ACTIVITY 1

IMPROVEMENT OF REGULATORY AND LEGISLATIVE ENABLING ENVIRONMENTS 

Improvement of the tariff regulation system and creation of a favorable regulatory climate will allow to ensure financial resilience of the heating utilities, district water supply and sanitation utilities, and will improve investment attractiveness of the communal services sector. Transparent regulatory policy incorporating the international experience will help in launching the market mechanisms for encouragement of larger amounts of investments in the energy sector, as well as will promote encouragement of the companies to manage their energy consumption, and will create incentives for both the suppliers and consumers to invest in the end-use energy efficiency.

As part of this activity, the USAID Project was improving the regulatory framework necessary for reform of the municipal energy sector in order to attract financing and investments for the energy efficiency projects and measures with use of clean energy. For achievement of this goal, the Project worked with the relevant Ministries and agencies of Ukraine, Committees of the Verkhovna Rada of Ukraine and other state and private partners - stakeholders of this process.

The Project has started its activities in Ukraine in October 2013.

All this time, our government partners are:

·         Ministry of Regional Development, Construction and Housing and Communal Services;

·         National Energy and Communal Services Regulatory Commission;

·         Ministry of Ecology and Natural Resources;

·         Ministry of Social Policy;

·         Ministry of Economic Development and Trade of Ukraine; and

·         State Agency on Energy Efficiency and Energy Saving.

We also worked closely with the Cabinet of Ministers of Ukraine and specialized Committees of the Verkhovna Rada, local self-government bodies, as well as non-governmental organizations.

Our partners in implementation of the important reforms for Ukraine were also the international financial institutions, including the World Bank (WB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Nordic Environment Finance Corporation (NEFCO), and technical assistance projects of the donors such as the European Union (EU), United Nations Development Program (UNDP), International Finance Corporation (IFC), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

The Project experts, together with the partners, participated in the meetings of the working groups of the parliament, government and other agencies for drafting of the new laws and bylaws, as well amending the existing legal acts. The Project experts provided assistance in drafting of the of key laws for the reform of the municipal energy sector and the housing and communal services sector, in developing the mechanisms for attracting investments for the energy efficiency projects and clean energy activities, improving efficiency and transparency of the tariff formation system, the level of social protection of the population and in promoting development of the HOAs.

Support in Legislative Drafting

• National Energy Strategy through 2035;
• National Renewable Energy Action Plan through 2020;
• National Energy Efficiency Action Plan through 2020;
• Law of Ukraine “On National Energy and Utilities Regulatory Commission”;
• Law of Ukraine “On Peculiarities of Exercising Ownership Rights in Multi-Apartment Buildings” and the bylaws;
• Law of Ukraine “On ESCO” and the bylaws (“On Amendments to the Law of Ukraine “On Introduction of New Investment Opportunities, Guaranteeing Rights and Lawful Interests of Subjects of Entrepreneurial Activities for Large-Scale Energy Modernization”);
• Law of Ukraine “On Peculiarities of Access to Information in Electricity, Natural Gas and Heat Supply, District Hot Water Supply, District Drinking Water Supply and Sanitation”;
• Law of Ukraine “On Heat Supply”;
• Law of Ukraine “On Housing and Communal Services”;
• Law of Ukraine “On Commercial Metering of Heat Energy and Water Supply”; and
• Law of Ukraine “On Energy Efficiency of Buildings”.


TASKS WHICH THE USAID PROJECT HELPED TO IMPLEMENT ON THE NATIONAL LEVEL IN HEAT SUPPLY, DISTRICT WATER SUPPLY AND SANITATION SECTORS

In close cooperation, the NEURC specialists and Project experts drafted a number of documents for the tariff reform in the heat supply and district water supply and sanitation sectors, which presents incentives for timely and sufficient investments, improved performance and improved quality of heat supply, district water supply and sanitation.

Improvement of State Regulation System in Heat Supply and District Water Supply and Sanitation Sectors

In close cooperation with the NEURC, the USAID Project experts developed the necessary legislative framework for transition from the current regulation system ("cost plus") to the system on the principles of incentive regulation. Introduction of incentive based regulation will ensure timely investments, improved performance and improved quality of services.

