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Sustainable Low-Carbon City Development in China
Box 8.7
Introducing Competition Together with Price Regulation in Vilnius, Lithuania Vilnius municipality, the capital of Lithuania with a population of about 600,000, selected a private operator with significant foreign interest to lease the entire Vilnius District Heating Company (VDHC), which owned CHP sources as well as network installations. After it was signed, the contract was posted on the Vilnius municipality’s website. In this lease contract, a “price cap� formula was agreed to determine the price of heating for the city, and an initial tariff was approved for a period of five years. In addition to general inflation, almost all cost drivers were indexed. Efficiency improvements that would reduce price increases were not included in the formula: P1 = Px[0.416 (G1/G) + 0.05 (M1/M) + 0.018 (K1/K) + 0.096 (V1/V) + 0.169 (S1/S) + 0.241 (1 + ir/100), where P = initial heat price G = initial natural gas price M = initial gas transport price K = initial gas distribution price V =initial cold water price S = initial average salary Ir = official inflation rate
P1 = new heat price G1= new gas price M1=new gas transport price K1 = new gas distribution price V1 = new cold water price S1 = new average salary
The winning bidder brought new management to the company and improved customer relations. At the time, VDHC was losing market share to retail gas heating suppliers. Customer service was not the only determinant for improved market performance. The city also differentiated city zones for district heating and for gas. Source: Meyer and Kalkum 2008.
through a targeted subsidy scheme are also recommended steps of this reform. There are no incentives for households to save energy for heating without the responsibility to pay the bill. Therefore, to accelerate district heating sector reform, the transfer of responsibilities should be completed as soon as possible. In support of the transition, government agencies could lead by example.