ukraine energy and poverty note -...

Ukraine

Energy and Poverty Note

Eugen Finkel

May 2006

2

Ukraine


Table of Contents

Page No.Acknowledgements 5

Executive Summary 6 I. Introduction 16

A. Background 16 B. Objectives 16

C. Main purposes of household energy use 17 II. Energy user typology 18 A. Basis of the typology 18

B. District heating users 18

C. Network gas users 19

D. Solid fuel users E. Selection of main energy user types for analytical purposes 21

III. Main Types of energy users: key characteristics 22

A. Poverty, methodological features and national level results 22

B. Rural-urban distribution of energy users by types of settlements 23

C. Distribution of energy user types by oblasts 24 D. Distinctions among and ranking of energy user types 25 E. Features and issues by energy user types 29

IV. Heating with network gas versus district heating, improving quality of district heating service and developing a district heating strategy 31

A. The need to improve the district heating service 31 B. Heating with network gas versus district heating 31 C. Energy efficiency 35 D. Issues related to heat cost calculation 38 E. Investment policy and other key elements of a district heating strategy 39

3

V. Energy expenditures 40 A. Solid fuel users 40 B. Network gas users 44 C. District heating households 45 D. Electricity Expenditures 46

VI. Poverty impacts of energy tariff increases 48

A. Background 48 B. Real versus nominal poverty: conceptual considerations and methodological approach 48 C. Impacts of energy tariff and fuel price increases 50

VII. Poverty impacts as a result of switching from solid fuel and LPG to

network gas and subsequently increased gas tariffs 54 A. General considerations, conceptual considerations, methodological approach and overall results 54

B. Detailed results 56 C. Recommendation: promote gas connections for solid fuel users 57

VIII. Review and empirical scrutiny of study data 62 A. Additional research activities 62 B. Review of solid fuel expenditure data 62

C. Recommendation 63

D. Increase of solid fuel price by 40% and gas tariff by 195%, switching

from solid fuel to gas and impact on poverty 63

IX. Policy priorities for heating issues related to household energy use 70 Annex 1: Details: distinctions and ranking of energy user types according to basic living conditions, living standards, educational levels and the occupational status of household heads 71 Annex 2: Details and explanations on how to save energy and money on the basis of energy efficient behavior 82 DiagramDiagram 1, Energy user typology ChartsChart 1, Poverty by main energy-user-types Chart 2, Distribution of main energy-user-types by types of settlements Chart 3, Mean total energy expenditure (UAH) by main energy users Chart 4, Mean total energy expenditure as share of mean total expenditure by

4

main energy users Chart 5, Mean solid fuel expenditure (UAH) by main energy users Chart 6, Mean solid fuel expenditure as share of mean total expenditure by main energy users Chart 7, Mean LPG expenditure (UAH) by main energy users Chart 8, Mean LPG expenditure as share of mean total expenditure by main energy users Chart 9, Mean gas expenditure (UAH) by main energy users Chart 10, Mean gas expenditure as share of mean total expenditure by main energy users Chart 11, Mean district heating expenditure (UAH) by main energy users Chart 12, Mean district heating expenditure as share of mean total expenditure by main energy users Chart 13, Mean electricity expenditure (UAH) by main energy users Chart 14, Mean electricity expenditure as share of mean total expenditure by main energy users Chart 15, Effect of electricity tariff increase on poverty Chart 16, Effect of district heating tariff increase on poverty Chart 17, Effect of gas tariff increase on poverty Chart 18, Effect of solid fuel price increase on poverty Chart 19, Effect of LPG price increase on poverty Chart 20, Effect of LPG and solid fuel price increase on poverty before switch to gas and gas tariff increase after switch to gas Chart 21, Main types of solid fuel (sf) users: Effect of solid fuel and LPG price increases on poverty. Effect of switching to gas on poverty. Effect of 195% increase of gas tariff on poverty. Chart 22, Main types of solid fuel (sf) users: Effect of solid fuel and LPG price increases on extreme poverty. Effect of switching to gas on extreme poverty. Effect of 195% increase of gas tariff on extreme poverty. MapsMap 1: Distribution of shares of district heating customers (DH), network gas users (Gas) and solid fuel users (SF) by oblasts Map 2: Distribution of shares of households having room heating with coal and wood (rh,cw) room heating with wood only (rh,w) and central heating with coal and

wood (ch,cw) by oblasts Map 3: By oblasts, shares of solid fuel users living in settlements covered by but not connected to gas network Map 4: By oblasts, shares of solid fuel users living in settlements not covered by gas Network

5

Acknowledgements The data analysis for the Study on Energy and Poverty was carried out with the support of Iryna Johnson (Indiana State University), Klaus Pforr and Patrick Schupp (University of Mannheim, Germany). The study benefited from contributions of Carolyn Gochenour, Yury Miroshnichenko, Pekka Salminen, Peter Thomson, Edmundo Murrugara, Dejan Ostojic, Volodymyr Sarioglo (data base issues, complementary data generation), Lyudmilla Cherenko (calculation of absolute poverty and extreme poverty lines), Iryna Johnson and Ivanna Ibragimova. Iryna Johnson and Ivanna Ibragimova were in charge of translations and organizational arrangements. Lidia Paschuk provided administrative support. The study was carried out under the supervision and with the key support of Carolyn Gochenour.

6

Executive Summary

1 Introduction

The study on energy and poverty is based on quantitative data (the quarterly household survey on Income and Expenditures of the State Statistics Committee and a specifically developed module on energy and poverty) and qualitative data (in-depth interviews and focus-group discussions with key stakeholders). The focus of the study is on household energy use with special attention on energy and poverty in rural areas. 2 Energy user typology and study objectives

In order to address the issue of energy and poverty, a typology of household energy users (see diagram 1) was developed based on two principles: (i) the composition of the household energy portfolio, and (ii) the distinction between single room heating and central heating. According to the composition of the energy portfolio, three major types of household energy users can be identified: (i) district heating users, (ii) network gas users and (iii) solid fuel users. According to the distinction between single room and central heating, key sub-types of network gas users and solid fuel users can be distinguished. This distinction is poverty relevant. District Heating Users. The share of district heating users in the total population of Ukraine is 42.2 percent. Network Gas Users. The share of network gas users in the total population of Ukraine amounts to 28.6 percent. Most gas users have central heating, some have single room heating, some have central heating based on coal and wood. Solid Fuel Users. The share of solid fuel users in Ukraine amounts to 29.2 percent. Solid fuel is used in form of two major fuel combinations: primarily wood and coal, or wood only (but no coal). Most solid fuel users have single room heating.

7

The energy user typology allows to (i) assess household energy use countrywide according to types of household energy users with different energy portfolios, (ii) analyze energy expenditures and relate major types of energy users to poverty, (iii) assess rural-urban distribution of major types of household energy users and (iv) assess impacts of energy tariff / price increases on poverty by types of household energy users. The Distribution of energy user types has been mapped by oblasts (see maps 1 and 2). Map 1 shows the distribution of shares of (i) district heating customers, (ii) network gas users and (iii) solid fuel users by oblasts. Map 2 shows the distribution of shares of households having (i) room heating with coal and wood (ii) room heating with wood only and (iii) central heating with coal and wood by oblasts. 3 Poverty, rural-urban distribution, specific features and issues by types of energy users

3.1 Poverty and extreme poverty at the national level

Poverty at the national level amounts to 16.9% (based on an absolute poverty line at the level of 211 uah and the use of an equivalence scale). Extreme poverty amounts to 3.8% (extreme poverty line at the level of 135 uah).

3.2 Solid fuel users Poverty. Households with room heating based on wood have the highest poverty and extreme poverty rates (see chart 1). Households with room heating based on coal and wood have the second highest poverty and extreme poverty rates. Households with central heating based on coal and wood have the lowest poverty and extreme poverty rates. Rural – urban distribution. The majority of solid fuel users live in rural areas, some in small towns, and a marginal number in large cities (see chart 2). Almost all households with single room heating based on wood live in rural areas. Specific features and issues. A considerable number of solid fuel users, collect firewood and cut down trees by themselves which may be an important environmental issue. Many solid fuel users households, report health issues due to indoor pollution. Almost all solid fuel users (i) heat less rooms than district heating households and gas users (1 or 2 rooms versus 3 or 4 rooms), (ii) heat less hours per day than district heating households and gas users, and (iii) want to switch to central heating at the apartment or house level based on the supply of network gas.

3.3 Gas users

8

Poverty. Households with room heating based on network gas supply have only the third highest poverty and extreme poverty rates (chart 1). Households with central heating based on the supply of network gas rank fourth in terms of poverty and extreme poverty rates. Rural – urban distribution. Households having central heating based on gas supply are almost equally distributed across large cities, small cities and rural areas. A large majority of households heating single rooms with gas live in rural areas. Small percentages of households belonging to this type of energy users live in small cities and large cities.

3.4 District Heating Households Poverty. Households with district heating rank second lowest in terms of poverty and extreme poverty rates (chart 1). Rural – urban distribution. The large majority of district heating households live in large cities, a small share of households live in small cities, and hardly any district heating households live in rural areas. Customer dissatisfaction

District heating customers are dissatisfied with a number of features of the district heating service. These features include the facts that: (i) the temperature level of the heat provided is often not adequate (either it is too cold or too hot); (ii) the rooms in the apartments are not equally heated; (iii) there are too many interruptions; (iv) heat cannot be regulated at the radiators; (v) there is no heat metering at the apartment level; (vi) payments for heating are not consumption based; (vii) the heating service is too expensive, in particular, as compared to the quality of service provided. A large majority of district heating customers would like to have heat meters at the apartment level (74%) that allow consumption-based payments. A majority of households would also like to be able to regulate the temperature at their radiators (59%). These features would allow households to obtain the temperature desired according to their comfort level in different rooms and obtain savings by reducing the temperature level. If the district heating tariff would increase, many households would reduce the temperature in order to get a lower heat bill (if heat would be metered in their apartment and they could reduce the temperature at the radiators). Almost 60% of district heating customers would like to switch to other forms of heating if they had the choice to switch. Most of them (75%) would like to switch to centralized heating at the apartment or house level based on connections to network gas.

9

4 Distinctions among and ranking of energy user types

It is not only possible to distinguish and rank the different types of energy users according to poverty, extreme poverty and non-poverty rates. It is also possible to distinguish and rank the different types of energy users according to (i) basic living conditions and (ii) living standards as well as the (iii) educational level and (iv) occupational status of household heads. In addition, it is possible to divide types of energy users according to (v) types (vi) and ownership of housing – which, helps to explain key differences in the ranking of the types of energy users. The distinctions and ranking of the different types of energy users made according to basic living conditions and living standards as well as the educational level and occupational status of household heads, largely confirm the distinctions and ranking of the types of energy users made according to poverty, extreme poverty and non-poverty rates. 4.1 Types of housing

Almost all households with district heating (92%) live in separate apartments. Almost all households heating single rooms with coal and wood (91%), and heating single rooms with wood only (93%) as well as the large majority of households with central heating based on coal and wood (84%) have individual houses. Also the large majority of households heating single rooms with gas (71%) and having central heating based on gas (79%) live in individual houses.

4.2 Ownership of housing

Almost all households heating single rooms with gas (93%) and having central heating based on gas (97%) as well as households heating single rooms with coal and wood (97%), heating single rooms with wood only (97%) and having central heating based on coal and wood (95%) have privately or cooperatively owned housing. 80% ofhouseholds with district heating have privately or cooperatively owned housing. 17%of them live in dwellings (apartments in buildings) owned by municipalities – the highest share as compared to all other types of households. 4.3 Distinctions among and ranking of energy user types

According to the shares of connection to (i) water and (ii) sewerage networks, the availability of (iii) phone connections and (iv) bath tubs or shower facilities in dwellings, (v) the ownership of basic household durables (refrigerators, washing machines and vacuum cleaners) as well as (vi) the educational level and (vii) the occupational status of hh heads, households with district heating can be ranked highest and households heating single rooms with wood only lowest. And households having central heating based on gas can be ranked second highest, households heating single rooms with coal and wood second lowest, and households heating single rooms with gas third lowest.

10

Households with central heating based on coal and wood can be ranked third highest, according to the shares of connection to (i) water and (ii) sewerage networks, the availability of (iii) phone connections and (iv) bath tubs or shower facilities in dwellings, and (v) the ownership of basic household durables (refrigerators, washing machines and vacuum cleaners). However, the indicated share levels of households with central heating based on coal and wood are very close and comparable to the share level of the households having central heating based on gas - ranked second highest. And, according to the educational level and the share of hired employees, households with central heating based on coal and wood can, indeed, be ranked second highest. Households with central heating based on coal and wood are the elite of households in rural areas and small cities. 5 Heating with network gas versus district heating, improving quality of district heating service and developing a district heating strategy

5.1 The need to improve the district heating service

Considering the features of dissatisfaction of the district heating customers with the district heating service, it is necessary to improve the district heating service. As almost 60% of district heating customers would like to switch to other forms of heating and most of them would like to switch to centralized heating based on boilers fired with network gas, there is a considerable risk that a number of district heating customers would disconnect from district heating, connect to network gas and install a gas boiler for heating. Consequently, the market position of district heating in Ukraine could get seriously into danger due to the dissatisfaction of district heating customers and the competition of providers of gas boilers. That is what exactly happened in Romania in the recent past. The competitiveness of heating with gas boilers is likely to increase in the future due to the condensing technology (Brennwerttechnik) applied at a new generation of gas boilers in Western European countries. This technology considerably reduces the level of gas consumption and thus also the cost of heating with gas. Consequently, heating with gas boilers will also be more affordable and attractive for households with lower incomes. From competition between district heating and heating with gas boilers, the district heating sector in Ukraine as well as the Government of Ukraine can learn many valuable lessons. 5.2 Development of a national district heating strategy and improvements of the quality of district heating service

In order to confront the competition regarding the option of heating with network gas, the Government of Romania and the district heating companies in Romania intensified their

11

efforts to develop a national district heating strategy and improve the quality of district heating service. A key feature included in these efforts, was the promotion of the installation of thermostatic radiator valves and cost allocators as well as the installation of balancing valves (differential pressure regulators) at the basis of the risers in apartment buildings. The Government of Ukraine and the district heating companies in Ukraine should also promote the installation of thermostatic radiator valves, cost allocators and balancing valves (differential pressure regulators) in order to improve the quality of the district heating service and the competitiveness of this service as compared to the possible heating with network gas in apartment buildings. As in Romania, the installation of thermostatic radiator valves, cost allocators and balancing valves (differential pressure regulators) should be promoted in the frame of a national district heating strategy to be developed. 5.3 Energy efficiency and consumption based billing

Energy efficiency becomes an issue when thermostatic radiator valves and cost allocators are installed in apartments because energy consumption for heating purposes is measured at the apartment level, and billing for heating is based on the amount of energy consumed. Also, the amount of energy consumed at the level of an apartment increases considerably if the energy efficiency conditions of this apartment are very deficient as compared to other apartments. Thus, energy efficient behavior of household members and energy efficient conditions of housing have to be urgently improved, in order to reduce the amount of energy consumed for heating and lower the heat bill. 5.4 Energy efficiency and traditional billing

Energy efficient behavior of household members and energy efficient conditions of housing, do not have any impact on the level of the heat bill to be paid when thermostatic radiator valves and cost allocators are not installed at radiators because the bill is calculated based on the number of m2 of the apartment and not on the amount of energy consumed for heating in the apartment. Thus, energy efficiency is not an issue at all when thermostatic radiator valves and cost allocators are not installed at the radiators in an apartment. However, it becomes a serious issue when households decide to install thermostatic radiator valves and cost allocators as a lot of energy is wasted due to deficient energy efficiency behavior of household members and deficient energy efficiency conditions of housing. 5.5 Unawareness of energy efficiency related to consumption based billing

Many people are aware to a limited extent of the energy waste due to inappropriate energy efficient behavior as well as the energy loss due to insulation issues. They underestimate this waste and loss, do not seriously take into account energy efficient behavior and insulation issues, and they are unaware of the degree of the impact of inappropriate energy efficient behavior and insulation issues on the heat bill.

