To improve district heating services across Ukraine, ESP works with governments, municipalities, and utilities to upgrade infrastructure, boost efficiency, reduce gas consumption, and drive down costs for consumers.
A stronger and more transparent district heating sector will attract investment and promote EU integration.
UNDERSTANDING DISTRICT HEATING
District heating has long been the main method for heating multi-family buildings in Ukraine. The district heating market primarily consists of public utilities that generate, transport, and supply thermal energy, in addition to providing residential heating and hot water services.
Most of Ukraine’s residential areas have mixed heat supply schemes, which may include loop, radial, autonomous and individual systems. In most cities, these services are provided by public utilities (natural monopolies). Much of the infrastructure is aging and inefficient, which results in low service quality, high energy losses and high maintenance costs. The tariffs residents pay for these services do not cover the actual costs of the utilities. Moreover, to prevent prices from increasing, tariff structures do not take investment needs into account. As a result, public heat utilities need financial aid from local governments and are accumulating debt owed to the national oil and gas company Naftogaz for natural gas supply.
ESP is helping the national government reform the sector’s legal and regulatory framework, assisting local governments to prepare heat supply schemes and energy sector development programs, reforming heat production and supply facilities, and identifying actions public utilities can take to improve their technical and financial performance. Improving energy efficiency in district heating will attract more investment and help consumers save money from lower energy consumption and losses.
LEGAL AND REGULATORY FRAMEWORK POLICY AND REFORM
Standardizing the Sector
Clear Rules of Engagement. ESP is working to streamline and update overlapping and sometimes conflicting legislation and regulation into a coherent enabling environment for district heating, effectively creating
an “acquis” for the sector where none currently exists within the EU.
ESP’s approach to district heating development includes both top-down and bottom-up strategies to coordinate policies, revise and adjust tariffs, improve energy efficiency, introduce renewable energy technologies, improve customer service, increase investment and transition away from subsidies toward social support.
We engaged a variety of stakeholders and vendors to review the proposed changes, then suggested new laws and amendments to the current legislation.
MUNICIPALITIES & DISTRICT HEATING UTILITIES
ESP is developing a toolkit of approaches for municipal partners to pilot that will help improve the technical and financial performance of several district heating utilities. This toolkit will also help prepare the utilities for investment in critical projects.
Improving Financial Results
ESP developed a comprehensive financial model for Zaporizhzhya’s district heating company, Miski Teplovi Merezhi, and included economically justified cost-plus tariffs for production, transportation, and supply activities.
ESP is helping the public utility Kyivteploenergo introduce network maintenance technology such as geospatial software to improve servicing efficiency, system repair and heat network development planning. Improving operational conditions and network efficiency will reduce unnecessary losses, putting the utility in a better financial position overall.
Promoting Donor Cooperation and Investment
USAID and the European Bank for Reconstruction and Development (EBRD) are cooperating to improve the district heating system in Kyiv, providing technical and financial assistance to transform Kyivteploenergo (КТЕ) into a modernized, efficient public energy utility that operates under European standards and is attractive to investors. The EBRD is considering a €140 million loan to optimize heat supply for customers connected to inefficient boiler-houses through load transfer and boiler-house reconstruction. Loan funds will also help modernize two combined heat and power plants, CHP-5 and CHP-6. ESP has helped KTE switch from national accounting standards to international financial reporting standards (IFRS), funded an external financial audit and developed project documentation for the loan program; all these activities are important prerequisites to obtaining the EBRD loan.