Improvement of the system of state regulation in the municipal energy sector was conducted in parallel with capacity development. For the NEURC and its licensees in the heat supply and district water supply and sanitation sectors, the large-scale training events were conducted on the issues of regulation transparency, incentive based tariff  regulation, development of the systems for benchmarking and monitoring of services quality, improvement of the regulatory reporting system and introduction of unbundled regulatory accounting by the types of licensed activities, etc.

Strengthening of NEURC Institutional Capacity and Improvement of Professional Knowledge Level of Specialists of the NEURC and Utilities - NEURC Licensees 

One of the priority directions of cooperation between the USAID Project and the NEURC was conducting of the training events (seminars, round tables, etc.) both separately for the NEURC specialists, and joint events for the NEURC representatives and representatives of the heating, district water supply, and sanitation utilities from the USAID Project partner cities. The plan of these training events was formed on the basis of questioning of the NEURC specialists, and includes trainings on pricing, accounting and taxation, investment issues, technical aspects of the heating system functioning, introduction of heat energy generation from the alternative fuels, work with the consumers, etc. Some seminars were conducted with involvement of the international consultants covering international experience and the practice of incentive regulation and benchmarking introduction, etc. 34 seminars were conducted in 2014-2017, their participants were 1,472 persons.

Development of Benchmarking System Based on Best International Practices

The system of benchmarking for the utilities in the heating, district water supply and sanitation sectors was developed as an integral element for introduction of incentive based tariff regulation. Within the framework of this assistance, a comprehensive analysis of such utilities was conducted, performance target indicators and primary data on their calculation were identified, and clustering of the licensees was conducted. Methodological reports and the whole data array was transferred to the NEURC.

Development of System Based on Best International Practices

This task included development of the methodology for evaluation and monitoring of services quality in the heating, district water supply and sanitation sectors. The methodology includes development of the systemic approach to regulatory requirements to quality of services. The automated systems were developed for monitoring of services quality indicators, assistance was provided in development of the reporting forms on the quality of services. The forms were approved by the NEURC.

Transparency in Tariff Regulation

The quality of communal services from the consumers’ point of view of was evaluated through a specialized questioning. This work included preparation of a methodology and toolkit for the survey of consumer opinion about the quality of certain types of communal services and potential willingness to pay more in the case of provided better quality services. The survey results were presented in 2016 report.

In the longer term, the newly created system for monitoring the quality of services enables the regulator to determine with high accuracy the target quality indicators that need to be improved as part of incentive based regulation.

The Project specialists analyzed and described the recommendations on the regulatory transparency in formation and setting of tariffs which are reflected in the relevant report.

Improvement of regulatory reporting included help in improving the existing forms and instructions for their completion and preparation of the draft of the relevant NEURC Resolution (approved and enacted in 2017 within the framework of cost-plus tariff regulation). The new regulatory reporting forms and instructions for the utilities on the principles of incentive based regulation were prepared and are in the process of consultation.

Improvement of Regulatory Reporting and Creation of Regulatory Accounting System

The USAID Project experts and NEURC specialists were improving together regulatory reporting of the heating, district water supply and sanitation utilities (NEURC licensees), and were introducing the regulatory accounting system that promotes establishment of the unified data base of the reporting indicators. The new regulatory reporting allows to introduce the unified principles for formation of the reporting indicators for NEURC licensees, helps the NEURC in identifying the level of cost coverage with tariffs, in substantiation of the decisions on the need to change tariff and allows to create the basis for introduction of the national benchmarking system and transition to incentive regulation.  In 2017, two NEURC Resolutions that were developed within the framework of the Project came into effect: NEURC Resolution # 717 of 05.30.2017 "On approval of the Rules for organization of reporting filed with the National Energy and Utilities Regulatory Commission by the subjects of business in the heating, district water supply and sanitation sectors" (enacted on 09.14.2017) and NEURC Resolution # 1223 of 10.10.2017 "On approval of the Procedure (Rules) for organization and maintenance of accounting by the licensed types of activities by the subjects of business in the heating sector” (enacted on 11.10.2017). NEURC Resolution # 1474 of 12.27.2017 "On approval of the Rules for organization and maintenance of accounting by the licensed types of activities by the subjects of business in the district water supply and sanitation sector" has been adopted but not enacted yet.