12

5.6 Information campaigns, training programs, credit programs regarding dwelling insulation and the importance of these campaigns and programs for the poor

Specific information campaigns and training programs have to be promoted and implemented in order to improve energy efficient behavior of household members and energy efficient conditions of housing. To improve energy efficient behavior of household members and energy efficient conditions of housing is key, in particular, for poor households as heat bill increases hit them harder than better off household when thermostatic radiator valves and cost allocators are installed. A credit program to improve efficiency conditions (insulation) of the apartments of the poor might be necessary in order to provide appropriate social protection and ensure the success of the installation of thermostatic valves and cost allocators. 5.7 issues related to heat cost calculation

The structure and the calculation of heating costs related to thermostatic radiator valves and cost allocators and provided to households on their heat bills is complex, and people do not understand the heat cost calculation if it is not appropriately explained. This is an issue of customer protection as the billing can hardly be controlled on the side of the end consumer. Billing of heating costs should be done in a way that households can easily understand the cost calculation and appropriately control the procedures and outcomes of calculations carried out. 5.8 investment policy and other key elements of a district heating strategy

The installation of thermostatic radiator valves, cost allocators and balancing valves (differential pressure regulators) are key elements of an investment policy for the district heating sector. Other key elements of such an investment policy are (i) the installation of metering at the building or staircase level, (ii) the improvement of building insulations in order to improve energy efficiency and protect the environment, (iii) the rehabilitation of the piping network of the district heating companies in order to increase operational efficiency and reduce heat losses, (iv) the modernization of substations and (v) the modernization of heat generation plants. Further, an investment policy for the district heating sector is a key element of a district heating strategy. Such a strategy should cover areas as (i) the entrepreneurial effectiveness and efficiency of district heating companies, (ii) the legal and regulatory frameworks, (iii) the fiscal policy, including subsidy issue, (iv) the mitigation of negative social impacts, (v) the institutional capacity at the municipal level and (vi) the preparation of district heating companies for private sector participation. Another useful institutional element in the frame of an appropriate district heating strategy is the establishment of a nationwide association of district heating companies. The Government and the district heating companies of Ukraine should develop an investment policy, as indicated above, for the district heating sector. This investment

13

policy should be part of an national district heating strategy to be developed. This district heating strategy should cover the areas indicated above. 6 Energy expenditures

Solid fuel users. Solid fuel users pay most for energy, not only in relative but also in absolute terms (charts 3 and 4). They pay more than district heating households and gas users. This puts solid fuel users in a considerable disadvantage as compared to gas users and district heating customers. Gas users. Gas users with central heating pay most for gas in absolute and relative terms (charts 9 and 10). Households with single room heating spend least on energy in relative and in absolute terms. District heating households. Households with district heating spend second least on energy in relative and absolute terms (charts 11 and 12). Electricity expenditures. Electricity expenditures are the lowest expenditures as compared to expenditures for any other form of energy, both in relative and absolute terms. Electricity expenditures are at a similar level for all types of energy users (charts 13 and 14). 7. Poverty impact of tariff increases

Ex ante estimates of poverty impacts due to tariff increases were carried out (charts 15 and 22). The estimates made (i) are related to specific methodological assumptions, (ii) focus on value losses suffered from tariff increases, and (iii) are based on a conceptual distinction between “nominal” and “real” poverty. Poverty impacts of electricity tariff increases are relatively low and the poverty impacts of district heating tariff increase are moderate. The poverty impacts of gas tariff increases are higher than the impact of electricity tariff increases. Solid fuel price increases have the most severe impact on poverty. 8. Impact on poverty as a result of (i) switching from solid fuel and LPG to networkgas (ii) and subsequently increased gas tariffs

Considering that (i) solid fuel expenditures of households heating with solid fuels are extraordinarily high and (ii) all solid fuel users would like to switch to gas, it was assessed how much solid fuel users would spend if they would have gas connections. Based on the assumptions made, for the large majority of solid fuel users, real poverty decreases if they switch from solid fuel and LPG to gas. Recommendation

14

It is recommended to promote gas connections for current solid fuel users, as real poverty would decrease for the large majority of these households, while health benefits, the comfort of residential conditions and living standards would increase. A strategy pursuing connections to the gas network for solid fuel users should be developed in coordination with Naftagas and the gas companies at the oblast level. A considerable number of current solid fuel users who are not connected to network gas, live in localities that are already covered by the network (about 38%). A special strategy to promote gas connections for this sub-group of solid fuel users should be developed. In the case of this sub-group the primary gas network does not have to be extended. Only the gas network at the local level would have to be extended. This would considerably reduce the costs of connecting solid fuel users to the gas network. Map 3 shows, by oblasts, the distribution of shares of solid fuel users living in settlements already covered by the gas network. Map 4 shows, by oblasts, the distribution of shares of solid fuel users living in settlements not covered by the gas network. 9 Review and empirical scrutiny of data regarding solid fuel expenditures. 195% increase of gas tariff, 40% increase of solid fuel prices

In order to scrutinize and critically check the above recommendation (i) the expenditure data on solid fuels obtained from Goskomstat’s quarterly household budget survey was reviewed and cross-checked based on empirical research, and (ii) the effect on expenditures and poverty of a 195% gas tariff increase was estimated for the scenario in which solid fuel users would switch to gas. The 195% tariff increase simulation was carried out in order to assess if a switch for solid fuel and LPG users to network gas would be recommendable also in the long run. In addition, a 40% increase of solid fuel prices was simulated as a reasonable referential figure for solid fuel increases over the time the gas tariff would increase by 195%. It was found, that real poverty would decrease for all types of solid fuel users if the gas tariff would increase by 195% and the solid fuel prices by 40%. Also, real extreme poverty would slightly decrease for households heating single rooms with coal and wood. However, the estimated decreases of poverty and extreme poverty, are likely to be higher, taking into account a number of measures to reduce the waste of heat and increase energy efficiency that households are likely to apply when the gas tariff increases considerably. Real extreme poverty would somewhat increase for households heating single rooms with wood only (3.5%) and for households with central heating based on coal and wood (3.2%). Also, the estimated increase of extreme poverty for these types of households would be lower, or even entirely disappear, taking into account the measures to reduce the waste of heat and increase energy efficiency that households are likely to apply when the gas tariff increases considerably. The results of this analysis support the recommendations to promote gas connections.

15

10 Policy priorities for heating issues related to household energy use

Heating issues deserve priority attention of policy makers in the area of household energy use in Ukraine. In first instance, heating problems of solid fuel users should be addressed. In second instance, district heating issues should be a priority theme of policy makers. Centralized heating based on gas supply is the most preferred and desired form of household heating nationwide. 11 Assessing energy and poverty by key types of household energy users in other regions and countries

Most likely, in a number of other ECA countries such as Russia, the Central Asian countries, Romania, Bulgaria, Moldova etc., there might be encountered similar heating and poverty issues as those assessed in the present study on energy and poverty related to major types of energy users. Also, in Asia (China, Mongolia) and the LAC region (Argentina, Chile, Bolivia, Peru (highlands) and Mexico (highlands), these issues might be encountered. Thus, it might be useful carrying out countrywide assessments of household energy issues as well as the poverty implications of these issues by types of household energy users, in these regions and countries. In addition, cross-country comparisons related to energy and poverty by major types of energy users should be carried out.

16

Ukraine


I. Introduction

A. Background 1.1 In order to assess poverty related to energy, the focus of this study is on household energy use, not on energy, or single energy sectors, as a whole. The study addresses the topic of energy and poverty in both urban and rural areas. However, special attention was placed on the use of energy and its relation to poverty in rural areas, as research in the past has primarily focused on energy use of households in urban areas and less on energy use of households in rural areas. The study on energy and poverty is based on quantitative and qualitative data. 1.2 In order to generate quantitative data related to the topic of energy and poverty, a specific module of questions on energy and poverty was developed and implemented in connection with the quarterly household survey on Income and Expenditures carried out by the Ukrainian State Statistics Committee (Goskomstat). The energy module was designed in close coordination with the State Statistics Committee and on the basis of discussions with key stakeholders from the public sector, the private sector and civil society. Goskomstat’s household budget survey and the connected energy module are based on 10,355 interviews and have representative countrywide coverage. The study on energy and poverty is based on survey data obtained from the first quarter of 2004. 1.3 Qualitative data related to the topics of energy and poverty was generated based on in-depth interviews and focus-group discussions with households in rural and urban areas, local and central government officials, representatives of public and private service providers, independent energy experts and a wide range of civil society representatives.

17

B. Objectives 1.4 The key objectives of the study are to:

(i) assess household energy use countrywide in a specific and differentiated form according to types of household energy users with different energy portfolios,

(ii) identify key household energy use issues nationwide and propose

recommendations for addressing those issues,

(iii) analyze energy expenditures and relate major types of energy users to poverty,

(iv) look at rural-urban distribution (distribution by types of settlements) of

major types of household energy users, and

(v) assess impacts of energy tariff and fuel price increases on poverty by types of household energy users.

C. Main Purposes of Household Energy Use 1.5 The main purposes of household energy use are: (i) lighting, (ii) operating household appliances, (iii) space heating, (iv) cooking, and (v) water heating. 1.6 For lighting and operating appliances, households mainly use electricity. Space heating can be based on network gas, electricity, coal, firewood, mazut and other solid and liquid fuels, depending on whether space heating is provided in the form of: (i) district heating, mainly provided by district heating companies and to a marginal extent by former state enterprises, institutions and other organizations, (ii) central heating at the level of single houses or apartments, or (iii) single room heating. Cooking and water heating can be based on network gas, liquefied petroleum gas (LPG), electricity, coal, wood, and other solid and liquid fuels. 1.7 If households have room heating based on solid fuels, they mostly use stoves made of bricks (“grubas”). These stoves may also be equipped with metal devices that can be used for cooking. Sometimes, also “buzhuikas” (stoves made of metal) are still used for room heating based on solid fuels, however, these types of stoves were mostly used in the past and are less used now. 1.8 Central heating in the case of solid fuel or network gas use, is based on hot water heated with centrally installed boilers and circulated through a system of pipes and

18

radiators. Based on this system, hot water for household use (other than the purpose of space heating) can also be provided to selected rooms. 1.9 If, in the case of central heating based on network gas, hot water (for household uses other than the purpose of space heating) is not available, households use “kolonkas” (separate water heaters) for water heating. Also district heating households use “kolonkas”, mostly, if hot water is not provided in connection with district heating (see below). 1.10 When solid fuel users use LPG for cooking, LPG bottles are mostly connected to the same cooking ranges that are used if network gas is available.

19

II. Energy User Typology

A. Basis of the Typology

2.1 In order to analyze energy and poverty, a typology of household energy users was developed that allows one to examine energy and poverty in analytical and specific terms. This typology is the basis of this study on energy and poverty (see Diagram 1).

2.2 The design of the energy user typology is based on the combination of two factors: (i) the structure or composition of the household energy portfolio (availability of types of energy or fuels such as network gas, coal, firewood etc.), and (ii) key forms of space heating. The key forms of space heating (district heating, central heating, single room heating) in combination with the structure of the household energy/fuel portfolio allow to make a useful distinction of main types and sub-types of energy users. In detail, the factors that allow to make the distinctions on which the typology is based are: district heating, central heating, single room heating, network gas, hot water. Neither the forms of space heating nor the structure of the energy/fuel portfolio alone, allow making a useful distinction of main types and sub-types of energy users. 2.3 Based on how space heating is provided, three different household energy portfolios or three major types of household energy users can be identified: (i) district heating users, (ii) network gas users and (iii) solid fuel users. By also analyzing whether space heating is provided for single rooms only or centrally at the apartment or house level, one can further distinguish the key sub-types of network gas users and solid fuel users, and this distinction will be shown to be poverty relevant. The key characteristics of these three types of household energy users are explained below.

B. District Heating Users 2.4 The share of district heating users in the total population of Ukraine is about 42%. The major focus is on district heating provided by district heating companies, because the provision of district heating by enterprises, institutions and other organizations is marginal. 2.5 Besides district heating, the energy portfolio of district heating households is composed of electricity and gas. District heating households use electricity only marginally for cooking, or not at all, and to some extent, these households use electricity for supplementary space heating. They use gas for cooking and for water heating –mainly if hot water is not provided in connection with district heating (see below). 2.6 District heating users can be further distinguished according to whether district heating is based on network gas on the one hand and whether hot water is provided in connection with district heating on the other. It was found that most district heating

20

households are connected to the gas network and most of those who are connected have hot water together with district heating. However, this distinction was found to be only marginally poverty relevant and thus was neglected, since the major focus on energy and poverty is on rural areas where district heating is mainly not available, as explained further below.

C. Network Gas Users 2.7 The share of network gas users in the total population of Ukraine is about 29%. Besides gas, the energy portfolio of gas users includes mainly electricity. These households use gas for space heating, cooking and water heating. They use electricity for lighting and the operation of appliances. 2.8 About 82% of gas users have central heating, representing about 24% of the total population. Only about 18% of gas users have single room heating, representing about 4.5% of the total population. 2.9 Almost all (98%) gas users with central heating use gas only for space heating. Some gas users with single room heating also use electricity for heating purposes.

D. Solid Fuel Users 2.10 The share of solid fuel users in the total population of Ukraine is about 29%. The energy portfolio of solid fuel users is basically composed of wood, coal, electricity and LPG. These households use solid fuel for space heating, cooking and water heating. Besides using solid fuel for cooking, a large percentage of these households also use LPG for cooking. Solid fuel households were found to use electricity only marginally for cooking. To a limited extent, these households were found to use electricity for supplementary space heating. 2.11 Solid fuel is primarily used in the form of two major fuel combinations of wood and coal, or wood only. Other solid fuels such as peat, biomass or dung are hardly used.

21

2.12 Most (about 84%) of solid fuel users have single room heating, representing about 24% of the total population. Only about 16% of solid fuel users have central heating, representing about 5% of the total population. This distribution of room heating versus central heating is just the opposite in comparison to gas users who mainly have central heating and only a small percentage of single room heating. Almost all of solid fuel users with single room heating (88%), heat either with coal and wood only (51%) or with wood only (37%).

22

Diagram 1: Energy User Typology

Energy

NetworkGas Users

28 6%

District Heating Users42.2%

Room Heating24.0%

Solid Fuel Users29.2%

Network Gasonly2.8%

Residual fuelcombinations

1.7%

HeatingCompanies

41.2%

EnterpriseHeating

1.0%

Woodonly9.0%


2.8%

Central Heating

24.1%

Coal & Woodonly

12.2%

Central Heating5.2%

Coal & Woodonly4.0%


1.2%

Room Heating4.5%

Network Gasonly

23.7%


0.4%

With gas36.4%

With hotwater25.4%

Withoutgas

4.8%

Withhot water

3.7%

23

Withouthot water

11 0%

Withouthot water

1 2%

25

E. Selection of Main Energy User Types for Analytical Purposes 2.13 Taking into account (i) the structure of household energy portfolios, (ii) central heating versus single room heating, (iii) the frequency of fuel combinations for heating purposes, and (iv) the size of energy user types resulting from the application of the mentioned analytical features, the following six energy user types were selected and analyzed in-depth:

(1) district heating users, heating companies, (2) network gas users, room heating, network gas only, (3) network gas users, central heating, network gas only, (4) solid fuel users, room heating, coal and wood only, (5) solid fuel users, room heating, wood only, (6) solid fuel users, central heating, coal and wood only.

The selected energy user types are marked with bold black frames in Diagram 1.

26

III. Main Types of energy users: key characteristics

A. Poverty, Methodological Features and National Level Results 3.1 In order to assess poverty1, poverty line and an extreme poverty line were calculated in absolute terms2, and an equivalence scale was used3. The poverty line was set at the level of 211 UAH/month and the extreme poverty line at the level of 135 UAH/month4. Based on the indicated poverty lines and equivalence scales, poverty at the national level is 16.9% and extreme poverty 3.8%. If no equivalence scale is used, poverty amounts to 24.6% and extreme poverty to 6.7%. 3.2 Based on these estimates of absolute and extreme poverty, the survey expenditure data, which serves as a proxy for income, of each of the main energy user types was examined to determine which types have the highest incidence of poverty. Chart 1 below summarizes the results. 3.3 Chart 1 shows that solid fuel users have the highest poverty rates. In particular, households with room heating based on wood have the highest poverty and extreme poverty rates and the lowest non-poverty rate. As they are the poorest of all energy user types, they also have the lowest mean total expenditures of all types. Households with room heating based on coal and wood have the second highest poverty and extreme poverty rates and the second lowest non-poverty rate as compared to other energy user

1 Energy expenditure data missing in the Goskomstat survey was imputed based on regression models developed by types of energy. The missing data was predicted based on the models developed. 2 Absolute poverty lines and absolute extreme poverty lines are calculated based on the cost of buying baskets of goods, including food and non-food items, which are to meet basic needs. Poverty lines and extreme poverty lines calculated in absolute terms are an alternative to relative poverty lines (75 percent of median expenditures) and relative extreme poverty lines (60 percent of median expenditures) that were mostly used in the past in Ukraine. 3 Equivalence scales account for the difference in consumption expenditures of households related to the size and the composition of households. Household consumption expenditures tends to be different according to the composition of households as young children, for example, need less food then adults. Household consumption expenditures also tends to vary according to the size of households. This variation is due to economies of scale as the living costs of 2 or more individuals living together in one household are lower as compared to the living costs in a situation in which each of these individuals would live separately in a one person household. In order to account for these differences related to the size and the composition of households when calculating per capita expenditures, equivalence scales are based on adult equivalent expenditures. In order to obtain adult equivalent expenditures, weighting factors are applied for children and each household member exceeding the first adult member of a household. The Ukrainian Institute of Demography and Social Research from the National Academy of Science proposed using weighting factors of 0.8 for children and household members exceeding the first adult member of a household. According to this proposal, the following equivalence scale formula was used for calculating per capita expenditures: AE adult eqivalent = 1 + 0.8 (N adults – 1) + 0.8 N children.4 Lyudmila Cherenko from Institute of Demography and Social Research calculated the absolute poverty and extreme poverty lines according to criteria suggested by the World Bank (Eduardo Murrugara).

27

types. However, households with central heating based on coal and wood have the lowest poverty and extreme poverty rates and the second highest non-poverty rate. 3.4 Network gas users follow solid fuel users in terms of the incidence of poverty. Households with room heating based on network gas supply have the third highest poverty and extreme poverty rates and the third lowest non-poverty rate. Households with central heating based on the supply of network gas rank fourth in terms of poverty and extreme poverty rates as well as fourth in terms of non-poverty rate. They are less poor than households having single room heating based on network gas. 3.5 Households with district heating rank second lowest in terms of poverty and extreme poverty rates and lowest in terms of non-poverty rate.

B. Rural-Urban Distribution of Energy Users by Types of Settlements

3.6 Chart 2 below provides a picture of the distribution of the main energy user types by type of settlement, that is, by large cities, small cities or rural areas. The Chart shows that the majority of solid fuel users live in rural areas, with some living in small towns, but with only a marginal number living in large cities. About 82% of households with single room heating based on wood live in rural areas. 3.7 Regarding network gas users, households having central heating based on gas supply are almost equally distributed across large cities (29%), small cities (34%) and

Percent

Chart 1: Poverty by Main Energy-User-Types

14.5

18.3 18.0

23.4

30.4

13.4

4.56.0

7.1

3.8

1.2

3.3

0

5

10

15

20

25

30

35

Dstr.Ht. Gas R.Ht Gas Ctr.Ht Wood R.Ht.

