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Expert opinion: what state instruments are not used to optimize the heating season

“111 billion hryvnias of Naftogaz subsidies will not stimulate energy-efficient behavior of the population” says Oleksiy Korchmit, Head of the Ukrainian Association of Energy Service Campaigns. According to the Cabinet of Ministers, gas should be enough for the heating season 2022-2023, although only 13.2 billion cubic meters were accumulated instead of the planned 19 billion cubic meters.

October 23, 2022 - Olena Burnos - Analysis

Photo: Yevhen Prozhyrko / Shutterstock

In October, reserves are expected to increase to 15 billion cubic meters. The Ministry of Energy predicts that 11.7 billion cubic meters will be consumed in the autumn-winter period, as gas consumption has decreased by 40%.

Oleksiy Korchmit, Head of the Ukrainian Association of Energy Service Campaigns, explained what three state instruments the Government did not use before the start of the heating season to minimize the risks of gas shortages and why the country’s tariff policy does not encourage people to save energy.

What should the government have done six months before the start of the heating season to stimulate gas savings?

There are three state instruments that could have contributed to savings. The first is “warm loans,” under which the state used to reimburse 20% to 70% of the cost of insulation or installation of alternative heating sources (anything but gas) for individual homes within two months. Thus, people either refused to use gas heating by 100% or reduced its consumption by 20% to 50%. In six years, from 2014 to 2020, almost a million people took advantage of these loans. Since 2021, the government has curtailed this tool at the request of the Energy Efficiency Fund, which was supposed to be the only and main powerful tool for addressing these issues.

The Energy Efficiency Fund is the second state instrument. It has been operating for three years. The field of its activity is condominiums in apartment buildings. During the period of its operation, they were able to cover only up to 200 buildings. The scale did not work out. The mechanism for implementing this tool is too complicated and long. Recently, there have been changes in the legislation. I would like to believe that the procedure will become more accessible and residents of individual houses will be able to participate.

“Warm loans” were not renewed six months ago. The Energy Efficiency Fund also failed to get off the ground and was frozen. This year, the possibility of reimbursing the cost of restoring damaged buildings during the war was added. As for budgetary institutions, these tools were not extended to them before. The third tool that was supposed to reduce the consumption of heat and gas by homes is the “big thermal modernization” announced by the President almost a year ago. The Cabinet of Ministers developed a draft resolution that did not go through the approval process because of the start of the full-scale invasion. It was planned to cover five thousand apartment buildings. On the one hand, this is not a large coverage, given that there are about 240,000 such buildings in Ukraine. But it was supposed to be the largest instrument, since “warm loans” covered up to two thousand buildings, and the Energy Efficiency Fund covered 30-40 buildings a year. None of these three instruments were introduced, renewed, or scaled up before the start of the heating season. The state could introduce any other, which would allow reimbursement of part of the cost of insulating homes or replacing the energy source (private sector).

If there is a shortage of gas, the population will use electricity. What is the situation here?

We do not lack electricity. Whether we will have enough during the heating season, given that some of it is generated by coal, is a question. If gas heating stops, people will use air conditioners, provided the temperature is not below zero, or electric heaters. When everyone does this, the substations will not be able to withstand it, because they are not designed to increase consumption by 4-5 times. For example, a 70-square-meter house needs a 5 kW heater. In the private sector, the issue can be solved with a stove. But it is unclear what apartments should do. It is impossible to install a full-fledged individual boiler on alternative fuel, which will work through the heat supply in a radiator. It would be technically and physically possible, but not legally.

The government promises not to raise tariffs. How justified is this?

Europe is launching measures to encourage people to adopt energy-saving behavior. What signal has our government given to the population that it is necessary to save energy? We haven’t given any. Electricity for households will cost UAH 1.44 per kW, when its commercial cost is UAH 5, because there is cross-subsidization with other consumers, including industry. The real price of gas on the market per cubic meter is 40-50 hryvnias. This year, Naftogaz received 111 billion hryvnias from the budget to keep the price of gas for households from rising. What if these 111 billion had been given to residents to insulate their homes? Instead, we will simply burn them during the season and there will be no incentive for energy-efficient behavior.

But there is a war in the country, right?

This is also a security issue. A quarter of our gas is imported from the aggressor country, because Europe sold it to us by purchasing it from Russia. What have we done in 7 months to refuse from imported gas? Progressive countries have chosen to introduce differentiated tariffs. How could we do that? With electricity: up to 50 kW – UAH 1.44, up to 100 kW – UAH 5, above 100 kW – UAH 7, above 150 kW – UAH 10. This block tariff encourages energy-efficient behavior. The same is true for gas. The first block is 7 UAH, and then the commercial price. Subsidies protect the poor. The non-poor should pay as much as it costs. At today’s gas price, the payback for insulating an individual house will take 25 years. If the gas price were realistic, it would take 5-6 years.

The task of this heating season, taking into account all the real force majeure, is to survive and not freeze. Can we already influence the 2023-2024 heating season?

All of the above instruments are slow to deploy, so if we want to prepare for the next heating season, we need to approve all the instruments now, allocate funding for them, launch a strong communication campaign, and lending may start in the first quarter of 2023. An apartment building has a long cycle because it has to be approved at the board level, at the level of the tenants, and so on. If we want to enter the next heating season not with populist slogans and a policy of directing money to plug holes, we need to implement all of the above tools today.

Olena Burnos is a Ukrainian journalist working for Bilopillia.City – an online publication about the life of Bilopillia and the district in the Sumy region.

This article is published in the framework of the “Bohdan Osadchuk Media Platform for Journalists from Ukraine” co-financed by the Polish-American Freedom Foundation as part of the "Support Ukraine” Program implemented by the Education for Democracy Foundation and the Foundation for Polish-German Cooperation. 

Texts published as part of this project are available free of charge under open access Creative Commons license. Republishing is allowed under the CC license, however requires attribution and crediting the author and source. 

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