Also within the framework of the Project, at the end of 2017, the NEURC together with the consultants developed the new regulatory reporting forms and accounting rules for the licensees in case of application of incentive based tariffs for the heating, district water supply and sanitation sectors. For the heating sector, NEURC Resolution # 361 of 03.23.2018 "On approval of the Procedure (rules) for organization and maintenance of accounting by the licensed types of activities by the subjects of business in the heating sector on the principles of incentive based regulation" has been adopted but not enacted yet.

Improving Social Safety Net Policies

In cooperation with the Ministry of Social Policy, the USAID Project assisted in improvement of the social safety net for low-income consumers of the housing and communal services. For this purpose, the USAID Project experts analyzed the best international practices, conducted analytical research, and provided expert support in the preparation of the relevant documents and specific recommendations to the Government and partner cities. The goal of joint efforts was to make the targeted subsidy system more accessible for the vulnerable groups of population. The developed long-term model consolidates the incentives for energy saving by the households which receive social aid, and allows to increase transparency and planning of the subsidy system by the state. The proposed changes aim at encouraging the population to engage in the energy efficiency measures, as well as improving the targeting of subsidies and creating incentives for their monetization.

In particular, the USAID Project assistance included: 

  • analysis of consumption of the housing and communal services by low-income households and preparation of recommendations on introduction of social norms;
  • development and introduction of social norms;
  • development of recommendations on improvement and simplification of the procedure for providing subsidies;
  • participation in introduction of the new mechanisms for providing subsidies;
  • conducting information campaign on the new rules and mechanisms for providing subsidies; and
  • conducting trainings and providing consultations for over 3,000 employees of regional offices of the Ministry of Social Policy.

AS A RESULT, THE SUBSIDIES WERE RECEIVED BY 6.5 MILLION HOUSEHOLDS WHICH ALLOWED TO REDUCE SOCIAL TENSION DURING RAPID GROWTH OF TARIFFS IN 2015-2016 AND 2016-2017 HEATING SEASONS.

  • development of the Concept of incentives for energy saving by the households receiving subsidies to pay for the housing and communal services; and
  • development of the Concept on monetization of subsidies to pay for the housing and communal services.

TASKS THAT THE PROJECT HELPED TO IMPLEMENT

Together with the SAEE specialists, the USAID Project experts implemented a number of initiatives which became the driving force in the process of implementation of large-scale changes in the sector of energy efficiency and use of alternative energy, namely:

  • developed and contributed to adoption of the National Energy Efficiency Plan and the National Renewable Energy Plan, as well as the Laws "On Energy Efficiency of Buildings", "On Amendments to the Law "On Heat Supply" for Stimulation of Heat Energy Generation from Alternative Energy Sources", as well as "On Introduction of New Investment Opportunities, Guaranteeing Rights and Lawful Interests of Subjects of Entrepreneurial Activities for Large-Scale Energy Modernization";
  • conducted initial analysis of biomass resource potential and described the recommendations on organization of biomass market circulation in order to increase its production and ensure that demand for solid fuel in Ukraine is satisfied on the basis of market principles. The report and package of draft Laws have been submitted to the SAEE for consideration;
  • developed recommendations on providing access to the heat network infrastructure to “third parties” (demonopolization of the heat supply market) in order to improve investment attractiveness and increase share of alternative fuels in the heat supply sector; economic model was adapted to the Ukrainian conditions. The report and package of draft Laws have been submitted to the SAEE for consideration. Also, the district heating systems of several partner cities were analyzed for possible optimization and integration of the networks. In order to achieve optimal indicators of system efficiency and to create opportunities to utilize the residual (or other) heat energy for supply in the integrated network, the works on technical and engineering modelling were conducted. This approach will allow to improve stability of the system, while reducing cost of heat energy;
  • worked on the draft Law of Ukraine "On Amendments to Some Legislative Acts of Ukraine on Development of the Sphere of Liquid Biological Fuels Production". This draft Law was developed in fulfillment of the National Renewable Energy Action Plan. The Draft Law aims at implementation of the provisions of Directive 2009/28/EU of the European Parliament and Council dated 23 April 2009 on promotion of use of energy from renewable sources". To implement the Law, the USAID Project has already prepared and discussed the national standard "Liquid and Gaseous Biofuels. Requirements to Reduce Greenhouse Gas Emissions";
  • launched and actively supported the state "warm loans" program, as well as contributed to adoption of more than 150 municipal programs;
  • ensured the possibility of conducting ESCO-tenders through ProZorro Public Procurement System, which already in 2018 helped to adopt over 150 municipal programs; and
  • these and many other initiatives have allowed Ukraine to make important steps towards implementation of the energy efficiency measures and use of the alternative energy sources, which in turn will provide a solid foundation for ensuring energy security and energy independence of this country.