Poor Extr. Poor

pov rank: 5th poorest 3rd poorest 4th poorest 2nd

District Heating Gas Gas Coal/Wood Wood Coal/WoodRoom Heating Central Heating Room Heating Room Heating Central Heating

pov rank: 5th poorest 3rd poorest 4th poorest 2nd poorest poorest least poorestshares: 41.2% 2.8% 23.7% 12.2% 9.0% 4.0%

28

rural areas (37%). A large majority of households heating single rooms with gas live in rural areas (61%). Small percentages of households belonging to this type of energy user live in small cities (22%) and large cities (17%). 3.8 The large majority of district heating households (78%) live in large cities, a small share of households (21%) live in small cities, and only 1% of district heating households live in rural areas.

C. Distribution of Energy User Types by Oblasts 3.9 The distribution of energy user types has also been mapped by oblasts (see Maps 1 and 2). Map 1 shows the distribution of shares of (i) district heating customers, (ii) network gas users and (iii) solid fuel users by oblasts. Map 2 shows the distribution of shares of households having (i) room heating with coal and wood, (ii) room heating with wood only, and (iii) central heating with coal and wood by oblasts. 3.10 The Maps show that the oblasts with the highest shares of solid fuel users are: Crimea, Vinnitsa, Volyn, Zhitomyr, Zakarpatie, Zaporozhie, Kirovograd, Mykolaiv, Odessa, Rivne, Sumy, Kherson, Khmelnitsk, Chernovtsy, and Chernigov. 3.11 The oblasts with the highest shares of households heating single rooms with coal and wood, which include the highest levels of poverty, are Crimea, Vinnitsa, Zaporozhie, Kirovograd, Mykolaiv, Sumy, Kherson, and Chernovtsy. The oblasts with the highest

Chart 2: Distribution of Main Energy-User-Types by Types of Settlements

78

17

29

91

11

21 22

34

23

17

31

37

82

68

6158

10

10

20

30

40

50

60

70

80

90

t1st1 t2st1go t2st2go t3st1cwo t3st1wo t3st2cwo

Percent

Large cities Small cities Rural areas

pov rank: 5th poorest 3rd poorest



29

shares of households heating single rooms with wood, also involving high levels of poverty, are Volyn, Zhitomyr, Zakarpatie, Ivano-Frankovsk, Poltava, Rivne, Chernovtsy, and Chernigov. The oblasts with high shares of households having central heating based on coal and wood are Crimea, Ivano-Frankovsk, and Odessa.

D. Distinctions among and ranking of energy user types 3.12 It is not only possible to distinguish and rank the different types of energy users according to poverty, extreme poverty and non-poverty rates. It is also possible to distinguish and rank the different types of energy users according to (i) basic living conditions and (ii) living standards as well as the (iii) educational level and (iv) occupational status of household heads. In addition, it is possible to divide types of energy users according to (v) types (vi) and ownership of housing – which, helps to explain key differences in the ranking of the types of energy users. 3.13 As basic living conditions were applied: the connection of households to (i) water and (ii) sewerage networks, (iii) the availability of phone connections in dwellings, and (iv) the availability of bath tubs or shower facilities in individual houses and apartments. 3.14 As basic living standards were applied: the ownership of basic household durables such as (i) refrigerators, (ii) washing machines and (iii) vacuum cleaners. 3.15 The educational level of household heads can be distinguished according to the following educational categories: (i) university degrees, (ii) bachelor degrees, (iii) degrees from vocational schools, (iv) degrees from technical schools, (v) completed secondary school, and (vi) uncompleted secondary school.

3.16 The occupational status of household heads can be distinguished according to 3 occupational categories: (i) hired employees, (ii) pensioners and (iii) unemployed individuals. 3.17 The distinctions and ranking of the different types of energy users made according to basic living conditions and living standards as well as the educational level and occupational status of household heads, largely confirm the distinctions and ranking of the types of energy users made according to poverty, extreme poverty and non-poverty rates. 1 Types of housing

3.18 Almost all households with district heating (92%) live in separate apartments.6% of them live in dormitories – the highest share as compared to all other types of households. The reason for this is that dormitories are normally located in apartment buildings and most apartment buildings are connected to district heating.

31

DH: 39Gas: 18SF: 43

DH: 53Gas: 20SF: 27

DH: 38Gas: 19SF: 43

DH: 27Gas: 32SF : 41

DH : 27Gas: 65SF : 8

DH: 36Gas: 49SF: 14

DH: 40Gas: 23SF: 37

DH : 41Gas: 38SF : 21

DH : 22Gas: 47SF : 31

DH: 16Gas: 42SF: 42

DH: 66Gas: 14SF: 20

DH: 23Gas: 33SF: 44

DH: 25Gas: 44SF: 30

DH: 33Gas: 29SF: 38

DH: 34Gas: 34SF: 32

DH: 14Gas: 23SF: 63

DH: 56Gas: 34SF: 10

DH: 27Gas: 19SF: 54

DH: 51Gas: 33SF: 16

DH: 29Gas: 33SF: 38

DH: 35Gas: 31SF: 34

DH: 40Gas: 22SF: 38

DH : 20Gas: 33SF : 47

DH: 25Gas: 39SF: 36

DH: 26Gas: 18SF: 56

KYIV:DH: 100Gas: 0SF: 0

SEVASTOPOL:DH: 76Gas: 5SF: 19

Map 1: Distribution of shares of district heating customers (DH), network gas users (Gas) and solid fuel users (SF) by oblasts

32

rht,cw: 27rht,w: 15ctht,cw:05

























KYIV:rht,cw: 0rht,w: 0ctht,cw:0

SEVASTOPOL:rht,cw: 04rht,w: 00ctht,cw:00

Map 2: Distribution of shares of households having room heating with coal and wood (rht,cw) room heating with wood only and (rht,w) centralheating with coal and wood (ctht,cw) by oblasts

34

3.19 Almost all households heating single rooms with coal and wood (91%), and heating single rooms with wood only (93%) as well as the large majority of households with central heating based on coal and wood (84%) have individual houses. 11% of the latter live in separate apartments. 3.20 Also the large majority of households heating single rooms with gas (71%) and having central heating based on gas (79%) live in individual houses.

2 Ownership of housing

3.21 Almost all households heating single rooms with gas (93%) and having central heating based on gas (97%) as well as households heating single rooms with coal and wood (97%), heating single rooms with wood only (97%) and having central heating based on coal and wood (95%) have privately or cooperatively owned housing.

3.24 80% of households with district heating have privately or cooperatively owned housing. 17% of them live in dwellings (apartments in buildings) owned by municipalities – the highest share as compared to all other types of households. 3 Overview: distinctions among and ranking of energy user types

3.25 According to the shares of connection to (i) water and (ii) sewerage networks, the availability of (iii) phone connections and (iv) bath tubs or shower facilities in dwellings, (v) the ownership of basic household durables (refrigerators, washing machines and vacuum cleaners) as well as (vi) the educational level and (vii) the occupational status of household heads, households with district heating can be ranked highest and households heating single rooms with wood only lowest. And households having central heating based on gas can be ranked second highest, households heating single rooms with coal and wood second lowest, and households heating single rooms with gas third lowest. 3.26 Households with central heating based on coal and wood can be ranked third highest, according to the shares of connection to (i) water and (ii) sewerage networks, the availability of (iii) phone connections and (iv) bath tubs or shower facilities in dwellings, and (v) the ownership of basic household durables (refrigerators, washing machines and vacuum cleaners). 3.27 However, the indicated share levels of households with central heating based on coal and wood are very close and comparable to the share level of the households having central heating based on gas - ranked second highest. And, according to the educational level and the share of hired employees, households with central heating based on coal and wood can, indeed, be ranked second highest. 3.28 Nevertheless, according to the poverty (as well as extreme poverty and non-poverty) rates, households with central heating based on coal and wood have been

35

ranked highest, above - as better off energy user types as compared to any other energy user type. 3.29 Probably, the number 2 and 3 ranking is due to the fact that most households with central heating based on coal and wood live in rural areas (60%) and small cities (33%), although they are better off than any other energy user type. The accessibility to (i) water (ii) sewerage and (iii) phone connections, (iv) basic household durables, higher education and hired employment is surely more difficult in rural areas and small cities than in large city areas. 3.30 Without any doubt, households with central heating based on coal and wood are the elite of households in rural areas and small cities. 3.31 Details regarding distinctions and the ranking of energy user types according to basic living conditions and living standards as well as the educational level and occupational status of household heads, are provided in Annex 1.

E. Features and Issues by Energy User Types 1 Solid fuel users

3.32 The survey results have identified a number of environmental, health and other issues related to the provision of energy services among the respondents, especially regarding solid fuel users. In the environmental sphere, it was found that a considerable number of solid fuel users collect firewood and cut down trees by themselves; this may be an important environmental issue 5. In the health area, many solid fuel users report health issues due to indoor pollution (coughing and problems with breathing due to smoke and fumes as well as problems with eyes due to smoke and fumes). Furthermore, it was found that almost all solid fuel users (i) heat less rooms than district heating households and gas users (1 or 2 rooms versus 3 or 4 rooms), (ii) heat less hours per day than district heating households and gas users, and (iii) want to switch to central heating at the apartment or house level based on the supply of network gas.

2 District heating users.

3.33 34% of households complained that it was too cold (for different periods of time) in their apartment during the last heating season. When it is too cold in their apartment many households members have to put on more clothes during day than normal, use more blankets during night, heat in addition with electric space heaters or even turn on their gas

5 Cutting down trees arbitrarily may lead to land slides, drainage issues, impacts on micro-climates etc.

36

cooking range. About 11% of households reported that it was too hot (for different periods of time) in their apartment during the last heating season. Many of them report that they have to open windows when it is too hot in their apartment. In addition, about 30% of households complained that the rooms in their apartment were not equally heated. Further, 30% of households reported that they had district heating interruptions during the last heating season. 3.34 In regard of district heating a number of features bother most households, including, in particular: that the heating service is too expensive (85%), that it is not possible to pay based on metered consumption (63%), that heat cannot be regulated at the radiators (60%), and the temperature level of the heat provided is not adequate (41%). For many district heating customers the district heating service has become too expensive in recent years while, at the same time, the quality of service has decreased. 3.35 A large majority of district heating customers would like to have heat meters at the apartment level (74%) that allow consumption-based payments. A majority of households would also like to be able to regulate the temperature at their radiators (59%). This would allow them to obtain the temperature desired according to their comfort level in different rooms and obtain savings by reducing the temperature level. 3.36 If the district heating tariff would increase by 40%, approximately 56% of households would reduce the temperature in order to get a lower heat bill (if heat would be metered in their apartment and they could reduce the temperature at the radiators). 3.37 Overall, 48% of the households think that their district heating service is neither good nor bad, 35% of the households rated the quality of district heating service as good, and 17% of the households rated the quality of district heating service as bad. 3.38 Nevertheless, almost 60% of district heating customers would like to switch to other forms of heating if they had the choice to switch. Most of them (75%) would like to switch to centralized heating at the apartment or house level based on connections to network gas; 25% would like to switch to centralized heating from a boiler belonging to a single apartment building or a small group of apartment buildings. 3 Network gas and electricity

3.39 Network gas users were among the most satisfied with their energy services. 3.40 All households in Ukraine have access to electricity. The key issues identified with electricity use include problems related to reliability (service interruptions) and the quality of service. Service interruptions, for example, seem to be related mainly to problems with transformers at the local level. Also, oblenergos have not yet clearly defined key criteria for technical and commercial quality of services nor have they developed yet an approach for controlling service quality.

37

3.41 The issues related to electricity and gas services are considered much less serious and dramatic than the issues identified related to district heating and heating with solid fuels.

IV. Heating with network gas versus district heating, improving quality of district heating service and developing a district heating strategy

A. The need to improve the district heating service

4.1 It is necessary to improve the district heating service, considering the features of dissatisfaction of the district heating customers with the district heating service, mentioned above: (i) the temperature level of the heat provided is often not adequate (either it is too cold or too hot); (ii) the rooms in the apartments are not equally heated; (iii) there are too many interruptions; (iv) heat cannot be regulated at the radiators; (v) there is no heat metering at the apartment level; (vi) payments for heating are not consumption based; (vii) the heating service is too expensive, in particular, as compared to the quality of service provided. 4.2 In particular, it is necessary to improve the district heating service as almost 60% of district heating customers would like to switch to other forms of heating if they had the choice to switch - as indicated above. Further, as most of the households interested in switching to other forms of heating, would like to switch to centralized heating at the apartment or house level based on connections to network gas, there is, indeed, a considerable risk that a number of district heating customers would disconnect from district heating, connect to network gas and install a gas boiler for heating. Consequently, the market position of district heating in Ukraine could get seriously into danger. That is what exactly happened in Romania in the recent past. There, providers of gas boilers for heating at the apartment level were successfully competing with district heating. They sold gas boilers to many households that disconnected from district heating and connected to gas for heating as these households were seriously dissatisfied with the quality of their district heating services. And currently, the confrontation on the heating market between district heating and heating with gas boilers is, still under way, in Romania. From this confrontation, the district heating sector in Ukraine as well as the Government of Ukraine can learn many valuable lessons.

B. Heating with network gas versus district heating 4.3 As mentioned, in recent years, many district heating customers disconnected from district heating in Romania, connected to network gas, and installed gas boilers for heating in their apartments. Mainly, they switched from district heating to heating with network gas due to the following reasons: (i) deficiencies or disadvantages of district heating services, (ii) deficiencies or disadvantages of hot water services, (iii) and advantages of heating with gas boilers as compared to district heating. A number of households also switched from district heating to heating with gas boilers (iv) because of dependency issues due to home owners association decision making and behavioral

38

features of the households in a building. In addition, other households switched to heating with network gas (v) because the quality of district heating and hot water service was so bad that it did not make sense for them to pay at all for such a service.

1 Deficiencies or disadvantages of district heating services

4.4 The key deficiencies or disadvantages of district heating services that motivate households to switch from district heating to heating with gas boilers are: (i) room temperature that is often to low (in particular, when it is too cold outside) requiring the use of additional heat sources (electric space heater, gas fired cooking range etc.), put on more clothes, use more blankets at night etc. – competitiveness issue with gas boilers, (ii) room temperature may be too high (due to hydraulic imbalances often caused by disconnections from district heating, lack of balancing valves at the bottom of risers, deterioration (corrosion etc.) of the piping system in buildings, (iii) too many interruptions, even sometimes not announced previously etc. (iv) limited availability of heat service (only in winter, only a number of hours per day and not all day (and night) long), (v) unpleasant noises in the piping system – if there are thermostatic radiator valves and cost allocators installed - (due to hydraulic imbalances caused by disconnections from district heating, lack of balancing valves at the bottom of risers as well as differential pressure regulators, deterioration (corrosion etc.) of the piping system in buildings– competitiveness issue with gas boilers, (vi) increase of district heating tariff. 2 Deficiencies or disadvantages of hot water services

4.5 The key deficiencies or disadvantages of hot water services that motivate households to switch from district heating to heating with gas boilers are: (i) hot water temperature that is often to low requiring the use of additional heat sources such as electric space heater, gas fired cooking range etc, (ii) hot water temperature that may be too high, (iii) limited availability of hot water service (only a number of hours per day and not all day (and night) long), (iv) dirt, rust, particles in the hot water provided, (v) too much time required until hot water comes out of the tap, (vi) low pressure of hot water coming out of the tap, (vii) too many interruptions, even sometimes not announced previously (viii) increase of hot water tariff etc. 3 Dependency issues

4.6 The dependency issues due to home owners association decision making and behavioral features of the households in a building are: (i) the risk that building (home owners association) might be cut off from district heating or hot water service because of too much arrears, the possibility that home owners association agrees with district heating firm to (ii) get heating a considerable period of time after (weeks, a month, etc.) district heating started because a majority of households want this to be done, or (iii) stop heating a considerable period of time before (weeks, a month, etc.) district heating ended because

39

a majority of households want this to be done, (iv) interruptions of district heating due to repairs in other apartments, (v) hydraulic imbalance due to disconnections from district heating or disconnection of single radiators, (vi) lower heating temperature due to air bubbles etc. 4 Features attracting to heat with gas boilers

4.7 The features of heating with gas boilers (advantages as compared to district heating) that may attract households are: (i) the possibility to get higher room temperatures, in particular, higher temperatures as compared to district heating, (ii) the option to turn on heating at any time (in particular, when it gets cold before district heating starts or after district heating has ended), (iii) the possibility to get hot water immediately out of the tap, (iv) the possibility to get water as hot as desired, (iv) the option of getting a higher asset value and improve the possible resale conditions of the apartment for some time in the future, (v) the option of getting a fashionable/ elegant heating solution. 5 Competition between district heating and heating with gas boilers

4.8 Due to the issues explained in regard of district heating and hot water services and the indicated advantages regarding heating with gas boilers as compared to district heating, a serious competition developed in Romania over the years between district heating and heating with gas boilers. On the one hand, the advantages of heating with gas boilers as compared to district heating were and still are overestimated to a considerable extent. However, the competitiveness of heating with gas boilers is likely to increase again in the future due to a new technology developed for heating with gas boilers at the level of apartments or individual houses. 6 Unawareness of expenses and issues related to heating with gas boilers, reassessments, reconnections

4.9 Many households considering to disconnect from district heating and connect to gas for heating are not aware of many expenses and issues related to heating with gas boilers and may have difficulties to afford these expenses and be unhappy with the issues related to heating with gas boilers if they would disconnect. 4.10 Expenses and issues related to heating with gas boilers of which many households are not aware include: (i) recent increase of the gas tariff, (ii) gas tariff increases to be expected for the next and the following years, (iii) the need to replace boilers after a certain period of time (depending on the quality of the boiler), (iv) high cost of qualitatively good boilers, (v) considerable costs for maintenance and repairs of gas boilers, (v) remodeling costs required for using a gas boiler, (vi) costs needed for installing a pipe for exhaust emissions that goes beyond the roof a building in order to avoid negative health impacts on other households (this may be required by law, home owners associations or households affected by emissions), (vii) contributions for financing purchases and installations of balancing valves etc. in order to adjust hydraulic

