A Review of JUNE 2015 Energy Tariffs - INOGATE

1 Programme funded by the EUARMENIA, AZERBAIJAN, BELARUS,GEORGIA, KAZAKHSTAN, KYRGYZSTAN,MOLDOVA,TAJIKISTAN, TURKMENISTAN,UKRAINE, UZBEKISTANJUNE 2015 june 2015A Review of Energy Tariffsin INOGATE Partner Countries The INOGATE Programme is supported by the European Union. Enquiries can be sent to: European Commission Directorate-General for European Neighbourhood and Enlargement Negotiations (DG NEAR) Unit C/2 - Regional Programmes Neighbourhood East B - 1049 Brussels Belgium E-mail: and INOGATE Technical Secretariat E-mail: Note: In this publication, the Republic of Moldova is referred to as Moldova and the Kyrgyz Republic as Kyrgyzstan.

2 This publication has been produced with the financial assistance of the European Union. The contents of this publication are the sole responsibility of the consortium implementing the EU-funded project INOGATE Technical Secretariat and Integrated Programme in support of the Baku Initiative and the Eastern Partnership Energy objectives , namely, Ramboll Denmark A/S, EIR Global sprl, the British Standards Institution, LDK Consultants , MVV decon GmbH, ICF International, Statistics Denmark and Energy Institute Hrvoje Po ar, and can in no way be taken to reflect the views of the European Union. Reproduction is authorised provided the source is acknowledged.

3 june 2015 A Review of Energy Tariffs in INOGATE Partner Countries P a g e | 1 Acknowledgements This publication is the result of work carried out within the project INOGATE Technical Secretariat (ITS) and Integrated Programme in support of the Baku Initiative and the Eastern Partnership Energy objectives . A Review of Energy Tariffs in INOGATE Partner Countries, 2015 was written by John Swinscoe, with the assistance of Vidmantas Jankauskas and Tony Mackay. It was supervised by Sophia Nikolakaki, Nikos Tsakalidis and Alexis Pramagi ulis. The draft report was shared with the European Commission, Partner Countries and relevant stakeholders.

4 All their comments have been integrated in the present document, with the exception of Belarus, Uzbekistan and Turkmenistan, which did not provide any comments. The authors would like to thank all Partner Countries, the INOGATE Country Coordinators, the members of Technical Expert Groups and the Country Experts who contributed to the preparation of this study. A Review of Energy Tariffs in INOGATE Partner Countries P a g e | 2 Table of Contents Executive summary .. 10 Introduction .. 17 1 General principles of tariff calculation and design .. 20 Introduction .. 20 20 Cost allocation principles .. 23 Tariff design principles.

5 24 Feed-in Tariffs to support renewables .. 25 2 Approaches used in EU Member States .. 27 Introduction .. 27 Calculation of the revenue requirement in EU Member States .. 27 Tariff structures .. 28 Electricity generation pricing .. 28 Gas wholesale pricing .. 28 Transmission and distribution Tariffs .. 29 Supply Tariffs .. 30 An example: electricity Tariffs in Lithuania .. 30 3 Analysis of tariff arrangements in each Partner Country (PC) .. 34 34 Overview .. 34 Electricity sector .. 35 Gas sector .. 42 Azerbaijan .. 45 Overview .. 45 Electricity sector .. 47 Gas sector .. 52 Belarus .. 55 Overview .. 55 Electricity sector.

6 58 Gas sector .. 62 A Review of Energy Tariffs in INOGATE Partner Countries P a g e | 3 Georgia .. 64 Overview .. 64 Electricity sector .. 65 Gas sector .. 72 Kazakhstan .. 75 Overview .. 75 Electricity sector .. 77 Gas sector .. 81 Kyrgyzstan .. 84 Overview .. 84 Electricity sector .. 86 Gas sector .. 91 Moldova .. 93 Overview .. 93 Electricity sector .. 94 Gas sector .. 98 Tajikistan .. 101 Overview .. 101 Electricity sector .. 103 Gas sector .. 107 108 Overview .. 108 Electricity and gas .. 110 Recommendations .. 110 Ukraine .. 111 Overview .. 111 Electricity sector .. 112 Gas sector.

7 118 Uzbekistan .. 121 Overview .. 121 Electricity sector .. 122 Gas sector .. 125 4 Conclusions .. 128 Regional overview .. 128 A Review of Energy Tariffs in INOGATE Partner Countries P a g e | 4 Economy and Energy market characteristics .. 128 Regulatory framework .. 131 Tariff-setting principles applied in the Partner Countries .. 133 End-user Tariffs .. 133 Recommendations for each Energy market .. 140 Recommendations for electricity Tariffs .. 140 Recommendations for natural gas Tariffs .. 141 Bibliography .. 142 A Review of Energy Tariffs in INOGATE Partner Countries P a g e | 5 List of Tables Table 1: Feed-in Tariffs in Lithuania.

8 26 Table 2: Electricity distribution Tariffs for commercial customers on the medium-voltage grid in 2013, Lithuania .. 33 Table 3: Electricity distribution Tariffs residential customers on the medium-voltage grid in 2013, Lithuania 33 Table 4: Armenia, total final Energy consumption, 34 Table 5: Armenia, total primary Energy supply, 2011 (1000 toe) .. 34 Table 6: Electricity supply in Armenia .. 35 Table 7: Armenia, interconnectors .. 36 Table 8: Armenia, electricity end-user Tariffs (net of VAT) .. 39 Table 9: Armenia, breakdown of natural gas consumption, 2011 .. 43 Table 10: Azerbaijan, total final Energy consumption, 2011 .. 46 Table 11: Azerbaijan, total primary Energy supply, 2011 (1000 toe).

9 46 Table 12: Azerbaijan, natural gas consumption, 2011 (1000 toe).. 47 Table 13: Azerbaijan, electricity Tariffs since 2007 .. 50 Table 14: Azerbaijan, natural gas wholesale, production and transmission Tariffs .. 53 Table 15: Azerbaijan, natural gas Tariffs .. 53 Table 16: Belarus, total final Energy consumption, 2011 .. 57 Table 17: Belarus, total primary Energy supply, 2011 (1000 toe) .. 57 Table 18: Belarus, generation and transmission structure .. 58 Table 19: Belarus household electricity Tariffs in Belarus .. 59 Table 20: Belarus commercial electricity Tariffs in Belarusian ruble/kWh .. 60 Table 21: Belarus, natural gas Tariffs .. 63 Table 22: Georgia, total final Energy consumption (TFC), 2011.

10 65 Table 23: Georgia, total primary Energy supply, 2011 (1000toe) .. 65 Table 24: Georgia, end-user Tariffs (net of VAT) .. 70 Table 25: Georgia, block Tariffs by distribution company .. 70 Table 26: Georgia, natural gas consumption, 2011 .. 73 Table 27: Georgia, gas transportation Tariffs .. 74 Table 28: Georgia, representative end-user natural gas Tariffs for households and deregulated users in large cities .. 75 A Review of Energy Tariffs in INOGATE Partner Countries P a g e | 6 Table 29: Kazakhstan, total final Energy consumption, 2011 .. 76 Table 30: Kazakhstan, total primary Energy supply, 2011 (1000 toe) .. 77 Table 31: Kazakhstan, electricity distribution Tariffs per company.