The National Commission for State Regulation of Energy and Public Utilities (NERC) plans to update the tariff model for Ukrainian underground gas storage (UGS) in accordance with European standards. This decision is part of the preparations for the upcoming heating season and aims to strengthen the country’s energy security.
This is reported by Finway
Transition to incentive-based tariff formation
As reported by Andriy Zakrevskyi, Deputy Director of the Association of Energy and Natural Resources of Ukraine, the current tariff formation model in Ukraine is “cost-plus,” which should be replaced with an incentive-based model. The latter provides for transparent rules and the formation of an economically justified level of profitability for UGS operators. The expert emphasized that such a change will strengthen the position of Ukrainian gas infrastructure ahead of the next winter and ensure its development in the long term.
“I believe this is indeed an important and correct decision by NERC. It will strengthen us ahead of the next winter and, in the long term, will bolster our strategic asset – the largest gas storage facilities in Europe,” he said.
Zakrevskyi also noted that gas storage tariffs in Ukrainian UGS have not been reviewed since July 2022. The current tariff level does not cover the costs of maintenance and restoration of the storage facilities, especially considering the regular damage caused by shelling from the Russian Federation, after which significant funds are needed for repairs.
Impact on consumers and new profitability level
The change in the tariff model, according to the expert, will not have a negative impact on end consumers. The proposed profitability norm is around 3%, which is significantly lower compared to other segments of the energy sector, such as electricity distribution, where profitability reaches 18%.
The transition to a transparent European tariff formation model will ensure stable funding for the maintenance and modernization of gas storage facilities, which is critically important for the energy security of the state in a state of war.