40

imbalances or unpleasant noises in the piping system in a building with thermostatic radiator valves and cost allocators caused by disconnections (such contributions may be required by home owners associations and households in a building, district heating companies etc.), (viii) need to pay common costs for district heating in staircases etc., (ix) frequently low gas pressure 4.11 Also, households disconnected from district heating and connected to gas for heating have not been aware of many expenses and issues related to heating with gas boilers and are dissatisfied, have difficulties to afford gas payments and consider to reconnect to district heating due to these expenses and issues. 7 Reductions and increases of the competitiveness of heating with gas boilers as compared to district heating

4.12 Certainly, these expenses and issues may reduce the competitiveness of heating with gas as compared to district heating. However, these expenses and issues will reduce the competitiveness of heating with gas only to a limited extent as district heating households who switched (or consider to switch) to gas are mostly better off households. In addition, the competitiveness of heating with gas as compared to district heating is likely to increase again in the future taking into account that the condensing technology (Brennwerttechnik) applied at a new generation of gas boilers considerably reduces the level of gas consumption and thus also the cost of heating with gas. This new heating technology also considerably simplifies the issues regarding the exhaust emissions with gas boilers as the condensing technology technology considerably lowers emissions. Currently, heating with gas boilers based on the condensing technology is becoming the most popular form of heating in Western European countries. As heating with gas boilers based on the condensing technology considerably reduces the gas consumption and simplifies exhaust emissions issues, it will also be more affordable and attractive for households with lower incomes. 8 Development of a national district heating strategy and improvements of the quality of district heating service in Romania

4.13 In order to confront the competition regarding the option of heating with network gas, the Government of Romania and the district heating companies in Romania intensified their efforts to develop a national district heating strategy and improve the quality of district heating service. A key feature included in these efforts, was the promotion of the installation of thermostatic radiator valves and cost allocators as well as the installation of balancing valves (differential pressure regulators) at the basis of the risers in apartment buildings. 9 Thermostatic radiator valves, cost allocators, balancing valves

4.14 Thermostatic radiator valves and cost allocators allow to (i) regulate the temperature at radiators according to household preferences in each room of an apartment, (ii) reduce temp in order to get a lower the heat bill, (iii) reduce temp in order

41

to save energy and protect environment (as well as reduce national dependency from gas providers), and (iv) control heat consumption based on metering. Balancing valves (differential pressure regulators) at the basis of the risers in apartment buildings allow to address hydraulic imbalances in the piping system in apartment buildings and the related issue of inappropriate temperature levels in different apartments in a building. 10 Developing a national district heating strategy and improving the quality of district heating service in Ukraine

4.15 The Government of Ukraine and the district heating companies in Ukraine should also promote the installation of thermostatic radiator valves and cost allocators as well as the installation of balancing valves (differential pressure regulators) at the basis of the risers in apartment buildings in order to improve the quality of the district heating service and the competitiveness of this service as compared to the possible heating with network gas in apartment buildings. In particular, they should take these measures as many households in Ukraine would like to (i) be able to regulate the temperature at their radiators, (ii) have heat meters at the apartment level, and (iii) make payments based on metered heat consumption. However, thermostatic radiator valves and cost allocators should be promoted in connection with an information campaign regarding energy efficiency. In addition, an information campaign in regard of the advantages of thermostatic radiator valves and cost allocators should be carried out as thermostatic radiator valves and cost allocators and the advantages of these devices are largely unknown among the population.

C. Energy efficiency

1 Consumption based billing and energy efficiency

4.16 Energy efficiency becomes an issue when thermostatic radiator valves and cost allocators are installed in apartments because energy consumption for heating purposes is measured at the apartment level, and billing for heating is based on the amount of energy consumed. 4.17 Energy efficient behavior of household members and energy efficient conditions of housing, have a decisive impact on the amount of energy consumed at the apartment level when thermostatic radiator valves and cost allocators are installed at radiators. The amount of energy consumed at the level of an apartment increases considerably if energy efficiency behavior of household members is very deficient as compared to households in other apartments. This, for example, is the case, when household members frequently open windows in their apartment because it is too hot. 4.18 Also, the amount of energy consumed at the level of an apartment increases considerably if the energy efficiency conditions of this apartment are very deficient as compared to other apartments. This, for example, is the case, if the walls towards the outside of an apartment are badly insulated, the frames of the windows in an apartment

42

are old and worn-down and very draughty, the windows have only one pane and the pane has low insulation capacity. 4.19 Thus, when thermostatic radiator valves and cost allocators are installed at radiators in an apartment, energy efficient behavior of household members and energy efficient conditions of housing have to be urgently improved, in order to reduce the amount of energy consumed for heating and lower the heat bill. 2 Energy efficiency and traditional billing

4.20 By contrast, energy efficient behavior of household members and energy efficient conditions of housing, do not have any impact on the level of the heat bill to be paid when thermostatic radiator valves and cost allocators are not installed at radiators because the bill is calculated based on the number of m2 of the apartment and not on the amount of energy consumed for heating in the apartment. 4.21 This means that the heat bill for a household does not change if household members frequently open windows in their apartment because it is too hot, or if the walls towards the outside of an apartment are badly insulated, the frames of the windows in an apartment are old and worn-down and very draughty, the windows have only one pane and the pane has low insulation capacity. 4.22 Thus, energy efficiency is not an issue at all when thermostatic radiator valves and cost allocators are not installed at the radiators in an apartment. However, it becomes a serious issue when households decide to install thermostatic radiator valves and cost allocators as a lot of energy is wasted due to deficient energy efficiency behavior of household members and deficient energy efficiency conditions of housing. 3 Unawareness of energy efficiency related to consumption based billing

4.23 In particular, energy efficiency is a serious issue when thermostatic radiator valves and cost allocators are installed at the radiators in an apartment because many people are aware to a limited extent of the energy waste due to inappropriate energy efficient behavior as well as the energy loss due to insulation issues. In addition, many people underestimate this waste and loss and do not seriously take into account energy efficient behavior and insulation issues. Finally, they are unaware of the degree of the impact of inappropriate energy efficient behavior and insulation issues on the heat bill. More details and specific explanations on how to save energy and money on the basis of energy efficient behavior are provided in the annex below, in Annex 2. 4 Information campaigns, training programs, credit programs regarding dwelling insulation and the importance of these campaigns and programs for the poor

4.24 A number of specific information campaigns and training programs have to be promoted and implemented in order to improve energy efficient behavior of household members and energy efficient conditions of housing.

43

4.25 Information campaigns regarding energy efficient behavior of household members and energy efficient conditions of housing could be implemented at the level of mass-medias such as TV, newspapers and radios. Also, flyers could be distributed to households. In addition, information campaigns could be implemented at the websites of district heating-companies, municipalities, ministries, regulatory agencies as well as private (NGOs) and public energy efficiency agencies. Moreover, key guidelines regarding energy efficient behavior of household members and energy efficient conditions of housing should be permanently available at the websites of these agencies as in Switzerland, Germany and Austria and other European countries. In these countries, guidelines regarding energy efficient behavior and insulation issues have been key topics of extended public and private information campaigns over decades, with the objective to save energy and money at the household level as well as protect the environment against the impact of energy waste (issue of global warming, risk of climate change). 4.26 The impact of energy efficient behavior of household members on billing for space heating can be addressed easily by information campaigns and training programs. Specifically, building administrators or any hoa representatives could carry out information and training programs with the households in their buildings. To this end, building administrators and representatives of home owners associations should be trained based on agreements or arrangements in coordination with and cooperation among federations of home owners associations, ministries, regulatory agencies, municipalities, dh-companies, private (NGOs) and public energy efficiency agencies. 4.27 However, it is more difficult to address the impact of energy efficient conditions of housing on billing for space heating as a considerable financial potential for improving housing conditions is required (insulate the walls towards the outside of an apartment, replace old and worn-down one pane windows by two pane windows with high insulation capacity etc.). 4.28 To improve energy efficient behavior of household members and energy efficient conditions of housing is key, in particular, for poor households as heat bill increases hit them harder than better off household when thermostatic radiator valves and cost allocators are installed and billing for space heating is based on the amount of energy consumed at the apartment level - as the financial capacity of poor households is lower than the one of better-off households. 4.29 In particular, poor households are hit harder than better-off households by energy efficient conditions of housing as the housing conditions of the former are likely to be in a worse shape than the housing conditions of the latter as these had a better financial potential for improving housing conditions in the past and, also, have a better financial potential for improving housing conditions, if necessary, at the moment when they install thermostatic radiator valves and cost allocators.

44

4.30 A credit program to improve efficiency conditions (insulation) of the apartments of the poor might be necessary in order to provide appropriate social protection and ensure the success of the installation of thermostatic valves and cost allocators

D. Issues related to heat cost calculation 4.31 There are also issues related to the calculation of heating costs once thermostatic radiator valves and cost allocators are installed. First, the structure and the calculation of heating costs related to thermostatic radiator valves and cost allocators and provided to households on their heat bills is relatively complex, if the calculation is not appropriately explained. This is an issue of customer protection as the billing can hardly be controlled on the side of the end consumer. In Romania, the majority of households hardly understand how costs are calculated. Even the knowledge among building administrators regarding the heat cost calculation is deficient. 4.32 Heating costs related to thermostatic radiator valves and cost allocators are divided into common costs and consumption based costs and both types of cost have to be established at the building and apartment level. There are six major steps for calculating these costs: first, it is necessary to determine, at the building level, the share of common costs (in relation to the total heat costs); second, it is necessary to divide, at the building level, the total heat costs in shares of common costs and consumption based costs calculating the share of consumption based costs as the difference between the total of costs and the share of common costs; third, it is necessary to distribute common costs according to the square meters of the heated space of apartments; fourth, it is necessary to distribute consumption based costs according to cost allocator units registered at apartment levels; fifth, it is necessary to apply reductions to consumption based costs according to location of apartments and other correction factors; sixth, it is necessary to add, at the apartment level, common and consumption based costs in order to obtain the total heating costs per apartment.

4.33 Billing of heating costs should be done in a way that households can easily understand the cost calculation and appropriately control the procedures and outcomes of calculations carried out. To this end, the procedures of the heat cost calculation should be appropriately explained to the households, and, on the bill issued by the cost allocators-firms, all the informationshould be provided that is required to appropriately understand and control the calculation of heating costs (what is the common cost at the building level, how was common cost established at the building level, how was common cost at the building level distributed to the apartment level; details on the location discounts and other correction factors etc.). Further, an example or model of heat cost calculation with all necessary details for calculating the heating costs and well formulated explanations of the procedures applied has to be provided in written form in connection with the billing documents when cost allocating is initiated.

45

4.34 Another issue to be dealt with related to the calculation of heating costs is the fact that location discounts for rooms or apartments as well as correction factors are deducted from consumption based costs. This procedure might weaken the motivation of households to reduce temperature and save money because the consumption based costs appear considerably lower as they are, in fact, once location discounts have been deducted. Generating this impression is counterproductive to the general objectives of introducing thermostatic radiator valves and cost allocators (saving energy both at the national and the household level). 4.35 In addition, the behavioral implications of this deduction procedure hits much more the poor because for them it is more crucial and important to increase energy efficient behavior in order to save energy and money than for the non-poor. 4.36 To avoid these adverse and counterproductive implications location discounts and correction factor shares should be deducted from common costs or total costs. However, this is a policy issue and should be discussed at the government level and the level regulatory agencies, cost allocators firms and federations home owners associations.

E. Investment policy and other key elements of a district heating strategy 4.37 The installation of thermostatic radiator valves, cost allocators and balancing valves are key elements of an investment policy directed to improve the quality of district heating and customer satisfaction as well as the competitiveness of district heating regarding heating with network gas. Further key elements of such an investment policy are (i) the installation of metering at the building or staircase level, (ii) the improvement of building insulations in order to improve energy efficiency and protect the environment, (iii) the rehabilitation of the piping network of the district heating companies in order to increase operational efficiency and reduce heat losses, (iv) the modernization of substations and (v) the modernization of heat generation plants. 4.38 However, a district heating strategy is needed in order to coherently, completely and effectively as well as nationwide and in a sustainable manner improve the district heating service, and secure the competitiveness of the district heating service as compared to heating with gas boilers at the level of apartment in buildings. Such a strategy should further cover areas as (i) the entrepreneurial effectiveness and efficiency of district heating companies, (ii) the legal and regulatory frameworks, (iii) the fiscal policy, including subsidy issue, (iv) the mitigation of negative social impacts, (v) the institutional capacity at the municipal level and (vi) the preparation of district heating companies for private sector participation. 4.39 Another useful institutional element in the frame of an appropriate district heating strategy would be the establishment of a nationwide association of district heating companies. Such an association has been successfully established in Romania as well as, recently, in Serbia. The objectives of establishing such an association is to promote an appropriate development of the district heating sector, facilitate the exchange of experiences among district heating companies, represent and support the members of the

46

association at the policy level, the areas of legal and regulatory issues, support research and studies at the technical, organizational and entrepreneurial, level etc.

V. Energy expenditures6

A. Solid Fuel Users 5.1 Solid fuel users were found to pay the most for energy, not only in relative terms but also in absolute terms, as shown in Charts 3 and 4 below. They were found to pay substantially more than district heating households and gas users. They pay most for energy because expenditures for solid fuels, as shown in Charts 5 and 6, are the highest expenditures as compared to expenditures for any other form of energy, as shown in Charts 7-14. Also, only solid fuel users use LPG. When considering expenditures for solid fuel and LPG together, solid fuel users spend about twice as much as gas users spend for gas and district heating customers spend for district heating. This clearly puts solid fuel users in a considerable disadvantage as compared to gas users and district heating customers. Solid fuel users pay most for solid fuels, second most for LPG and least for electricity. They spend about 50-60 UAH per month on LPG or about 3% of their total expenditures.

6 Household expenditures provided in the following charts are quarterly expenditures (expenditures made in January, February and March 2004).

47

5.2 Solid fuel households heating single rooms with coal and wood spend most on energy in relative and second most in absolute terms, due to the high coal prices. They heat less rooms than households with central heating based on coal and wood which requires less expenditures for heating. 5.3 Households heating single rooms with wood spend third most on energy in relative and absolute terms. They spend less on energy than solid fuel users heating with coal and wood, because they cannot afford coal since coal costs more than wood. In addition, many of these households collect wood and cut down trees on their own, and without any expenditures, although cutting down trees is illegal and constitutes an environmental risk. As they are the poorest of all energy user types, they also have the lowest mean total expenditures of all energy user types. And, as they have single room heating, they heat less rooms which requires less expenditures for heating. 5.4 Households with central heating based on coal and wood spend second most on energy in relative and most in absolute terms. This elevated level of expenditures is due to the high coal price. However, households with central heating based on coal and wood spend less in relative terms than households heating single rooms with coal and wood.

Chart 3: Mean Total Energy Expenditure (UAH) by Main Energy Users

407

257

381

242223

172

0

50

100

150

200

250

300

350

400

450



Chart 4: Mean Total Energy Expenditure as Share of MeanTotal Expenditureby Main Energy Users

17.8

14.9

8.910.0

20.2

10.5

0%

5%

10%

15%

20%

25%

Dstr.Ht. t1st1 t2st1go t2st2go t3st1cw t3st1woDistrict Heating Gas Gas Coal/Wood Wood Coal/WoodRoom Heating Central Heating Room Heating Room Heating Central Heating


48

Chart 6: Mean Solid Fuel Expenditure as Share of MeanTotal ExpendituresBy Main Energy Users

13.2%

10.3%

0.0% 0.0%

15.4%

0.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1 o tDistrict Heating Gas Gas Coal/Wood Wood Coal/WoodRoom Heating Central Heating Room Heating Room Heating Central Heating


Chart 5: Mean Solid Fuel Expenditure (UAH) by Main Energy Users

298

175

288

00 0

0

50

100

150

200

250

300

350



49

Chart 7: Mean LPG Expenditure (UAH) by Main Energy Users

63

51

57

00 0

0

10

20

30

40

50

60

70



Chart 8: Mean LPG Expenditure as Share of MeanTotal ExpenditureBy Main Energy Users

2.8%

3.0%

0.0% 0.0%

3.1%

0.0%

0%

Dstr.Ht. t1st1 t2st1go t2st2go t3st1cw t3st1woDistrict Heating Gas Gas Coal/Wood Wood Coal/WoodRoom Heating Central Heating Room Heating Room Heating Central Heating


50

B. Network Gas Users 5.5 Network gas users with central heating pay most for gas in absolute and relative terms, as shown in Charts 9 and 10. They pay more than gas users with single room heating, because they heat more rooms than the latter. Gas users with central heating spend fourth most on energy in relative and in absolute terms. 5.6 Network gas households with single room heating spend least on energy in relative and in absolute terms. The low level of energy expenditures of these households is due to the fact that they have single room heating based on gas supply (which allows them to heat less rooms than gas users with central heating).

Chart 9: Mean Gas Expenditure (UAH) by Main Energy Users

000

203

21

141

0

50

100

150

200

250



51

C. District Heating Households 5.7 Households with district heating spend second least on energy in relative and absolute terms, as shown in Charts 13 and 14. Expenditures for district heating are slightly lower than expenditures of gas users for gas, both in relative and absolute terms, as shown in Charts 9-12. Expenditures of district heating households for gas are very low because they use gas only for cooking or water heating, as shown in Charts 9-10.

