matter of fact Ukraine, as a participant of this ranking, critically important for the investment attractiveness of the state, has only one weaker spot, which is behind Getting Electricity parameter (146th place in Resolving Insolvency).
In our opinion, in order to fulfill the task of the President of Ukraine to achieve significant progress in improving Ukraine's position in the Doing Business ranking, the parameter of Getting Electricity plays a very important role. It is necessary to purposefully unite the efforts of public organizations, the NEURC as a regulator, business, the Office of the President and in a short period of time (up to 6 months) to take 10 decisive steps that will radically change the situation:
- Automation of stages of the process of connection to electricity grid.
- Creating the most transparent conditions for connection to the grid.
- Intensification of construction of new power lines and unloading substations.
- Introduction of stimulating tariff formation (RAB tariffs) on the basis of a single asset base and weighted average cost of capital (WACC) starting 1.01.2021.
- Granting permission to connect to commercial power grids.
- Changes to land law.
- Reduction of the term of development of design and estimate documentation.
- Improving the quality of connection to the grid.
- Settlement of disputes over the capacity of electrical installations to be connected to the networks.
- Settlement of differences between legislation and by-laws on technical conditions of connection to the grid and their terms.
In the following document, we propose a specific Roadmap for achieving the goal, based on the above 10 steps.
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09/09/2020
Oleg Kozachuk,
Vice President and Founder of the Association for Energy Efficiency and Energy Saving, Member of the Board of the Association Smart Grids of Ukraine, Acting CEO of Khmelnytskoblenergo.
Road Map
World Bank Doing Business
10 steps to improve the
Getting Electricity parameter
Step: Automation of stages of the process of connection to electrical networks
Problem: The process of connecting to the grid contains various time-consuming stages, numerous participants are involved in process —from the moment of submission of the application by a customer to the conclusion of the Access Agreement. The speed of approval depends on the clear coordination of the participants in the process. Even minor problem in coordinating work causes significant delays in the whole process.
Solutions: We need to develop and implement software for distribution system operators (DSOs) and supply system operators (SSOs), which will automate the stages of the approval process, eliminate the impact of the human factor on the way, and facilitate effective coordination between all participants.
Decision maker(s): 1. NEURC — recommendations, 2.DSOs — software development and implementation.
Due date: October-November 2020. Until March 1, 2021
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Step: Creating the most transparent conditions for connection to the grid
Problem: Because the process of connection to the electricity grid is complex and long, in most cases the customer does not have up-to-date information on the status of implementation of the stages of connection, or any difficulties that may increase the duration of connection.
Solutions: We need to develop and implement "Personal offices for customers awaiting connection", which would reflect the current state of implementation of the Getting Electricity process, with the maximum detail of the stages of this process.
Decision maker(s): 1. NEURC — recommendations, 2.DSOs — software development and implementation.
Due date: October-November 2020. Until March 1, 2021
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Step: Intensification of construction of new power lines and unloading substations
Problem: Long power lines with a voltage of 0.4 kV.
Solutions: According to the Concept of development of electricity grid in Ukraine, 0.4 kV networks length cannot exceed 400 meters, for which unloading substations are projected to be installed and networks of higher voltage classes built. Those measure should result in the reliable and high-quality distribution of electricity for the end user and the convenience of connecting it to the grid.
Decision maker(s): 1. NEURC — recommendations, 2. DSOs — inclusion in the implementation of investment programs for the construction of new 0.4 kV lines. 3. NEURC — RAB tariffs.
Due date: October-November 2020. Starting Jan 01, 2021 (simultaneously with the RAB-tariffs launch).
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Step: Implementation of the incentive pricing (RAB-tariffs) based on a single asset base and weighted average cost of capital (WACC)
Problem: The model of stimulating tariff formation (RAB-tariffs) proposed by the NEURC, which is based on the division of the asset base into old one and new one will not allow to significantly modernize worn-out power grids of Ukraine and will not allow the DSOs to invest significant funds in repairment and replacement of power grids elements. This view goes in line with the conclusions of the Energy Security Project (USAID) and the Smart Grids of Ukraine Association.
Solutions: The introduction of incentive tariffs (RAB-tariffs) as a motivating factor for DSOs will lead to a significant increase in investment. The main thing is the implementation of the approach, predicated on a single asset base. Energy companies will receive income calculated on the basis of weighted average cost of capital (WACC)
Decision maker(s): Office of the President of Ukraine, NEURC
Due date: October-November 2020. Starting Jan 01, 2021
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Step: Granting permission to connect to commercial power grids
Problem: There are facilities such as military towns and construction sites, where there are no DSOs grids available, but there are grids of only business entities (industrial zones, etc.). In such cases, the DSOs are at a considerable distance from the customer's site.
