Transition from Cost-plus tariffs to Incentive-based Pricing

Improved tariff-setting policies and methodologies in the district heating sector via elaboration, piloting and subsequent nation-wide implementation of incentive-based pricing model.

The main objective of the project is:

1. To assist the Regulator in developing transitional methodologies, regulatory accounting forms and auditing principles in order to improve its capacity for:

• setting cost recovery tariffs,
• issuing licenses and controlling the licensees and promote a regulatory regime enabling long term efficiency.  

2. The transitional methodology should encourage revision of tariffs at least when one of the cost elements is increased by a certain percentage, and eventually transitioning current cost-plus tariffs to tariffs that provide more direct incentives for energy efficiency and saving.
3. Broader reform of the DH companies with the ultimate goal of turning them from a social service into companies that seek to cover costs and generate a profit, focus and deliver cost effective services that compete with other forms of heat supply on an equal footing without the privilege of continuous and potentially unlimited public support;
4. Introducing a sector wide benchmarking exercise based on a standardized performance reporting template (to be developed by the Consultant in close cooperation with the Regulator) and possibly more advanced statistical methods of benchmarking that will enable regulators to assess district heating utility performance over time and incentivize operators to improve performance;
5. Support to the Regulator, including organized training, workshops, and a twinning agreement;
6. Providing guidance and assisting with application of the new DH tariff methodology in selected pilot municipalities;