Chart 10: Mean Gas Expenditure as Share of MeanTotal Expenditureby Main Energy Users

8.9%

0.0% 0.9%

7.4%

0.0% 0.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Dstr.Ht. t1st1 t2st1go t2st2go t3st1cw t3st1woDistrict Heating Gas Gas Coal/Wood Wood Coal/Wood

Room Heating Central Heating Room Heating Room Heating Central Heatingpov rank: 5th poorest 3rd poorest 4th poorest 2nd poorest poorest least poorestshares: 41.2% 2.8% 23.7% 12.2% 9.0% 4.0%

Chart 11: Mean District Heating Expenditure (UAH) by Main Energy Users

0000

159

00

20

40

60

80

100

120

140

160

180



52

D. Electricity Expenditures 5.8 Electricity expenditures are the lowest expenditures as compared to expenditures for any other form of energy, both in relative and absolute terms. Electricity expenditures are at a similar level for all types of energy users, as shown in Charts 13 and 14.

Chart 12: Mean District Heating Expenditure as Share of MeanTotal Expenditureby Main Energy Users

0.0% 0.0%

7.2%

0.0% 0.0% 0.0%0%

1%

2%

3%

4%

5%

6%

7%

8%

Dstr.Ht. t1st1 t2st1go t2st2go t3st1cw t3st1woDistrict Heating Gas Gas Coal/Wood Wood Coal/Wood

Room Heating Central Heating Room Heating Room Heating Central Heatingpov rank: 5th poorest 3rd poorest 4th poorest 2nd poorest poorest least poorestshares: 41.2% 2.8% 23.7% 12.2% 9.0% 4.0%

Chart 13: Mean Electricity Expenditure (UAH) by Main Energy Users

46

31

3738

43

31

0

5

10

15

20

25

30

35

40

45

50



53

Chart 14: Mean Electricity Expenditure as Share of MeanTotal Expenditureby Main Energy Users

1.8%

1.6%1.5%

1.8%1.8%

1.6%

0%Dstr.Ht. t1st1 t2st1go t2st2go t3st1cw t3st1wo

pov rank: 5th poorest 3rd poorest 4th poorest 2nd poorest poorest leasttshares: 37.3% 3.4% 22.9% 14.3% 10.4%

4 2%



54

VI. Poverty Impacts of Energy Tariff Increases

A. Background 6.1 Recent studies carried out in the three key Ukrainian energy sub-sectors of electricity, gas and coal7 have shown that significant tariff increases are needed if these three industries are to cover their costs and remain commercially viable. These studies estimated that the residential electricity and gas tariffs would have to increase by 140% and 195%, respectively, to cover the costs of production and service provision. Since those studies were carried out, the residential electricity and gas prices have not changed significantly. However, the price of coal to residential consumers has increased considerably recently, with a 25% increase since the first quarter of 2004 (the time frame of the data used from the household budget survey and the energy module). The coal price is planned to increase by another 15% in January of 2005, according to private coal storage owners. Further, according to members of the Parliamentary energy commission, the coal price would still have to increase by an additional 40% in order to cover costs. 6.2 Considering the extraordinarily high tariff and fuel price increases required for households in the three key energy sub-sectors of electricity, gas and coal in order to cover the costs of production and service provision, tariff increases were simulated for all forms of energy (electricity, district heating, network gas, coal, wood), and ex ante estimates of poverty impacts due to tariff increases were carried out. The poverty impacts are expressed in terms of the percentage of households which would fall below the absolute and extreme poverty lines should expenditures for energy services increase. Two levels of tariff increase were selected: a 40% increase as a tariff increase that might be politically viable in the short term; and a 100% increase as a tariff increase that might be politically viable in the medium term. The impacts of these tariff increases are shown in Charts 15-20.

B. Real versus Nominal Poverty: Conceptual Considerations and Methodological Approach

6.3 The ex ante poverty impact assessment of energy tariff and fuel price increases was carried out based on the assumption that total household expenditures would stay the same before and after energy tariff and fuel price increases. 6.4 A value loss of goods and services obtained for the money a household spends occurs, if energy tariffs or fuel prices that are part of the money spent by the household, increase, assuming that total household expenditures stay the same before and after energy tariff or fuel price increases. This value loss makes people poorer than they were before the energy tariff and fuel price increases. It makes them poorer because they get less for the same amount of money after the energy tariff and fuel price increases as

7 Ukraine: Key Challenges Facing the Electricity Sector, World Bank, 2004; Ukraine: Challenges Facing the Gas Sector, World Bank, 2003; Coal Sector Study, World Bank, 2003.

55

compared to what they get before the energy tariff and fuel price increases. The value loss of goods and services experienced by people due to energy tariff and fuel price increases may also be called welfare loss.

6.5 The value loss that people are exposed to, due to energy tariff and fuel price increases, however, does not necessarily or exclusively lead to lower levels of consumption of the energy services or the fuels whose tariffs or prices have increased, because, in most cases, people would rearrange the structure of their total household expenditures as a consequence of energy tariff and fuel price increases. This means that the people might consume less either energy services or the fuels as well as any other goods and services that are included in the usual structure of household consumption and expenditures. Further, the quantities of some goods and services purchased could even be increased as long as the quantities of those goods and services that would be reduced, would be reduced to such an extent that total household expenditures stay the same. 6.6 Now, if an ex ante poverty impact assessment of energy tariff and fuel price increases is to be carried out, a problem of how to measure poverty, has to be overcome before this assessment can be made, -assuming that total household expenditures are kept constant. The problem to be dealt with is the fact that the normal procedure of calculating shares of poverty - comparing the level of total expenditures of households and the level of the poverty line, and considering all those households as “poor” whose total expenditures are below the level of the poverty line - will not work, given the assumption that total household expenditures would stay the same before and after energy tariff and fuel price increases. 6.7 It will not work, because, when total household expenditures stay the same, no difference will be observed when comparing the level of total expenditures of households and the level of the poverty line before and after energy tariff or fuel price increases. This means that the value or welfare loss experienced by the people due to energy tariff and fuel price increases would not be captured. In other words, “real poverty”, that accounts for the value or welfare loss experienced due to due to energy tariff and fuel price increases, would not be assessed. 6.8 However, there is a relatively simple procedure for making ex ante poverty impact assessments of energy tariff and fuel price increases that account for value or welfare losses due to energy tariff and fuel price increases. This procedure consists in deducting the monetary amount of tariff or fuel price increases from total household expenditures. This procedure makes sense, as, due to energy tariff and fuel price increases, the value of the goods and services (including energy services and fuels), consumed less by the people, is equivalent to the monetary amount of tariff or fuel price increases. Households get poorer exactly by the monetary amount of the tariff increase. 6.9 Once the monetary amount of tariff or fuel price increase has been deducted from total household expenditures, the normal procedure of calculating shares of poverty can be applied: comparing the level of total expenditures of households (after the monetary amount of tariff or fuel price increase has been deducted) and the level of the poverty

56

line, and considering all those households as “poor” whose total expenditures are below the level of the poverty line. This two-step procedure allows assessing real poverty as opposed to the straight forward application of the normal procedure of calculating shares of poverty that would assess only “nominal poverty” in the given frame of reference. 6.10 Also, price elasticities of demand and substitution options over time were not taken into account in detail. These features were not considered because the primary objective was to make ex ante poverty impact assessments of energy tariff increases and not to analyze the relationship between prices and quantities of commodities to be bought and ways of how people might reduce and compensate the impact of tariff increases. 6.11 Approaches that focus on elasticities etc. do not necessarily take into account, in a broader perspective, the effect on the structure of total household expenditures and the over all poverty impact of price or tariff increases. And these approaches often do not appropriately present and highlight the dimensions of the initial impact of tariff increases that people, indeed, have to deal with. 6.12 Further, price elasticities and substitution options were not considered in detail because the objective was to carry out a simple and rapid ex ante poverty impact assessment of energy tariff increases. Based on the approach presented, easy and quick inputs for policy discussion on energy tariff or fuel price increases can be generated at any time using data from Goskomstat’s quarterly household budget survey. Thus the decision-making process of policy makers can be improved. 6.13 In addition, the goal was to highlight exactly the situation that people have to confront (objectively and psychologically) when energy tariffs and fuel prices increase – to emphasize the starting point before any adjustments are made, impacts of mitigation features (like income growth etc.) are taken into account etc. 6.14 As impact variations over time were not addressed, the poverty estimates provided may also be considered “immediate” or “short term” poverty impacts. In addition, the approach might be called “rapid ex ante poverty impact assessment of energy tariff increases”, in analogy to the “rapid rural appraisal” approach.

C. Impacts of Energy Tariff and Fuel Price Increases Electricity Tariff Increases

6.15 Regarding any possible residential electricity tariff increases, all households would be affected because all households throughout Ukraine have electricity connections. The poverty impacts of electricity tariff increases, by both 40% and 100%, would be relatively low, due to the very low share of total expenditures (less than 2%) spent by households on electricity. The groups most affected by tariff increases would be those energy user types that have the highest poverty rates, namely the solid fuel users.

57

Chart 15 shows the percentage increase in the number of households by energy user type which would fall below the absolute and extreme poverty lines, respectively.

District Heating Tariff Increases

6.16 Chart 16 below shows the impact of district heating tariff increases on the district heating user group. The poverty impact is considered moderate with a 40% tariff increase, leading to a 2% increase in poverty and more significant in the case of a 100% tariff increase, leading to about a 4% increase in poverty.

Chart 15: Effect of Electricity Tariff Increase on Poverty

14.518.3 18.0

23.4

30.4

13.4

7.1 1.26.03.84.53.3

+0.6

+0.4 +0.2

+0.9

+0.6

+0.0

+0.1+0.3

+0.1+0.0+0.1

+0.9

+0.5

+0.8+0.6+0.2+0.0

+0.2

+0.8

+1.0 +1.1

+0.6

+1.3

+0.7

0

5

10

15

20

25

30

35

District Dstr.Ht., Gas R.Ht.,Gas R.Ht., Gas Ctr.Ht.Gas Ctr.Ht.Coal/Wood R.Ht.Coal/Wood R.Ht.,

Wood R.Ht.Wood R.Ht.Coal/Wood Ctr.Ht.Coal/Wood Ctr.Ht.

Percent

Baseline 40% increase 100% increase


poor - xpoor poor - xpoor poor - xpoor poor - xpoor poor - xpoor poor - xpoorpov rank: 5th poorest 3rd poorest 4th poorest 2nd poorest poorest least poorestshares: 41.2% 2.8% 23.7% 12.2% 9.0% 4.0%

14.5

3.3

+2.0

+0.6

+4.1

+1.3

0

5

10

15

20

25

District Dstr.Ht.,

Percent


District Heating poor xpoor pov rank: 5th poorest share: 41.2%

Chart 16: Effect of District Heating Tariff Increase on Poverty

58

Gas Tariff Increases

6.17 As shown in Chart 17 below, households heating with network gas are most affected by gas tariff increases. These households use gas not only for space heating but also for water heating and cooking. The poverty impact of gas tariff increases is higher on this energy user group than the impact of electricity tariff increases in the case of both 40% and 100% increases. Households heating single rooms with network gas are the most affected by 40% tariff increases, households with central heating based on network gas supply are the most affected by 100% tariff increases. 6.18 District heating households who are connected to the gas network use gas only for cooking or water heating. For this reason, gas tariff increases have only marginal impacts on poverty and extreme poverty in the case of district heating households.

Solid Fuel Price Increases

6.19 Solid fuel price increases have the most severe impact on households in poverty as compared to any other energy tariff or fuel price increases. As shown in Chart 18 below, the poverty impact of a 100% solid fuel (coal and wood) price increase is up to double the size of the poverty impact due to a 40% solid fuel price increase for each of the three types of solid fuel users analyzed. 6.20 Among these groups, the most affected (in both cases of a 40% and a 100% price increase) are households having central heating based on coal and wood which are generally better off than households of all other energy user types.

Chart 17: Effect of Gas Tariff Increase on Poverty

+0.3

18.3 18.0

3.34.5

3.8

+0.3

+2.4 +1.9

+0.3+0.2+0.0

+2.6

+0.3

+3.1 +5.6

+0.1 +0.4

0

5

10

15

20

25

30

District Dstr.Ht., Gas R.Ht., Gas R.Ht., Gas Ctr.Ht. Gas Ctr.Ht.

Percent


District Heating Gas Room Heating Gas, Central Heatingpoor - xpoor poor - xpoor poor - xpoor

pov. rank: 5nd poorest 3rd poorest 4th poorestshares: 41.2% 2.8% 23.7%

59

6.21 Households with room heating based on wood, the type of households with the highest poverty rate, are the group most affected by a 40% price increase (to the same extent as households with central heating based on coal and wood). 6.22 Households with room heating based on coal and wood are least affected by a price increase of 40%. But they are more affected by price increases of 100% than households heating single rooms with wood. And they are affected in the same range as households with central heating based on coal and wood.

LPG price increases

6.23 As shown in Chart 19, LPG price increases affect households moderately. In particular, the impact of a 40% price increase is low. Solid fuel users with central heating experience almost no poverty impact of such an increase. Most affected by a 100% increase of the LPG price are households heating single rooms with wood only and household having central heating based on coal and wood.

Chart 18: Effect of Solid Fuel Price Increase on Poverty

6.0 7.1

13.4

30.423.4

1.2

+3.7

+4.0

+4.0

+0.5

+1.7+2.3

+2.4

+2.2

+5.9

+3.1

+6.4

+4.6

0

5

10

15

20

25

30

35

40

Coal/WoodR.Ht.

Coal/WoodR.Ht.,

Wood R.Ht. Wood R.Ht. Coal/WoodCtr.Ht.

Coal/WoodCtr.Ht.

Percent


Coal/Wood, Room Heating Wood, Room Heating Coal/Wood, Central Heatingpoor - xpoor poor - xpoor poor - xpoor

pov. rank: 2nd poorest poorest least poorestshares: 12.2% 9.0% 4.0%

60

VII. Poverty Impacts as a Result of Switching from Solid Fuel and LPG to Network Gas and Subsequently Increased Gas Tariffs

A. General Considerations, Conceptual Considerations, Methodological Approach and Overall Results

7.1 An assessment was undertaken to determine how much solid fuel users would spend if they would have network gas connections, given that (i) solid fuel expenditures among households heating with solid fuels are extraordinarily high as compared to district heating households and gas users and (ii) all solid fuel users would like to switch to gas. This was done by, first, developing a regression model for predicting gas expenditures for network gas users (excluding district heating households connected to the gas network). (The regression model was developed based on the data from Goskomstat’s quarterly household budget survey.) Then, the regression model was used for predicting gas expenditures for solid fuel users. (Again, the gas expenditures for solid fuel users were predicted based on the data from Goskomstat’s quarterly household budget survey.). Based on these predictions, the poverty impact of switching from solid fuels (coal, firewood) and LPG to network gas was assessed. This was done by comparing levels of poverty based on solid fuel and LPG payments versus the predicted payments for network gas.

Chart 19: Effect of LPG Price Increase on Poverty

23.4

30.4

13.4

6.0 7.11.2

+1.1

+0.3

+0.8

+0.1

+0.1

+0.0

+1.0

+0.8

+0.2

+1.3

+2.4

+1.9

0

5

10

15

20

25

30

35

Coal/WoodR.Ht.

Coal/WoodR.Ht.,

Wood R.Ht. Wood R.Ht. Coal/WoodCtr.Ht.

Coal/WoodCtr.Ht.

Percent


Coal/Wood, Room Heating Wood, Room Heating Coal/Wood, Central Heating poor - xpoor poor - xpoor poor - xpoorpov. rank: 2nd poorest poorest least poorestshares: 12.2% 9.0% 4.0%

61

7.2 The overall result of this assessment is that for the large majority of solid fuel users, real poverty decreases if these households switch from solid fuel and LPG to network gas. Real poverty decreases because households have to spend less for the same value (of space heating, cooking and water heating) that they obtain if they are connected to the gas network as compared to the situation in which they use solid fuel and LPG. This is shown in Chart 20. Because households have to spend less for the same value (of space heating, cooking and water heating) that they obtain if they are connected to the gas network (as compared to the situation in which they use solid fuel and LPG), they have more money available for additional goods and services, assuming that total household expenditures stay the same before and after the connection to the gas network.

7.3 This means that, due to the switch to gas connections, households benefit from an overall value increase of goods and services obtained from the total amount of their money spent. This value increase experienced improves the level of living standards and results in a decrease of poverty. This decrease can be calculated when calculating poverty rates by adding to total household expenditures the difference of money paid for solid fuels and LPG as compared to the predicted payments for network gas.

Chart 20: Effect of LPG and Solid Fuel Price Increase on Poverty before Switch to Gasand Gas Tariff Increase after Switch to Gas

23.4

6.0

30.4

7.1

10.2 (-3.2)

13.4

9.1 (+2.0)

31.0 (+0.5)

19.1 (-4.3)

5.0 (-1) 1.20.9 (-0.4)

34.8

21.3 (-6.4)

1.9

10.6 (+1.5)11 (-6.8)

8.6

34.4 (-0.4)

17.8

3.3 (+1.4)

9.1

6.0 (-2.6)

27.7

15.4 (-12.4)

4.7

27.7

14.3 (+1.2)

39.1 (-0.6)

12.4

39.6

7.8 (-6.6)

24.7 (-10.3)

14.3

35.0

4.2 (0.5)

0

5

10

15

20

25

30

35

40

45

Cl/W R.Ht C/W R.Ht C/WR.Ht. C/WR.H Wood R.Ht.Wood R.Ht.Wood R.Ht.Wood R.Ht. Cl/W Ctr.Cl/WCtr.Ht.C/W Ctr.Ht.Cl/WCtr.Ht

Percent


before

before

beforeafter

after

after

Coal/Wood, Room Heating Wood, Room Heating Coal/Wood, Central Heating poor - xpoor poor - xpoor poor - xpoor poor - xpoor poor - xpoor poor - xpoorpov. rank: 2nd poorest poorest least poorestshares: 12.2% 9.0% 4.0%

62

7.4 Similar as in the case of assessing poverty impacts of tariff increases, all those households whose total expenditures, increased by the difference of money paid for solid fuels and LPG versus the predicted payments for network gas, will still fall below the poverty line or the extreme poverty line would thus be considered as “poor” or “extremely poor”. Poverty in this particular scenario of switching to gas connections, calculated after total expenditures have been increased by the difference of money paid for solid fuels and LPG versus the predicted payments for network gas, is referred to as “real” poverty.

