15-08-2012

Energy efficiency: heat stroke


| Civil Expert Council


Typical of Ukraine’s heating and power generation system is the considerable losses at all stages of operation: from generation to distribution to utilization in residential complexes. Indeed, it is the least efficient system in all of Europe. Today, Ukraine spends 33% more fuel to produce a single gigacalorie of heat, demonstrates average 7-8 times higher heat distributions systems loss and 3-5 times higher energy consumption in buildings than other European countries.



At this point, Ukraine has adopted its third energy  conservation program, named  “The Targeted State Economic 

Program for Energy Efficiency for 2010-2015.” Yet, this program provides no relevant financial, human or incentivizing 
resources, nor does it offer any investment conditions. At this stage, the implementation of this latest program is under 
serious threat.
 
The cost of doing nothing
 
Ukraine’s biggest consumers of heating power (natural gas) are its cities. According to expert estimates, the cost of 
heating power for public facilities has gone up from 800% to 1,300% since 2006, depending on the city, while the 
share of spending on energy in local budgets has grown from 2.5% to 7.5% and continues to rise.
 
If nothing is done at the state level to undertake systemic reform in terms of energy conservation in the residential 
services sector (RSS), the municipal heat generating systems in its cities could go into complete collapse. This means 
that consumers will find themselves unable to pay for heating power (natural gas), because its price continues to rise 
while utility companies will be unable to deliver it because they will run out of money. The time could come when 
urban Ukrainians will find themselves without hot water, without the ability to cook food, and without heating in 
wintertime.
 
Why does Ukraine continue to tolerate serious losses in the energy efficiency of its RSS?
 
  •  no tracking systems: as of 2012, more than 40% of heat generating enterprises and 70% of consumers were not equipped with meters to measure the use of heat;
  • no means of regulating consumption and enormous heat loss because of the outer walls of residential and public buildings;
  •  unfair competition on the energy resource market;
  •  focusing public spending on modernizing generation rather than reducing consumption;
  •  little focus on upgrading heat distribution systems that are highly leaky;
  • no system of incentives for comprehensive thermal upgrades of buildings;
  •  uncompetitive privatization of power and cogeneration assets and non-targeted spending of the capital it generates;
  •  a long and costly system for designing and costing documentation, approvals and oversight;
  • current public  procurement system makes them more expensive then market coal offer;
  • a lack of understanding of the  municipal energy  management importance;
  • low awareness in energy saving practices among the managers of the public   institutions, which consume a substantial part of the energy in the cities.
Recommendations for improving RSS energy efficiency policy
 
For the Government
 
Establish a series of incentives and compensatory mechanisms to launch a national-scale program to reduce energy consumption and losses through thermal upgrading based on an integrated management system in the country’s power industry and maximal self-sufficiency through the resulting 
savings.
 
Financial support:
 
• set up financial  incentives of  thermal upgrades by refunding a portion of investor taxes 
paid in the process of insulating buildings;
• direct IMF credits to set up revolving funds that could issue loans for municipal energyconservation programs. Low interest rates would ensure that ROI periods are shorter. The  program should be completely self-sufficient while servicing the loans will not burden Ukraine’s State Budget. A broad-based thermal upgrading program will make it possible 
to engage the construction industry, which currently has no demand for new housing and could generate hundreds of thousands of new jobs.
 
Non-standard sources of additional financial support - use funds from local and municipal Environmental Funds and by selling the attics of condominium buildings for the construction of penthouses and using the resulting revenues to modernize the buildings themselves. Particular attention should be paid to reducing the red tape in putting together such projects and reducing the cost of project documentation.
 
What to avoid - stop the practice of privatizing power generation and distribution infrastructure to fill in budget holes. All capital generated through privatization should be channeled into energy consumption reduction programs.
 
What might the systemic reform of RSS energy efficiency policy yield?
 
Every year, Ukraine’s residential, community, educational and other public institution heating system and its public 
catering system consume nearly 30 billion m3 of natural gas. Yet Ukraine extracts nearly 20 billion m3
of natural gas itself. The remaining 10 billion m3 it imports from Russia. 
 
If RSS energy efficiency policy is systemically reformed by upgrading the entire RSS chain, from thermal generation 
to distribution to utilization in residential buildings, Ukraine could reduce consumption of natural gas to 15 billion m3. 
This would eliminate entirely the need to import any gas from Russia.
 

Policy paper "Effective Energy Efficiency Policy": The Basis for Modernizing Ukraine's Housing Sector"


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