Draft Laws and By-laws on Energy Efficiency in Buildings, ESCO/EPC, Commercial Metering, Housing and Communal Services, HOA Development

Significant progress has been achieved in this area:

  • Law of Ukraine “On Introduction of New Investment Opportunities, Guaranteeing Rights and Lawful Interests of Subjects of Entrepreneurial Activities for Conducting Large-Scale Energy Modernization” was adopted on 04.09.2015 
  • Law of Ukraine “On Peculiarities of Exercising Ownership Rights in Multi-Apartment Buildings” was adopted on 05.14.2015 
  • Law of Ukraine “On Energy Efficiency of Buildings” was adopted on 06.22.2017 
  • Law of Ukraine “On Commercial Metering of Heat Energy and Water Supply” was adopted on 06.22.2017 
  • Law of Ukraine “On Housing and Communal Services” was adopted on 11.09.2017 

Also, the USAID Project specialists were involved in development of the by-laws adoption of which is envisaged by the Law of Ukraine “On Commercial Metering of Energy and water Supply”, such as:

  • methodologies for distribution between the consumers of the amounts of communal services consumed in the building; and 
  • procedure for acceptance of the metering unit for consumer registration.

And the Law of Ukraine “On Housing and Communal Services”, such as:

  • amendments to the procedures of tariff formation approved by the Resolution of the Cabinet of Ministers of Ukraine # 869 of 06.01.2011, draft sample agreements on providing communal service of heat energy supply.

The USAID Project consultants participated in development and preparation of substantiations for the Resolutions of the Cabinet of Ministers of Ukraine:

  • procedure for calculation and repayment to the state budget of unused amounts of subsidies to compensate expenses on payment for the district heating (heat supply), cold and hot water supply and sanitation, gas and electricity supply services for individual heating – Approved by the CMU Resolution # 300 of 26 April 2017 “On Introduction of Amendments to Some Resolutions of the Cabinet of Ministers of Ukraine”;
  • changes in the social norms for use of the services of district heating and individual heating with natural gas or electricity, approved by the CMU Resolution # 51 of 6 February 2017;
  • procedure for identifying maximum amount of expenses to pay for the services on management of a multi-apartment building, expenses for management of a multi-apartment building, according to which subsidies to population are provided – approved by the CMU Resolution # 1022 of 28 December 2016;
  • changes in the social norms for use of the services of electricity supply when separate electricity metering by time periods is available – approved by the CMU Resolution # 842 of 28 October 2015;
  • amendments to the Regulation on procedure for appointment and providing to population of subsidies to compensate expenses on payment for the housing and communal services, purchase of liquefied gas, solid and liquid stove fuel – approved by the CMU Resolution # 106 of 02.28.2015 “On Improvement of the Procedure for Providing Housing Subsidies”; and
  • procedure for setting social housing norms and social norms for use of the housing and communal services, on payment for which the state provides benefits and establishes subsidies – Resolution # 409 “On Setting State Social Standards in the Housing and Communal Services Sector” was adopted on 08.06.2014.


CONDUCTING INFORMATION CAMPAIGN ON ADVANTAGES OF ENERGY EFFICIENCY, USE OF ALTERNATIVE ENERGY SOURCES, SOCIAL PROTECTION OF POPULATION UNDER CONDITIONS OF GROWING TARIFFS

A powerful information campaign conducted by the USAID Project in all its partner cities was strengthening every year and has become a strong driver for changing Ukrainians’ attitude to energy conservation, implementing energy efficiency measures, the use of alternative energy sources, etc. For instance, specialized events on the national and municipal levels (press briefings, trainings for journalists, forums, conferences, Sustainable Energy Days, etc.) were conducted with Project support across Ukraine. The Project team and experts worked on creating and disseminating numerous brochures, leaflets, posters and infographics. These materials not only tell about energy efficiency and clean energy sources, but also provide answers to the most important and current issues – why tariffs grow, how to receive subsidies, how to determine the subsidy amount, and how to control energy consumption. Also, over 4,500 billboards and city-lights were created by the Project team for its partner cities.