7.5 Again, it is referred to as real poverty because the normal procedure of calculating poverty – considering all those households as “poor” or “extremely poor” whose total expenditures will fall below the poverty line or the extreme poverty line without adding the difference of money paid for solid fuels and LPG versus the predicted payments for network gas to total expenditures - cannot capture the value increase of goods and services experienced by households from switch to gas. 7.6 If, in this particular scenario of value increase due to switching to gas connections, the normal procedure of calculating poverty (without adding the difference of money paid for solid fuels and LPG versus the predicted payments for network gas to total expenditures) would be applied, this procedure would generate also “nominal” but not “real” poverty estimates.

B. Detailed Results 7.7 Households with room heating based on coal and wood as well as households with central heating based on coal and wood would considerably benefit from the switch from solid fuel and LPG to gas. 7.8 For households with room heating based on coal and wood, poverty would decrease more than 4% due to fuel switching whereas extreme poverty would decrease by 1%. If the gas tariff increases by 40%, households in poverty would decrease by 6.4% and households in extreme poverty by 2.6%. If the gas tariff increases by 100%, households in poverty decrease by 10.3% and in extreme poverty by 6.6%. 7.9 For households with central heating based on coal and wood, poverty would decrease by more than 3% and extreme poverty by 1/3 of a percent. However, extreme poverty would slightly increase if the gas tariff increases (by 1.61% if tariff increases by 40% and by 0.22% if tariff increases by 100%). 7.10 In the case of households with room heating based on wood, poverty would slightly increase if these households switch to gas. If the gas tariff increases by 40%, households in poverty decrease by 0.09% but households in extreme poverty would

63

increase by 2.2%. If the gas tariff increases by 100%, poverty increases by 1.5% and extreme poverty by 3.1%. 7.11 The fact that poverty increases for households with room heating based on wood can be explained by the lower price of wood (as compared to coal) and the fact that many households collect firewood and cut down trees on their own (which is illegal and causes environmental damage) and without any payment. However, health benefits, the comfort of residential conditions and living standards would increase significantly if households with room heating based on wood switch to gas.

C. Recommendation: promote gas connections for solid fuel users 7.12 Based on the above, it is recommended to promote gas connections for current solid fuel users, as real poverty would decrease for households with room heating and central heating based on coal and wood while health benefits, the comfort of residential conditions and living standards would increase, even for households with room heating based on wood.8 As solid fuel users primarily live in rural areas and small settlements, the establishment of gas connections for these households would constitute a considerable benefit for the population in rural areas. 7.13 A surprising research finding supports the strategy of promoting gas connections for solid fuel users, and motivates to suggest a special strategy to promote gas connections for a sub-group of solid fuel users. This research finding is the fact that a considerable number - about 38% - of current solid fuel users who are not connected to network gas live in localities that are already covered by the gas network. An overview regarding the shares of solid fuel users and households, in general, covered by the gas network or not, nationwide and by types of settlements is provided below. In addition, an overview regarding the distribution of shares of solid fuel users covered and not covered by the gas network by oblasts is provided. 1 Households covered by gas network or not, nationwide and by types of settlements

7.14 Nationwide, 78% of the households are covered by the gas network and 22% are not covered. 7.15 In large cities, practically all households are covered by the gas network; only 0.5% are not covered. In small cities 88% of the households are covered and 12% not, in rural areas 51% of the households are covered and 49% not.

8 These poverty impacts, based on data from Goskomstat’s quarterly household budget survey, have been subjected to empirical scrutiny and related to a 195% increase of the gas tariff in order to assess the long term poverty impact, and ensure that a switch by households from solid fuel and LPG to network gas would be recommendable also in the long run (see chapter VII).

64

2 Solid fuel users covered by but not connected to the gas network, nationwide and by types of settlements

7.16 Nationwide, 38.2 % of all solid fuel users are not connected to the gas network, although they are covered by the gas network. 2.1 Solid fuel users not covered by the gas network, nationwide and by types of settlements

7.17 Nationwide, 20.6% of the solid fuel users are not covered by the gas network. 7.18 Most of all solid fuel user households not covered by the gas network (86.8%) live in rural areas. 12.3% of these households live in small cities and only 0.9% of all solid fuel user households not covered by the gas network live in large cities. 7.19 In rural areas, the share of solid fuel user households not covered by the gas network is high: almost 50 percent (48.2%) of all households in rural areas are not covered by the gas network. However, in small cities and large cities, the shares of solid fuel user households not covered by the gas network are low: 9.1% in the former and just 0.5% in the latter. 2.2 Solid fuel users covered by the gas network, nationwide and by types of settlements

7.20 Nationwide, 12.7% of the solid fuel users are covered by but not connected to the gas network. 7.21 Most of all solid fuel user households covered by but not connected to the gas network (45.9% of all solid fuel user households covered by the gas network) live in rural areas. However, almost the same share of all solid fuel user households covered by but not connected to the gas network (40.9%) live in small cities. And even 13.2% of all solid fuel user households covered by but not connected to the gas network live in large cities. 7.22 Surprisingly, in small cities, the share of solid fuel user households covered by but not connected to the gas network is higher than in rural areas: 18.8% in small cities and 15.8% in rural areas. In large cities, the share of solid fuel user households covered by but not connected to the gas network is 4.8%. 3. Distribution of shares of solid fuel users covered and not covered by the gas network by oblasts

7.23 An overview regarding the distribution of shares of solid fuel users covered and not covered by the gas network by oblasts is provided based on Map 3 and Map 4, below. 7.24 Map 3 shows, by oblasts, the distribution of shares of solid fuel users living in settlements already covered by the gas network. The following oblasts have the highest shares of solid fuel users living in settlements already covered by the gas network:

65

Kherson (24%), Zhitomyr (23%), Zaporozhie (21%), Zakarpatie (19%), Sevastopol (19%). 7.25 Map 4 shows, by oblasts, the distribution of shares of solid fuel users living in settlements not covered by the gas network. The Chernovtsy and Vinnitsa oblasts have the highest shares of solid fuel users living in settlements not covered by the gas network: 51% the former, 47% the latter. Other oblasts with high shares (between 30 and 33%) of solid fuel users living in settlements not covered by the gas network are: Odessa, Kirovograd, Khmelnitsk, Kherson and Crimea. 7.26 Considering the fact that 38% of current solid fuel users who are not connected to network gas live in localities that are already covered by the gas network, a particular effort should be undertaken to facilitate gas connections to these households and enable them to heat their dwellings with network gas. 87% of these households would like to get connected to the gas network for heating purposes, 91% of the for cooking, and 77% for water heating. 7.27 The fact that solid fuel users who are not connected to network gas live in localities that are already covered by the gas network means that the primary gas network does not have to be extended to the city or settlement if gas connections would be promoted for these households. The gas network would only have to be extended to households within the city or settlement. This situation would also considerably reduce the costs of connecting solid fuel users to the gas network. 7.28 Nevertheless, the relatively high costs of connecting to the gas network appears to be the main reason as to why there are so many households not connected to the gas network even though they live in settlements that are already covered by the gas network. In addition, it appears that neither Naftagas nor the gas companies at the oblast level have developed a business strategy up to now that might have helped households to overcome this financial obstacle.

4 Steps to be undertaken 7.29 In order to promote gas connections for solid fuel users, Naftagas as well as gas companies at the oblast level should be contacted and informed about the results from the study an energy and poverty. Subsequently, options and conditions for connecting solid fuel users to the gas network should be discussed with Naftagas and the gas companies at the oblast level. Finally, a strategy pursuing connections to the gas network for solid fuel users should be developed in coordination with Naftagas and the gas companies at the oblast level. Specifically, the options for providing financing to solid fuel users for connecting to the gas network should be addressed. Also, the possibility of providing micro-credits to poor solid fuel users in the framework of a Social Investment Fund might also be considered.

67

13.4

11%

14 %

10.7 %

10 %2.2 %

13.4 %

9.9 %

7.1 %

12 9 %

11.6 %12.4 %

10.3 %

9.3 %

12.3 %

22.7 %

15.4 %

KYIV:

Gas.net -0 %

Map 3: By oblasts, shares of solid fuel users living in settlements covered by but not connected to gas network

8.3 %

6 %

69

29.8 %

16.3 %

27 4 %

21.3 %

18.4 %

17.3 %

10.1 %

3 %

24 7 %

32.5 %50.5 %

5.2%

46.5 %

21.9 %

x %

24.2 %

21.1 %

KYIV:0 %

SEVASTOPOL:

0 %

Map 4: By oblasts, shares of solid fuel users living in settlements not covered by gas network

0 %

31.7 %

70

VIII. Review and Empirical Scrutiny of Study Data

A. Additional Research Activities

8.1 In order to scrutinize and critically check the above recommendation, two additional research activities were carried out. First the expenditure data regarding solid fuels obtained from Goskomstat’s quarterly household budget survey was reviewed and cross-checked based on empirical research. In order to estimate a realistic level of (daily and monthly) solid fuel consumption, taking into account different levels of outdoor and indoor temperatures, owners of coal storages were consulted as were forestry enterprises and households living in different sizes of houses. Also, issues of the Goskomstat questionnaire were discussed with Goskomstat as well as with representatives of the Ukrainian Institute of Demography and Social Research from the National Academy of Science. 8.2 Second, the effect on expenditures and poverty of a 195% gas tariff increase was estimated for the scenario in which solid fuel users would switch to network gas. As mentioned previously, the World Bank estimated that the gas tariff for households would have to increase by about 195% to fully cover the costs of production and service provision. This tariff increase is most likely not politically viable in the short term and also judged to be difficult to implement in the medium term. However, a 195% tariff increase simulation was carried out in order to assess if a switch by households from solid fuel and LPG to network gas would be recommendable also in the long run. 8.3 The results of the two above research activities are described following.

B. Review of Solid Fuel Expenditure Data

8.4 In its quarterly household budget survey, Goskomstat asks for payments and quantities of solid fuels bought, but not for quantities consumed in a clearly defined time frame. Also, Goskomstat does not monitor costs for (i) transportation of coal, (ii) transportation of wood, and (iii) chopping of wood. Asking for quantities of solid fuels consumed in a clearly specified time frame (per day and per month) is necessary because from January to March households mainly buy what they lack due to inappropriate estimates regarding the amounts of solid fuels required for the whole heating period. Households mostly buy solid fuels in fall and early winter, and they buy the amounts of solid fuel that they think they will need for the entire heating season. 8.5 Thus, solid fuel purchases carried out from January to March 2004 (the time frame of the household budget survey data and the energy module data used) do not reflect the appropriate level of solid fuel consumption over a clearly defined period of time. In addition, many solid fuel users stopped buying coal due to the considerable recent price increases of coal and started using the emergency reserves of coal they had accumulated over time in the past.

71

8.6 In order to obtain sound results, the consumption estimates were based on low (and conservative) levels of solid fuel use. Transport costs for coal and wood were taken into account, however, chopping costs for wood were excluded as a number of solid fuel users (households) will chop firewood by themselves (and the objective was to obtain rather conservative estimates). Also higher estimates of solid fuel consumption during periods of lower temperatures were not taken into account in order to obtain conservative solid fuel consumption estimates. The obtained average consumption parameters for solid fuel were then related to the living space of the surveyed households. Based on this procedure, the conclusion was drawn that solid fuel users consume about twice as much coal and wood in winter as reported by Goskomstat based on data from the first quarter of 2004. 8.7 The results of the review and empirical scrutiny of solid fuel expenditure data strongly improve the basis for recommending the promotion of network gas connections for current solid fuel users. At the same time, the results obtained suggest that Goskomstat should, in the frame of the quarterly household budget survey, strengthen its data generation related to solid fuel use by households.

C. Recommendation 8.8 In its quarterly household budget survey, Goskomstat should ask, in a clearly defined time frame, for quantities of solid fuels consumed. Also, Goskomstat should ask questions regarding costs for (i) transportation of coal, (ii) transportation of wood, and (iii) chopping of wood. Further, Goskomstat should generate data regarding central heating versus single room heating in order to facilitate assessments of household energy use, countrywide, by types of household energy users as well as poverty assessments by types of household energy users.

D. Increase of solid fuel price by 40% and gas tariff By 195%, switching from solid fuel to gas and impact on poverty

8.9 A simulation of the gas tariff increase by 195% and solid fuel price increases by 40% was carried out in order to estimate the impact of these increases among current solid fuel users on real poverty as well as real extreme poverty. The results of this simulation are presented in charts 21 and 22 below. 1 Analyzing charts 21 and 22

8.10 It makes sense to analyze the above charts in 3 steps: for the three types of solid fuel users, the impact on real poverty and real extreme poverty should be checked, first, when households only switch to gas and neither solid fuel prices nor the gas tariff increase; second, when households switch to gas and no solid fuel prices increase but the gas tariff increases by 195%; third, when households switch to gas and the solid fuel prices increase by 40% and the gas tariff by 195%.

72

Chart 22 -

15.1%18.5%

8.6%

21.3%

24.6%

11.3%

10.0%12.3%

5.1%

16.7%

23.1%

9.4%

0

5

10

15

20

25

30

sf+lpg sw itch gas sf+lpg sw itch gas sf+lpg sw itch gas

gas, 195% price increase after sw itchgas, baseline after sw itchsf+lpg, 40% price increase before sw itchsf+lpg, baseline before sw itch

sf+lpg switch gas sf+lpg switch gas sf+lpg switch gas Room Heating,Coal/Wood Room Heating, Wood Central Heating, Coal/Woodpov. rank: 2nd poorest poorest least poorest share: 12.2% 9% 4%

Chart 22 - Main types of solid fuel (sf) users: Effect of solid fuel and LPG price increases on poverty. Effect of switching to gas on poverty. Effect of 195% increase of gas tariff on poverty.

73

3.4%

0.3%

3.0%0.6%

5.5%5.1%

0.3%2.0% 1.9%

3.8%

4.9%

8.6%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

sf+lpg switch gas sf+lpg switch gas sf+lpg switch gas

gas, 195% price increase after sw itchgas, baseline after sw itch

sf+lpg, 40% price increase before sw itchsf+lpg, baseline before sw itch

1.1 No solid fuel price and gas tariff increases 8.11 If solid fuel households switch to heating with gas, real poverty decreases considerably, assuming that neither solid fuel prices nor gas tariff would increase. Real poverty would decrease for households heating single rooms with coal and wood by 5.1%, for households heating single rooms with wood only by 6.2%, and for households with central heating based on coal and wood by 3.5%. Real extreme poverty would decrease by 1.4% for households heating single rooms with coal and wood and by 1.2% for households heating single rooms with wood only. For households with central heating based on coal and wood there would be no change as they do not have any households in real extreme poverty.

1.2 No solid fuel price increases but gas tariff increasing by 195%

sf+lpg switch gas sf+lpg switch gas sf+lpg switch gas Room Heating,Coal/Wood Room Heating, Wood Central Heating, Coal/Woodpov. rank: 2nd poorest poorest least poorest share: 12.2% 9% 4%

Chart 22 - Main types of solid fuel (sf) users: Effect of solid fuel and LPG price increases on extreme poverty. Effect of switching to gas on extreme poverty. Effect of 195% increase of gas tariff on extreme poverty.

74

8.12 If gas tariff increases by 195% and solid fuel prices do not increase, real poverty would increase by 1.6% for households heating single rooms with coal and wood, by 4.6% for households heating single rooms with wood only, and by 0.8% for households with central heating based on coal and wood. Real extreme poverty would increase by 1.5% for households heating single rooms with coal and wood, by 5.6% for households heating single rooms with wood only, and by 3.5% for households with central heating based on coal and wood.

8.13 However, the estimated decreases of poverty and extreme poverty, are likely to be higher, taking into account a number of measures to reduce the waste of heat and increase energy efficiency that households are likely to apply when the gas tariff increases considerably. These measures are explained, below, in section 2 (Measures to address considerable gas tariff increases).

1.3 Solid fuel price increasing by 40% and gas tariff by195% 8.14 If solid fuel prices would increase by 40%, while the gas tariff would increase by 195%, real poverty would decrease again for all solid fuel types if households would switch to gas. Real poverty would decrease for households heating single rooms with coal and wood by 4.6%, for households heating single rooms with wood only by 1.5%, and for households with central heating based on coal and wood by 1.9%. Real extreme poverty would decrease by 0.6% for households heating single rooms with coal and wood, increase by 3.5% for households heating single rooms with wood only,and by 3.2% for households with central heating based on coal and wood.

8.15 However, the estimated decreases of poverty and extreme poverty are likely to be much higher, taking into account the measures to reduce the waste of heat and increase energy efficiency that households are likely to apply when the gas tariff increases considerably. These measures are explained, below, in section 2 (Measures to address considerable gas tariff increases). Also, the estimated increase of extreme poverty for households heating single rooms with wood only and households with central heating based on coal and wood would be lower, or even entirely disappear, the measures to reduce the waste of heat and increase energy efficiency that households are likely to apply when the gas tariff increases considerably. 8.16 As discussed with the head of the state agency for the provision of coal in the Kyiv oblast, representatives of state forest agencies and privatized agencies for the provision of coal in the Kyiv oblast, solid fuel prices are likely to increase to a certain extent over the next years. And a 40% increase might be a reasonable referential figure for solid fuel increases over the time the gas tariff would be increased by 195%.

