The maximum rate should be enough for both modernization and profit

10 august 2017 | Rossiyskaya Gazeta

Russian municipalities are going to be able to start reforming the local heat markets. They will be able to do that under the new amendments to the Law on Heating Supply according to the Rossiyskaya Gazeta. "This reform is going to be of special interest to those municipalities that want to modernize their heating utilities under new conditions," believes Analytical Center expert Victoria Gimadi.

Victoria Gimadi
Victoria Gimadi
Department for Fuel and Energy Sector

The idea is that a transition to the alternative boiler room type of pricing should be possible. If it's cheaper to build a boiler room locally rather than get heating from the centralized heating supply system it means that the local heating rate is higher than it should be. The reform will make it possible to set a maximum heating rate based on what it would cost to build and buy heating from an alternative boiler room. If necessary, the municipalities will be able to reduce the maximum rate even further, the newspaper explains.

For that the maximum rate must be enough for both modernization (to improve quality and reliability for the consumers) and for a profit margin that the heating utility will be happy with, Ms Gimadi believes. "We're talking municipalities here that have centralized heating supply systems in which a lion's share of the energy is produced by TPPs whose parameters are more efficient than those of stand-alone boiler rooms; it's easier to modernize such systems and recoup the investments in the modernization," she explained in an interview with the Rossiyskaya Gazeta.

As far back as 2015 the Analytical Center surveyed regions to find out whether they were ready to introduce the new pricing system (based on a bill that was in the works at the time, under which the maximum heating price increase was to be capped by the price of an alternative boiler room). Back then quite a few regions were already expressing willingness to transition to the new pricing system, for example regions in the Central and Volga federal districts, Ms Gimadi said.

The expert believes that one result of the modernization will be improved quality and reliability of the heating supply systems. Consumers will feel the improvements in the quality of central heating systems once the investment projects have been implemented. This depends on their implementation timeframe: a medium-term project can be implemented within a year but larger scale projects may take 3-5 years from when the first approvals are obtained to when actual work on them begins.

Source: The Rossiyskaya Gazeta

Picture from open sources