Thursday07 November 2024
gipoteza.net

Utility costs are set to rise. What will happen to the rates for water, gas, heating, and electricity?

Starting November 1, electricity tariffs will increase in Ukraine, but only for certain consumers. What does this entail, and should we anticipate a rise in the prices of gas, hot water, and heating?
Коммунальные расходы увеличатся. Как изменятся тарифы на воду, газ, отопление и электроэнергию?

Gas: Can Tariffs for the Population Increase?

It should be noted that in Ukraine, according to №2479-ІХ dated August 19, 2022, a moratorium on increasing gas tariffs for the population is in effect during the war, so the price remains unchanged at 7.96 UAH (including VAT) per 1 cubic meter.

In Ukraine, an increase in electricity prices for businesses is planned starting November 1, 2024, but this does not apply to residential consumers.

The law prohibits tariff increases for all categories of consumers for:

  • natural gas distribution services;
  • thermal energy (production, transportation, and supply);
  • thermal energy supply and hot water supply services.
Тарифы на газ для населения — чего ожидать

Additionally, according to this law, the price of natural gas for residential consumers and homeowners’ associations (OSMD), if they use gas for producing thermal energy for the population and have a contract with NJSC "Naftogaz of Ukraine," cannot be increased and will remain the same as it was before the large-scale war.

The law also temporarily prohibits gas suppliers from forcing residential consumers to pay debts. This includes adding them to the payment bill, filing lawsuits, collecting debts forcibly, and disconnecting gas supply.

"Gas tariffs and potential damage to underground storage facilities are not directly related matters. A significant role in determining the tariff—whether to increase it or not—depends on Naftogaz's willingness to operate under conditions of financial sufficiency and comfort. This will be the decisive factor," he stated.

Therefore, the price of gas for residential consumers will remain at 7.96 UAH until May 2025 or until the end of martial law.

The Cabinet has extended the special obligations (PSO) for gas supply.

Will tariffs change after May 2025 and upon the cancellation of martial law? The Cabinet has officially extended the special obligations (PSO) for gas supply. According to the government's decision, gas prices for consumers are guaranteed not to change until the end of the next heating season, specifically until April 30, 2025. This applies particularly to residential consumers, meaning the population, as well as heat, electricity producers, and gas distribution system operators.

Depending on the category of consumers, the price of blue fuel from Naftogaz will range from 7.42 UAH to 16.50 UAH per cubic meter. For the population, gas will continue to cost 7.96 UAH per cubic meter.

Тарифы на газ для населения — чего ожидать0

Updated IMF Memorandum: What It Provides Regarding Tariffs for the Population

Memorandum with the IMF, as previously mentioned, contains a potential opportunity for increasing energy tariffs, according to experts. Thus, according to Article 77 of the document, "potential measures for reform, if conditions allow, include an additional gradual increase in tariffs (taking into account the new tariff methodology and social considerations during the war), ensuring external financing, and providing transparent and exceptional direct budget support to energy state enterprises when available budget resources permit."

This section also states that "when the war ends, the energy sector reform program will require, among other things, the restoration and strengthening of competition in wholesale and retail gas markets. Furthermore, ensuring system resilience and reducing quasi-fiscal obligations will necessitate a gradual increase in gas and electricity tariffs to cover costs while appropriately allocating targeted resources to protect vulnerable households. The Cabinet of Ministers will approve a roadmap for the gradual liberalization of gas and electricity markets, with a plan for implementation after the introduction of martial law. The roadmap will be based on a technical analysis of the financial condition of the sector in coordination with the European Commission."

Тарифы на газ для населения — чего ожидать1

At the same time, as noted by the Ministry of Finance, the updated IMF Memorandum, following the fifth review of the Extended Fund Facility (EFF) program, does not contain obligations for Ukraine to increase energy tariffs.

Experts, however, upon reviewing the updated text of the Memorandum with the IMF, note that an increase in tariffs is still anticipated.

In particular, housing and communal services expert Oleg Popenko draws attention to the text of Article 77 of the Memorandum with the IMF regarding energy markets and tariffs, where conditions for raising tariffs are clearly outlined, as evidenced by phrases such as "New tariff methodology," "Gradual increase in gas and electricity tariffs to the level of cost recovery," and others.

"Well, you understand that with such a Memorandum, tariff increases will already happen in 2025, that's clear. But I noted how paragraph 4 is worded. 'To the level of cost recovery.' And here the consumer needs to be very cautious. Because the level of cost recovery at our communal and state enterprises is much higher than the cost of services. Because the cost of services can include everything from 'iPhones' to 'Land Cruisers,' and all of this at the consumer's expense. By the way, 'much higher' can mean 100% or 200% more.," Popenko emphasized.

The text of Article 77 of the Memorandum with the IMF regarding energy markets and tariffs clearly outlines the conditions for raising tariffs.

"Initially, it was noted that tariff increases would occur six months after the end of the war, but now the Memorandum defines that these changes may occur even during military actions. I draw such conclusions from the document that in 2025 we are already expecting increases in tariffs for gas, electricity, gas distribution, and, of course, services for heat energy, etc.," Popenko said.

Such increases will occur gradually, as the expert notes, it is unlikely that the price of gas can be raised to market levels, which currently range from 16 to 18 UAH per cubic meter, all at once.

A similar situation, according to Popenko, has arisen with electricity.

"Currently, our tariff is 4.32 UAH/kWh, while the market rate is 9-11 UAH/kWh, depending on the cost of services. This means we should expect tariff increases in two or three stages. Accordingly, the cost of electricity will rise in several phases," the expert added.

Тарифы на газ для населения — чего ожидать2

Expensive Electricity: How Electricity Tariffs Will Increase

Currently, a general tariff of 4.32 UAH/kWh has been introduced for the population of Ukraine.

Therefore, from October 1 to April 30, 2025, the following tariffs will apply for people with apartments/houses using electric heating:

  • for consumption up to 2,000 kWh per month — 2.64 UAH/kWh for the entire volume of electricity;
  • for consumption exceeding 2,000 kWh per month — 4.32 UAH/kWh for the entire volume of consumed electricity.

Moreover, the tariff coefficients for owners of two-zone and three-zone electricity meters continue to be in effect: at night, from 11:00 PM to 07:00 AM, when the load on the energy system is at its lowest, the tariff is 50% lower than the main one, meaning users only pay 2.16 UAH/kWh.

However, businesses will likely soon have to pay more for electricity. If the National Commission for State Regulation of Energy and Public Utilities (NERC) approves new regulations, tariffs for businesses will increase. For example, in the "day-ahead" market and the intraday market, in this case, the maximum prices will rise during the period from 11:00 AM to 5:00 PM. If currently, 1 MWh costs 5,600 UAH, it is proposed to increase it to 6,900 UAH, aligning the price with the morning peak. "The threat of continued shelling of critical energy infrastructure by the Russian Federation remains, which could lead to additional unpredictable deficits in generating capacities and network limitations. To balance the energy system and avoid consumer disconnections, it is necessary to attract electricity imports, which in turn requires aligning prices in the electricity markets of Ukraine and will allow the use of commercial import opportunities and avoid price fluctuations in Ukraine compared to importing countries," states in the justification for the NERC decision to approve the draft resolution on "maximum prices in the day-ahead market, the intraday market, and balancing market."