2 Measures to address considerable gas tariff increases

75

2.1 Reducing heat temperature and gas consumption 8.17 If the gas tariff increases considerably, households would probably, in first instance, reduce the temperature at the radiators in their house (or turn off some radiators) in order to reduce the waste of heat energy and lower the level of gas consumption related to space heating9. As the experience in European countries shows, there are a number of different options to reduce temperature in order to decrease the waste of heat energy and lower the level of gas consumption and make possible savings of energy and money. 8.18 First, households could reduce temperature in bedrooms at night; second, they could reduce temperature in bedrooms during day, if bedrooms are not used for other purposes than for sleeping (e.g. as a room for studying, for the children or for watching TV, etc.); third, they could reduce temperature in some rooms other than bedrooms when somebody is in the apartment during day; fourth, they could reduce temperature in the entire apartment during day when mostly nobody is there; fifth, they could reduce temperature at night in other rooms than bedrooms; and sixth, they could reduce temperature when nobody is in the apartment for more than one or more days (when traveling etc.). 8.19 Information campaigns would have to be implemented in order to achieve a wider and better application of the above measures to reduce temperature at the radiators. These information campaigns could be carried out at the level of mass-medias such as TV, newspapers and radios. Also, flyers could be distributed to households. In addition, information campaigns could be implemented at the websites of dh-companies, municipalities, ministries, regulatory agencies as well as private (NGOs) and public energy efficiency agencies. Moreover, key guidelines regarding recommendable options to reduce temperature should be permanently available at the websites of these agencies as in Switzerland, Germany and Austria and other European countries. In these countries, guidelines regarding such options have been key topics of extended public and private information campaigns over decades, with the objective to save energy and money at the household level. 8.20 In order to facilitate the measures of reducing temperature at radiators, thermostatic radiator valves would have to be installed at the radiators. The installation of

9 According to the survey results obtained, households, currently heating with gas, would reduce the level of their gas consumption in order to lower the waste of heat energy and avoid major increases of their heating bills if the gas tariff would increase by 40%. Among households with central heating based on gas, 31% would reduce their gas consumption by one forth, 14% by half and 8% by three fourths, in order to restrict increases of their heating bills, if the gas tariff would increase by 40%. Among households heating single rooms with gas boilers 24% would reduce their gas consumption by one forth, 17% by half and 11% by three fourths in order to restrict increases of their heating bills if the gas tariff would increase by 40%. Certainly, the reduction of the waste of heat energy increased as a consequence of the recent gas tariff increase by 90%. In addition, the reduction of the waste of heat energy would still increase more, if the gas tariff would increase by 195%.

76

thermostatic radiator valves at radiators would also have to be promoted by means of information campaigns.

2.2 Energy efficient behavior 8.21 In second instance, levels of gas consumption related to space heating could be considerably reduced and large savings of energy and money could be achieved, if households would apply important principles of energy efficient behavior. 8.22 Energy efficiency behavior of households is based on (i) the behavioral habits of opening windows, (ii) the use of curtains covering radiators, (iii) the way of dealing with steam coming from taking a shower or bath as well as cooking, (iv) the way of drying wet clothes (laundry), (v) air circulation and heat jams in rooms as well as (vi) humidity and mould related several of the mentioned behavioral features. Applying appropriate behavioral principles in regard of each of these features allows to considerably reduce waste or loss of heat energy, lower levels of gas consumption and make savings of energy and money. Please, see specific explanations on how to save energy and money on the basis of energy efficient behavior, in Annex 2. 8.23 However, many people are aware to a limited extent of the energy loss and waste due to inappropriate energy efficient behavior; underestimate this waste and loss and do not seriously take into account energy efficient behavior; and are unaware of the degree of the impact on the heat bill. To address these issues, information campaigns have to be promoted and implemented. As already mentioned above, these information campaigns could be carried out at the level of mass-medias such as TV, newspapers and radios. Also, flyers could be distributed to households. In addition, information campaigns could be implemented at the websites of dh-companies, municipalities, ministries, regulatory agencies as well as private (NGOs) and public energy efficiency agencies. Moreover, key guidelines regarding energy efficient behavior of household members should be permanently available at the websites of these agencies as in Switzerland, Germany and Austria and other European countries. In these countries, guidelines regarding energy efficient behavior have been key topics of extended public and private information campaigns over decades, with the objective to save energy and money at the household level. 2.3 Energy efficient conditions of housing

8.24 In third instance, levels of gas consumption related to space heating could be considerably reduced and large savings of energy and money could be achieved, if households would improve the energy efficiency conditions of their housing. Energy efficiency at the housing level is low due to a number of insulation issues that cause considerable waste and loss of heat energy.

77

8.25 These wastes or losses of heat energy are mainly due to deficient insulation of window frames and low quality of windows, insufficient insulation of doors, low quality of insulation of outside walls and many cracks in these walls. 8.26 To reduce this waste or loss of heat energy, the insulation of window frames, doors and cracks in walls would have to be improved, many old windows would have to be replaced, and the quality of insulation of outside walls would have to be upgraded. 8.27 Waste or loss of heat energy could further be reduced by installing aluminum foils behind radiators in niches at outside walls as well as closing curtains (short curtains with good insulation capacity not covering radiators installed below windows) at night. 8.28 Carrying out insulation of window frames and doors, as well as fixing cracks in walls and install aluminum foils is affordable and being done to some extent. However, many people are aware to a limited extent of the energy loss and waste due to insulation issues, underestimate the waste and loss of energy due to these issues and are unaware of the degree of the impact of deficient insulation on the heat bill. To address these issues, information campaigns have to be promoted and implemented. As mentioned above, these information campaigns could be carried out at the level of mass-medias such as TV, newspapers and radios. Also, flyers could be distributed to households. In addition, information campaigns could be implemented at the websites of dh-companies, municipalities, ministries, regulatory agencies as well as private (NGOs) and public energy efficiency agencies. Moreover, key guidelines regarding energy efficient conditions of housing should be permanently available at the websites of these agencies as in Switzerland, Germany and Austria and other European countries. In these countries, guidelines regarding insulation issues have been key topics of extended public and private information campaigns over decades, with the objective to save energy and money at the household level. 8.29 Replacement of windows and upgrading the quality of insulation of outside walls is expensive and often not affordable. Credit programs should be developed in order to facilitate replacement of windows and improve the insulation capacity of outside walls.

3 Conclusions

8.30 Taking into account the above simulations as well as the explained measures to save energy that households are likely to apply when the gas tariff increases considerably, leads to the following conclusions: 8.31 First, the fact that poverty would decrease for all types of solid fuel users if the gas tariff would increase by 195% and the solid fuel prices by 40%, supports the

78

recommendation to promote network gas connections for households using solid fuels for heating. 8.32 Second, the fact that the measures (strategies) that households are likely to apply (or could apply) when the gas tariff increases considerably, lowers the estimated poverty, supports even more the recommendation to promote network gas connections for households using solid fuels for heating. 8.33 Third, the fact that the estimated increase of extreme poverty for households heating single rooms with wood only and households with central heating based on coal and wood would be much lower or even entirely disappear, if households apply the measures (strategies) explained when the gas tariff increases, further supports the recommendation to promote network gas connections for households using solid fuels for heating. 4 Recent gas tariff increase

8.34 Most likely, the recent gas price increase (90%), entirely passed on to end users, would not increase poverty at all, if solid fuel users switched to heating with gas; poverty is even still likely to decrease if solid fuel users would switch. Certainly, poverty would be lower if solid fuel users switched to heating with gas and would apply the above measures to avoid energy wastes and save energy. 8.35 Extreme poverty is not likely to increase for households heating single rooms with coal and wood as well as households heating single rooms with wood only if they would switch to heating with gas and even not apply the indicated measures to save energy. If they would apply the indicated measures to save energy, extreme poverty is certainly not likely to increase. 8.36 Extreme poverty would be likely to increase, slightly, for households with central heating based on coal and wood, if they would switch to heating with gas and not apply measures to save energy. However, extreme poverty would be not likely to increase for these households, if they would switch to heating with gas and apply measures to avoid energy wastes and save energy. 8.37 Also, these estimates support the recommendation to promote network gas connections and heating with gas boilers for households using solid fuels for heating.

IX. Policy Priorities for Heating Issues Related to Household Energy Use

9.1 According to the study on energy and poverty (such as reliability and quality of service of electricity and gas supply) heating issues seem to deserve priority attention of policy makers in the area of household energy use in Ukraine. In first instance, heating problems of solid fuel users should be addressed. In second instance, district heating

79

issues should be a priority theme of policy makers. Centralized heating based on gas supply seems to be the most preferred and desired form of household heating nationwide but may not be the least-cost long run alternative in all cases where district heating systems already exist. 9.2 Most likely, in a number of other ECA countries such as Russia, the Central Asian countries, Romania, Bulgaria, Moldova etc., there might be encountered similar heating and poverty issues as those assessed in the present study on energy and poverty related to major types of energy users. Also, in Asia (China, Mongolia) and the LAC region (Argentina, Chile, Bolivia, Peru (highlands) and Mexico (highlands) these issues might be encountered. Further, a countrywide assessment of household energy issues by types of household energy users, and, in particular, the poverty implications of these issues should be carried out in the indicated countries. In addition, cross-country comparisons related to energy and poverty by major types of energy users should be carried out. 9.3 In particular, the following activities should be implemented: (i) assessments of household energy use, countrywide, according to types of household energy users with different energy portfolios, (ii) the identification of key household energy use issues countrywide including the proposal of recommendations for addressing those issues, (iii) the analysis of energy expenditures and poverty related to major types of energy users, (iv) assessments of the distribution of major types of household energy users by rural and urban areas, and (v) impact evaluations of major energy tariff and fuel price increases on poverty by types of household energy users.

Annex 1 - Details: distinctions and ranking of energy user types according to basic living conditions, living standards, educational levels and the occupational status of

household heads

1 Connections to water and sewerage networks

80

1.1 District heating households

Practically, all district heating households (99%) are connected to water and sewerage networks. This is the highest share of connections to water and sewerage networks as compared to all other energy user types. District heating households are connected to water and sewerage networks because they live in apartment buildings that, in general, are located in or close to main areas of settlements that are covered by water and sewerage networks. 1.2 Households heating single rooms with wood only

By contrast, only 9% of the households heating single rooms with wood only are connected to a water and only 8% to a sewerage network. These are the lowest shares of connections to water and sewerage networks as compared to all other energy user types. Almost all households heating single rooms with wood only are not connected to water and sewerage networks because they live far away from main areas of settlements in which water and sewerage networks are available, or they live in settlements in which these networks are not available at all. For that reason, they also heat with wood only. If they would live closer to settlements many of these households would probably heat with coal (that is more likely available in larger settlements but frequently not in small settlements in rural areas). Further, households heating single rooms with wood only live far away from settlement centers because practically all of them live in individual houses and none of them in apartments in buildings (located in or close to settlement centers). 1.3 Households heating single rooms with coal and wood

Also, only 14% of households heating single rooms with coal and wood are connected to a water and only 12% to a sewerage network. These are the second lowest shares of connections to water and sewerage networks as compared to all other energy user types. And, the large majority of households heating single rooms with coal and wood are not connected to water and sewerage networks because they live far away from main areas of settlements in which water and sewerage networks are available, or they live in settlements in which such networks are not available at all. households heating single rooms with coal and wood probably live less far away from main areas of larger settlements than many households heating single rooms with wood only; and they live to a lower extent in remote and small settlements than households heating single rooms with wood only as coal is more likely available in larger settlements, but frequently not in small settlements, specifically in rural areas. 1.4 Households with central heating based on coal and wood

81

Surprisingly, 40% of the households with central heating based on coal and wood are connected to a water and 38% to a sewerage network - considering the low connection rates of households heating single rooms with wood only and households heating single rooms with coal and wood.

The share of households with central heating based on coal and wood amounts to 78% in big cities, but decreases to 50% at the level of small towns and to 30% in rural areas. And to a similar degree, the share of households with central heating based on coal and wood decreases from big cities (73%) over small towns (48%) to rural areas (29%). Certainly, those households with central heating based on coal and wood connected to water and sewerage live close to settlement areas (centers) covered by water and sewerage networks and not in or close to settlements in which water and sewerage networks are not available at all. Surely, households with central heating based on coal and wood live closer to larger than smaller settlements as coal is more likely available in the former but frequently not in the latter settlements. 1.5 Households with central heating based on gas

Surprisingly, only 55% of the households with central heating based on gas are connected to water and only 51% to a sewerage network although they are connected to the gas network that normally covers main areas of settlements. The indicated shares of connections to water and sewerage are the second highest shares as compared to all other energy user types. So many households with central heating based on gas are not connected to water and sewerage networks because they live (i) at a certain distance from the main areas of their settlements (likely often at the fringe of these settlements), (ii) in settlements in which these networks are not available at all, and (iii) in individual houses, most of which are normally not located in or close to the main areas of cities or towns. Only a few of these households live in apartment buildings (that, in general, are located in or close to settlement centers that are covered by water and sewerage networks). The share of households with central heating based on gas connected to a water network amounts to 78% in big cities, but decreases to 62% at the level of small towns and to 36% in rural areas. And to a similar degree, the share of households with central heating based on gas connected to a sewerage network decreases from big cities (71%) over small towns (58%) to rural areas (33%). A key factor that determines the decrease of the share of households connected to water and sewerage networks from big cities over small towns to rural areas is certainly the degree of the development of the water and sewerage networks. The degree of both network developments is without any doubt more advanced in big cities than in small towns and in rural areas. Moreover, the more advanced network development in larger settlements is due to the higher population density in these settlements. And the population density certainly decreases from big cities to small towns and rural areas.

82

1.6 Households heating single rooms with gas

Even less households heating single rooms with gas than households with central heating based on gas are connected to water (only 30%) and sewerage networks (only 29%). This is again surprising as households heating single rooms with gas are connected to the gas network that normally covers main areas of settlements. The share of households heating single rooms with gas connected to water amounts to 87% in big cities, but, as compared to households with central heating based on gas,strongly decreases to 28% at the level of small towns and to 16% in rural areas. And similarly, the share of households heating single rooms with gas connected to sewerage networks amounts to 87% in big cities, and also strongly decreases to 26% at the level of small towns and to 16% in rural areas. Overall, significantly more households heating single rooms with gas than households with central heating based on gas are not connected to water and sewerage networks. Also, considerably more households heating single rooms with gas than households with central heating based on gas are not connected to water and sewerage networks in small towns and rural areas. However, in big cities, more households with central heating based on gas than households heating single rooms with gas are not connected to water and sewerage networks. Again, the degrees of network development and the feature of population density determine the decrease of the shares of households connected to water and sewerage networks from big cities over small towns to rural areas. 2 Bath tubs or shower facilities

2.1 District heating households 97% of district heating households have a bath or shower in their dwellings. They have these facilities because they live in apartment buildings. Baths or showers are part of the basic design of the apartments in these buildings. In addition, baths or showers are available in these apartments because the buildings are connected to water and sewerage networks. District heating households have the highest share of households with bath or shower as compared to all other energy user types.

2.2 Households heating single rooms with wood only By contrast, only 5% of households heating single rooms with wood only have a bath or shower in their dwellings. This is not surprising as households heating single rooms with wood only do not live in apartment buildings and almost all of them are not

83

connected to water and sewerage networks. 5% is the lowest share of bath or shower facilities as compared to all other energy user types.

2.3 Households heating single rooms with coal and wood Only 7% of households heating single rooms with coal and wood have a bath or shower in their dwellings - which is the second lowest share as compared to all other energy user types. Also this low share is not surprising as households heating single rooms with coal and wood do not live in apartment buildings and the large majority of these households are not connected to central water supply and sewerage networks.

2.4 Households with central heating based on coal and wood Among solid fuel users, households with central heating based on coal and wood have the highest share of households with bath or showers. Overall, 30% of households with central heating based on coal and wood have a bath or shower in their dwellings. This is the third highest share as compared to all other energy user types. The share of households with central heating based on coal and wood with bath or showers is even higher than the share of households heating single rooms with gas having bath or showers (see below) who live closer to main areas of settlements than solid fuel users as they live in areas that are covered by the gas network.

2.5 Households with central heating based on gas 42% of households with central heating based on gas have a bath or shower in their dwellings. However, the share of households with central heating based on gas having a bath or shower is higher in big cities (57%) and small towns (49%) as in rural areas (27%). Those households with central heating based on gas who have a bath or shower have these facilities because they live in apartment buildings in the design of which bath or showers in apartments are standard. This also explains why the share of households with central heating based on gas having a bath or shower is considerably higher in big cities, than in small towns and in rural areas: apartment buildings are largely located in big cities, to a lower extent in small towns and very rarely in rural areas. In addition, households with central heating based on gas have a bath or shower because they are connected to water and sewerage networks. However, they are connected to water and sewerage networks because apartment buildings always are connected to these networks as they are not located in areas in which networks for water and sewerage are not available.

84

2.6 Households heating single rooms with gas 20% of households heating single rooms with gas have a bath or shower in their dwellings. This is the third lowest share of bath or shower facilities as compared to all other energy user types. The share of households heating single rooms with gas having a bath or shower is considerably higher in big cities (62%), than in small towns (19%) and in rural areas (9%). Those households heating single rooms with gas who have a bath or shower have these facilities because they live in apartment buildings and are connected to water and sewerage networks. This, again, explains why the share of households with central heating based on gas having a bath or shower is considerably higher in big cities, than in small towns and in rural areas (see above). Further, the share of households with central heating based on gas having a bath or shower is higher than the share of households heating single rooms with gas households having these facilities as more households with central heating based on gas live in apartment buildings than households heating single rooms with gas.

3 Phone connections

3.1 District heating households 68% of the district heating households are connected to a phone line in their dwellings. District heating households in big cities have slightly more phone connections in their apartments (71%) than district heating households in small towns (63%) and rural areas (55%). District heating households have the highest share of connections to phone lines as compared to all other energy user types.