The results of a sociological survey conducted by the Kyiv International Institute of Sociology in September 2017 showed that more than 20% of the adult population of Ukraine recognizes the information materials of the USAID Project, and more than 86% of the adult population supports energy efficiency and introduction of alternative energy sources.

As television is the most popular source of information for most Ukrainians today, the USAID Project Team, together with partners, has created and was actively distributing its own TV program "Your Home". The program tells the viewers how to make living in their homes more comfortable, shows the stories of those people who decided to establish the HOAs, to take “warm loans,” to conduct thermal modernization of their buildings and to install the energy saving equipment. Already in its first season, “Your Home” program compelled attention of the Ukrainians and became one of top-rated programs of the channel. Success of the first season prompted creation of the second, and then third seasons, the latter started in October 2017. In total, our program was aired on 35 Ukrainian TV channels with an audience of 4.7 million, and also was viewed by over 2 million of Facebook users. The last season had format somewhat different from the first two seasons. First of all, the episodes became twice as long (26 min) and focused on the legal and technical issues of the housing and communal sector and services in this sector. The new season is devoted to the problems most typical for the majority of the Ukrainian multi-apartment buildings, and provides solutions to them. In addition, we demonstrate the life hacks that will help you make your home more energy efficient. The Ukrainians liked the program’s approach to solution of typical problems in the residential sector, and this is proved by the program’s rating: it holds fifth place among the most popular programs of the national TV channel UA:PERSHYI.

According to a survey conducted by the Kyiv International Institute of Sociology, more than 20% of the adult population in Ukraine has viewed at least one episode of the program. In addition, the USAID Project team constantly created video PSAs that were broadcasted on the national and regional TV channels and attracted the attention of the Ukrainians to economical use of energy, implementation of the energy efficiency measures in multi-apartment buildings, use of alternative energy sources, and HOA establishment, etc.

Special Project “Obozrevatel”

Having joined efforts with the editorial board of one of the most popular Internet editions in Ukraine, the USAID Project team has created a series of publications. In these materials, we told the Ukrainians about the ways for reducing energy consumption and utility bills, peculiarities of HOA functioning and efficient management, as well as provide tips on thermal modernization in the residential buildings. 12 articles were created in four months, and they have been viewed by about 170,000 Ukrainians. 

Work with Media

First of all, it was important to communicate to the journalists the need to cover the issues of energy reform and housing and communal services objectively and professionally, leaving bias and "hot" facts in the past. Another key task was to teach them to provide information about very complex technical aspects and legislative norms accurately and simply. The conclusions of the Ukrainians and the decisions that they will make depend on the knowledge of the journalists and the quality of their materials. Realizing this, we created a series of interactive trainings for the representatives of regional and national mass media where training combined with press tours to the objects – utilities and HOAs that actively implement the energy-saving measures and use alternative energy sources.

Gradually, together with experts from the USAID Project, the journalists studied modern technologies for energy modernization of the buildings, criteria for equipment and materials for proper quality work, sequence of actions and solutions for the efficient use of energy resources and savings of the family funds. In addition, our participants learned about the latest technologies for providing information on various media platforms, use of correct terminology in the articles and video. We analyzed the most widespread myths around the newly adopted laws on "commercial metering" and "housing and communal services", as well as stories on establishment and operation of HOAs. In total, 615 Ukrainian journalists took part in the trainings. 

In order for the population to receive the most complete answers of the experts and advice on how to properly insulate their housing, how to save energy, how to establish HOAs, or which banks and on what conditions provide loans for the energy efficiency measures in the residential sector – a special Energy Saving Hotline was created in June 2016. More than 10,000 Ukrainians received advice from the Project experts.

The results of a sociological survey conducted by the Kyiv International Institute of Sociology in September 2017 showed that more than 20% of the adult population of Ukraine recognizes the information materials of the USAID Project, and more than 86% of the adult population supports energy efficiency and introduction of alternative energy sources.

   USAID Municipal Energy Reform Project