Solutions: It is necessary to allow connection of electrical installations of customers to electricity grids of economic entities without reducing the contractual capacity of existing consumers by making appropriate changes to the Distribution System Code. It could be implemented similarly to connections to adjacent DSOs networks according to 4.1.29. Distribution System Code. In our opinion, this will reduce the customer's costs for connection to the electricity grid and the time required to provide the connection service.
Decision maker(s): NEURC, Office of the President
Due date: October-November 2020. Starting Jan 01, 2021
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Step: Changes to the Land Law
Problem: The norms of the Law of Ukraine "On Land Management" require collecting a great deal of information and a large number of approvals, including passing the state examination, the conclusion of the body of architecture and urban planning - this leads to delays in its preparation in the future. Urban planning documentation (general plans of settlements, zoning projects) are mostly irrelevant and outdated, require changes and the development of new ones, a complex procedure for establishing (expanding) the boundaries of settlements.
Solutions: Simplification of the requirements for the preparation of land management documentation, cancellation of the state land management examination, reduction of duplicate approvals.
Decision maker(s): Working Group at the President’s Office, Verkhovna Rada Committees on Agrarian and Land Policy; on Energy, Housing and Utilities Services; Ministry of Economic Development and Trade, NEURC
Due date: October-December 2020. Starting March 01, 2020.
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Step: Reduction of the timespan of development of project design and estimate documentation (PED)
Problem: Long period of PED development due to the need for tender procedures in the process of selecting a project organization
Solutions: Give the customer the opportunity to choose who will develop the PED (Customer or DSO) not only for the linear part of the connection, but also for the part of the DSOs (work performed in their grids at the expense of capacity charges). This will make it possible to reduce the period of time for Getting Electricity, as the customer has the opportunity to choose a project development organization without going through tender procedures.
Decision maker(s): NEURC
Due date: October-November 2020. Starting Jan 01, 2021
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Step: Improving the quality of connection to the grid
Problem: There is no possibility to finance the replacement of the grid elements for the connection of the customer’s electricity installation at the expense of funds received from the customer as a fee for the Getting Electricity service provided
Solutions: Clearly and unambiguously prescribe in the Distribution System Code that the DSOs have right to use funds received as a connection fee from the substation component to replace their networks (cable lines and OHL), if there is a neccessity to increase the capacity in order to connect this client electrical installation to the grid. This will improve the quality of electricity for existing customers and will not cause additional costs of Getting Electricity for the new customers.
Decision maker(s): NEURC
Due date: October-November 2020. Starting Jan 01, 2021
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Step: Settlement of disputes over the capacity of electrical installations to be connected to the networks
Problem: Disputes over the capacity of electrical installations to be connected to the networks hamper the process of such connection
Solutions: To prescribe in the Law of Ukraine On the Electricity Market or in the Distribution System Code the maximum amount of power, that can be connected to 0.4 kV networks; 10kV networks; 35 (110 and more) kV networks.
Decision maker(s): Working Group at the Office of the President, Committee on Energy, Housing and Utilities Services of the Verkhovna Rada, NEURC
Due date: October-December 2020. Starting Jan 01, 2021
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Step: Settlement of the discrepancies between legislation and by-laws concerning the technical conditions of connection to electric networks and their terms
Problem: According to the Distribution System Code, technical conditions are an integral part of the Access Agreement, and therefore their validity is regulated by it, which contradicts Article 30 of the Law of Ukraine On Regulation of Urban Development, which states that technical conditions are valid until construction is completed. The same applies to the validity of technical conditions for green energy facilities. This causes contradictions in the interpretation of the terms of accession of the technical conditions by the parties to the Agreement.
Solutions: The law is more legally powerful than the Code, than in the Law On the Electricity Market it is necessary to prescribe the requirements of the Access Agreement in terms of the length of the Access Agreement, which is an integral part of the technical conditions.
Decision maker(s): Working Group at the Office of the President, Committee on Energy Housing and Utilities Services of the Verkhovna Rada, NEURC
Due date: October-December 2020. Starting Jan 01, 2021
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09.09.2020
Oleg Kozachuk,
Vice President and Founder of the Association for Energy Efficiency and Energy Saving, Member of the Board of the Association Smart Grids of Ukraine, Acting CEO of Khmelnytskoblenergo
Ruslan Slobodyan,
Technical Director of Khmelnytskoblenergo
Olexander Storozhuk,
Deputy Director for Business Support of Khmelnytskoblenergo