3.2 Households heating single rooms with wood only Only 16% of households heating single rooms with wood only are connected to a phone line in their dwellings - which is the lowest share as compared to all other energy user types. This low share is not surprising, as the households heating single rooms with wood only not connected to a phone line most likely live far away from settlements in which phone networks are available (farther away than households heating single rooms with coal and wood as well as households with central heating based on gas and households heating single rooms with gas; see below); or they might live (to a larger extent than households heating single rooms with coal and wood as well as households with central heating based on gas and households heating single rooms with gas; see below) in settlements in which phone networks are not available at all.

85

Most likely, also some of the households heating single rooms with wood only are not connected to a phone line because they cannot afford it. Further, to some degree, the lower availability of phone lines might be due to lower normative living standard requirements in small towns and rural areas.

3.3 Households heating single rooms with coal and wood Only 17% of households heating single rooms with coal and wood are connected to a phone line in their dwellings - which is the second lowest share of connections to phone networks as compared to all other energy user types. Also, this low share is probably due to the fact that many households heating single rooms with coal and wood, live at a considerable distance from settlements in which phone networks are available or in settlements in which phone networks are not available at all. And, most likely, some of the households heating single rooms with coal and wood are not connected to a phone line because they cannot afford it or because the normative living standard requirements are lower in small towns and rural areas.

3.4 Households with central heating based on coal and wood Overall, 38% of households with central heating based on coal and wood are connected to a phone line in their dwellings. The highest share of phone connections, they have in small towns: 56%. The share of households with a phone line in big cities amounts to 27% and in rural areas to 29%. The overall share of households with central heating based on coal and wood connected to a phone line is the third highest share as compared to all other energy user types.

3.5 Households with central heating based on gas 45% of households with central heating based on gas are connected to a phone line in their dwellings. Probably, more than half of the households with central heating based on gas are not connected to a phone line because they live at some distance from the main areas of their settlements. Possibly, a number of households with central heating based on gas may not have a phone connection because they cannot afford it. Issues of affordability and poverty seem to have more impact on the availability of phone lines than the availability of connections to water and sewerage networks as the share of phone connections is lower than the share of connections to water and sewerage networks. However, phone networks might also be less developed than water or sewerage networks.

86

The share of households with central heating based on gas having a phone connection is higher in small towns (58%) and big cities (47%) as in rural areas (33%). This is probably due to the fact that the development of telephone networks in small towns and big cities is more advanced than in rural areas

3.6 Households heating single rooms with gas 32% of households heating single rooms with gas are connected to a phone line in their dwellings. This is the third lowest share of connections to phone networks as compared to all other energy user types. Most likely, 68% of the households heating single rooms with gas are not connected to a phone line because they live at some distance from the main areas of their settlements. Also, many of households heating single rooms with gas may not have a phone connection because they cannot afford it. The share of households heating single rooms with gas having a phone connection is higher in big cities (62%) and small towns (41%) as in rural areas (21%) - probably because the development of phone networks in big cities and small towns is more advanced than in rural areas. 4 Living standard: availability of basic household durables

4.1 District heating households Refrigerators. Having a refrigerator is a general standard of living among district heating households. Overall 98% of district heating households have refrigerators, largely to a similar extent in big cities, small towns and rural areas. Washing machine. Having a washing machine is almost a general standard of living among district heating households as 79 % of them own this item, largely to a similar extent in big cities, small towns and rural areas. Vacuum cleaners. Also, having a vacuum cleaner is almost a general standard of living among district heating households as 72 % of them own this device, to a similar extent in big cities and small towns and to a slightly lower extent in rural areas. District heating households have the highest share of households owning refrigerators, washing machines and vacuum cleaners as compared to all other energy user types. To some extent, district heating households seem not have washing machines and vacuum cleaners because they cannot afford buying these devices.

4.2 Households heating single rooms with wood only Refrigerators, washing machines, vacuum cleaners.

87

Overall, about 65% of households heating single rooms with wood only have a refrigerator, 44% a washing machine, and only 15% a vacuum cleaner. These are the lowest shares of refrigerator, washing machine, and vacuum cleaner availabilities as compared to all other energy user types. Due to two factors, some households heating single rooms with wood only may not have a refrigerator, more of them may not have a washing machine, and almost all of them may not have a vacuum cleaner: first, due to affordability issues and, second, due to lower normative living standard requirements in small towns and rural areas (as households heating single rooms with wood only, primarily live in small towns and rural areas)

4.3 Households heating single rooms with coal and wood Refrigerators, washing machines, vacuum cleaners.

Overall, about 81% of households heating single rooms with coal and wood own a refrigerator – 92% in big cities, 80% in small towns and rural areas; considerably less households heating single rooms with coal and wood, only 64%, have a washing machine – 71% in big cities, 63% in small towns and 64% in rural areas; and, only 27% of households heating single rooms with coal and wood own a vacuum cleaner, – 32% in big cities, 30% in small towns and 26% in rural areas. The overall shares of households heating single rooms with coal and wood having refrigerators, washing machines, and vacuum cleaners are the second lowest overall shares of refrigerator, washing machine, and vacuum cleaner availabilities as compared to all other energy user types. Nevertheless, these shares are considerably higher than the shares of refrigerator, washing machine, and vacuum cleaner availabilities among households heating single rooms with coal and wood.

Due to two factors, some households heating single rooms with coal and wood may not have a refrigerator, more of them may not have a washing machine, and a large majority of them may not have a vacuum cleaner: first, due to affordability issues and, second, due to lower normative living standard requirements in small towns and rural areas (as households heating single rooms with coal and wood, primarily live in small towns and rural areas)

4.4 Households with central heating based on coal and wood Refrigerators. Having a refrigerator seems to be a largely general standard among households with central heating based on coal and wood as overall 94% of the households have refrigerators - 97% in big cities, 96% in small towns and 93% in rural areas.

88

Washing machine. Having a washing machine is almost a general standard among households with central heating based on coal and wood as 78 % of them own this item, to a higher extent in big cities (90%), and to a lower extent in small towns (77%) and rural areas (78%). Vacuum cleaners. Having a vacuum cleaner is not yet a general standard among households with central heating based on coal and wood as overall, only 51 % of them own this device - to a slightly higher extent in big cities (57%) as compared to small towns (51%) and rural areas (51%). The overall shares of households with central heating based on coal and wood having refrigerators, washing machines, and vacuum cleaners are the third highest overall shares of refrigerator, washing machine, and vacuum cleaner availabilities as compared to all other energy user types.

4.5 Households with central heating based on gas Refrigerators. Having a refrigerator seems to be a largely general standard among households with central heating based on gas as overall 96% of the households have refrigerators - 98% in big cities, 97% in small towns and 93% in rural areas. The overall share of refrigerators is the second highest share as compared to all other energy user types. Washing machine. Having a washing machine is almost a general standard among households with central heating based on gas as, overall, 79 % of them own this item - largely equally in big cities, small towns and rural areas. This is, as the share of washing machines among district heating households, the highest share as compared to all other energy user types. Vacuum cleaners. Having a vacuum cleaner is not yet a general standard among households with central heating based on gas as, overall, only 57 % of them own this device - to the same extent in big cities and small towns and to a somewhat lower extent in rural areas. To some extent, households with central heating based on gas seem not have washing machines and vacuum cleaners because they cannot afford buying these devices.

4.6 Households heating single rooms with gas Refrigerators. Overall, 88% of households heating single rooms with gas own a refrigerator – 100% in big cities, 93% in small towns and 84% in rural areas. This is the third lowest overall share of refrigerator availability as compared to all other energy user types.

89

Washing machines. Less households heating single rooms with gas, only 62%, have a washing machine – 73% in big cities, 70% in small towns and 56% in rural areas. This is the second lowest share of washing machine availability as compared to all other energy user types. Vacuum cleaners. And only 35% of households heating single rooms with gas own a vacuum cleaner – 60% in big cities, 37% in small towns and 28% in rural areas. This is the second lowest share of vacuum cleaner availability as compared to all other energy user types. Due to two factors, some households heating single rooms with gas may not have a refrigerator, more of them may not have a washing machine, and a considerable majority of them may not have a vacuum cleaner: first, due to affordability issues and, second, due to lower normative living standard requirements in small towns and rural areas. 5 Education of household head

5.1 District heating householdsThe highest educational levels can be found among district heating household heads. District heating household heads have the highest shares of university degrees (27%) and bachelor degrees (25%), 35% have degrees from vocational schools, 9% have degrees from technical schools, and 1% have uncompleted secondary school. 5.2 Households heating single rooms with wood onlyThe lowest educational levels can be found among heads of households heating single rooms with wood only. They have the lowest shares of university degrees (5%) and bachelor degrees (10%), 39% have degrees from vocational schools, 20% from technical schools, 18% have completed secondary schools, and 6% have uncompleted secondary schools. 5.3 Households heating single rooms with coal and woodThe second lowest educational levels can be found among heads of households heating single rooms with coal and wood. They have the second lowest shares of university (7%) and bachelor degrees (13%), 38% have degrees from vocational schools, 22% from technical schools, 15% have completed secondary schools, and 4% have uncompleted secondary school. 5.4 Households with central heating based on coal and woodThe second highest educational levels can be found among heads of households with central heating based on coal and wood. They have the second highest shares of university (18%) and bachelor degrees (20%), 33% have degrees from vocational schools, 10% have degrees from technical schools and 2% have uncompleted secondary school. 5.5 Households with central heating based on gas

90

The educational levels of heads of households with central heating based on gas are similar to the educational levels of heads of households with central heating based on coal and wood. 15% of the former have university and 20% have bachelor degrees – the second highest share, 37% have degrees from vocational schools, 16% have degrees from technical schools, 9% have completed secondary schools and 2% have uncompleted secondary schools.

5.6 Households heating single rooms with gasThe educational levels of heads of households heating single rooms with gas are similar to the educational levels of heads of households heating single rooms with coal and wood. Heads of households heating single rooms with gas have the second lowest share of university degrees (7%), 18% of them have bachelor degrees, 34% have degrees from vocational schools, 21% have degrees from technical schools, 16% have completed secondary school and 3% have uncompleted secondary school. 6 Occupational status of household head

6.1 District heating householdsheads of district heating households have the highest share of hired employees (53%) and lowest share of pensioners 32% as well as the lowest share of unemployed individuals (7%) - probably, because most of these households live in urban areas. 6.2 Households heating single rooms with wood onlyheads of households heating single rooms with wood only have the lowest share of hired employees (23%) - probably, because most of these households live in rural areas, the second highest share of pensioners 55% and the highest share of unemployed individuals (15%) - probably, because most of these households live in rural areas. 6.3 Households heating single rooms with coal and woodAmong heads of households heating single rooms with coal and wood there are 28% of hired employees, 54% of pensioners and 13% of unemployed individuals (this is the second highest share of unemployed individuals). 6.4 Households with central heating based on coal and woodheads of households with central heating based on coal and wood have the second highest share of hired employees. 45% of them are pensioners and 10% are unemployed. 6.5 Households with central heating based on gasthe occupational status of heads of households with central heating based on gas is similar to the occupational status heads of households with central heating based on coal and wood. Among heads of households with central heating based on gas there are 40% of hired employees, 45% of pensioners and 9% of unemployed individuals. 6.6 Households heating single rooms with gas

91

Among heads of households heating single rooms with gas there are 27% of hired employees, 56% of pensioners (this is the highest share of pensioners) and 8% of unemployed individuals (this is the second lowest share of unemployed individuals).

Annex 2: details and explanations on how to save energy and money on the basis of energy efficient behavior

1 Opening windows

1 Windows opened slightly but permanently cause considerable waste of energy as heat coming from radiators is forcefully pulled out of the apartment (room) by a suction effect generated by the slightly but permanently opened windows. 2 As a consequence of this loss of, it is necessary to heat considerably more as compared to a situation in which the windows would be closed 3 This waste of energy further leads to a loss of money because the increased heating levels also result in unnecessarily increased heat bills 4 The waste of heat energy and the loss of money are even more serious if radiators are installed below windows that are slightly but permanently opened 5 A reasonable way of opening windows for airing is do it 3 to 4 times per day shortly but effectively. This means opening windows wide, open more than one window at the same time in order to facilitate air draught and turn down the thermostatic valves while the windows are open. Opening windows for about 4 minutes, allows getting as much fresh air as a person consumes in about 1 hour. After the windows have been closed the thermostatic valves can be turned on again. 6 In the case of district heating with thermostatic radiator valves and cost allocators windows may be primarily opened only for getting fresh air as temperature can be regulated with thermostatic radiator valves. 7 By contrast, in the case of district heating without thermostatic radiator valves and cost allocators, the temperature cannot be regulated and windows have to be opened in order to reduce heat when it is too hot. 8 The habit of reducing heat with thermostatic radiator valves, when it is too hot, instead of opening windows, may have to be established by training and effective communication (and the provision of suitable information) after thermostatic radiator valves and cost allocators have been installed 9 If there is no training, effective communication and provision of suitable information, many people may follow the old habit and opening windows when it is too hot instead of reducing heat by regulation with thermostatic radiator valves.

2 Air bubbles

92

1 Air bubbles in the piping system may cause a heat jam in the piping system, impede the appropriate circulation of the heat agent und thus hinder appropriate heating in rooms and entire apartments. 2 Air bubbles in the system of the heating pipes in an apartment can be identified in two ways. First, the bubbles can be identified by "gurgling" sounds in the piping system, in particular, when opening the thermostatic valves at the radiators. Second, the bubbles can be noticed when the radiator does not get hot entirely or in part. 3 Air bubbles in the piping system can be eliminated by opening the corresponding valve at the radiator. When opening the valve, the air will get out of the piping system with a hissing noise. When this noise disappears and water comes out of the valve, the valve should be closed again immediately. In order to catch the water coming out of the valve, a bucket should be put below the valve when opening it. 4 In order to appropriately maintain the level of the heat water in the piping system some water (heat agent) may have to be added after having eliminated the air bubbles in the piping system. 3 Air circulation

1 Appropriate air circulation inside a room in an apartment is required in order to achieve even distribution of heat all over the room. 2 Air circulation is hampered when curtains cover radiators or furniture pieces such as sofas (couches) are placed very close to and in front of radiators. 3 Curtains covering radiators or furniture pieces placed close in front of radiators cause heat jams and hinder that heat transmitted by radiators will be evenly distributed all over the room. 4 In order to get desired levels of heat beyond the heat jams in a room caused by curtains covering radiators or furniture pieces placed in front of radiators unnecessarily increased levels of heat are required. 5 These increased levels of heat also lead to unnecessarily increased heat bills (approximately 20% increase). 6 Therefore curtains or furniture pieces should not cover radiators in order to avoid artificially increased heat bills 7 If curtains not covering radiators are closed in the evening and at night, cold is successfully kept outside and heat inside the rooms of an apartment. This will result in a lower heat bill as closed curtains improve insulation and reduce the amount of heat required. Thus, curtains that do not cover radiators when closed, should be closed in the evening and at night. 4 Big furniture too close to cold walls

1 In an apartment, humidity settles down (in form of condensed water) at outside walls that are not insulated and thus considerably colder than walls towards the inside of a building. Based on this humidity, mould is generated. 2 Big furniture pieces such as wardrobes should not be put too close to cold outside walls (not closer to these walls than 10cm) 3 If too close, air circulation behind big furniture pieces is considerably hindered: heated

93

air hardly gets to walls behind big furniture. Thus, the wall behind furniture stays particularly cold, humidity settles down there in form of condensed water, and the probability of mould generation increases considerably. 5 Drying wet clothes (laundry) in apartment

If somebody dries wet clothes (laundry) in his apartment, humidity increases. As a consequence the probability of mould generation also increases; further, more heat is needed as humidity from wet clothes absorbs heat coming from radiators; as humidity absorbs heat coming from radiators, the heat level in an apartment has to be increased and, as a consequence, the heat bill also increases. Due to these facts, wet clothes (laundry) should be dried in laundry rooms or similar spaces in a building or apartment, and not in any room in an apartment. If there is no laundry room or similar spaces available in a building or apartment, households should repeatedly open windows in the room in which they dry laundry. The windows should be opened appropriately as described above. 6 Drying wet clothes (laundry) on top of radiators

If somebody dries wet clothes (laundry) in his apartment by putting laundry directly on radiators, humidity increases as well as the probability of mould generation. Further, more heat is needed as the humidity from wet clothes immediately absorbs heat coming from radiators and a lot of heat will not even get into the room. As humidity absorbs heat coming from radiators, the heat level in an apartment has to be increased and, as a consequence, the heat bill also increases. Due to these facts, wet clothes (laundry) should be dried in laundry rooms or similar spaces in a building or apartment, and not by putting the laundry directly on radiators in any room in an apartment. If there is no laundry room or similar spaces available in a building or apartment, households should repeatedly open windows in the room in which they dry laundry. The windows should be opened appropriately as described above. 7 Steam from taking a shower

After taking a shower, it is recommendable to let get steam out of bathroom by opening windows and close radiators at the same time in order to not loose heat. Also it is recommendable not to open doors of the bathroom in order to avoid humidity going into other rooms. If, after taking a shower, windows would not be opened but doors of the bathroom would be opened in order to get steam out of the bathroom, the probability of mould generation would increase, more heat would be required in order to get the heat level desired, and the heat bill would consequently increase. 8 Steam from cooking

After having done cooking associated with steam generation, it is recommendable to let get steam out of the kitchen by opening windows and close radiators at the same time in order to not loose heat. Also, it is recommendable not to open doors of the kitchen in

94

order to avoid steam going into other rooms. If, after having done cooking associated with steam generation, windows would not be opened but doors of the kitchen would be opened in order to get steam out, the probability of mould generation would increase, more heat would be required in order to get the heat level desired, and the heat bill would consequently increase. 9 Rooms with more than 4 degrees less of temperature

If somebody has in his apartment a room that is considerably less heated than other rooms (less heated 4 degrees C or more), it is not recommendable to keep the doors to this room open. If the doors would be kept open, humidity from other rooms would move to the lower heated room, settle down on walls in colder room and increase generation of mould.

ukraine energy and poverty note -...

Documents