At least a word  on "green" tariff 

Ask a couple of questions to youself….

How much costs are needed to spend on the production and sale of a liter of milk, or a kilogram of wheat, etc.?

And what if we calculate all the steps of the technological process?

If we, at the each step of production deduct a consumption costs for electricity?

According to inaccurate calculations, with the full understanding of what we consider to be very superficial, the fact is that these amount of this costs is significant. We do not take much into account. Raw materials, logistics, salaries, and, of course, the tax component. Now, in Ukraine, once again, rumors are spreading across the country. "Betrayal" follow us anywhere. The tariff will be canceled! Verkhovna rada states something, expert hints something… so we will assess the real situation without any illusions and myths. Let’s imagine that the green tariff is canceled. And somewhere the Honored Farmer of Ukraine is sitting in his office and fell sorrow about it. About what he can be thinking about? Probably about the same as other farmers. Such persons has many and many sorts of worries. This worries could be less if his enterprise will receive the profit. And as much as better. Profit – is the quantity which is clear for everyone. More money you have, less problems you have. The open question is – where get the profit? Profit means not only that you can sell your production. Profit is the final result of your actions at the market. 

Does our farmer understand that he can compete with other market participants?

How can he compete?

Want he or not, he should remember about such a market category as a production costs. How does electricity affect  the production cost? Calculations may be different, because different technologies are used in the production. Imagine there is no tariff, but the farmer has a solar power plant (SPP). Or he has a biogas installation (BGI), or biomass station (TPP).

If he has such a plant, he has almost 100% opportunity to decrease his production costs. Moreover, his enterprise will be less dependent on the situation. His energy supply could not be any more disconnected during the working day. He will not receive invoices, which will make him sadder. What about the credits for construction of the renewable energy generation facilities? – You can ask. Such credits give international organizations. This money is called as “cheap”. Here is a link on information on this topic. Link here.

This is a lyrical preamble, further, in essence:

Your company and organization in the process of production and sale of its products and services waste raw materials, fuel, energy, depreciate fixed assets, pay workers' labor, bear the costs of servicing and managing of production, sales of products, paying for services for other organizations. The aggregate of all current expenses for production and sales of products, expressed in cash, forms the production cost of this product.

According to data of the US Department of Commerce, for 86% of industrial products, the cost of energy in the structure of its production cost does not exceed 5%. The interest in energy saving at this companies arises only in the conditions of high and rising prices for energy or with restrictions on its receiving.

Production costs - one of the most important economic indicators of the activities of industrial enterprises and associations, which in monetary terms expresses all expenses of the enterprise related to the production and sale of products. Reducing the energy component of the production costs is one of the main ways to reduce the production costs in general. The share of the cost of electricity consumed in production is characterized by an indicator of energy intensity. The energy intensity of products is an indicator that characterizes the amount of energy spent per unit of output product or work performed (services provided).

The main reasons of high energy intensity of products are:

1. Depleted equipment of power plants, low efficiency of conversion of primary energy sources into electricity, etc.;

2. Non efficient electricity lightning systems;

3. The absence of an efficient calculation of costs for primary energy recovery and energy production;

4. Morally and physically obsolete technological equipment;

5. High energy prices;

6. Lack of material interest in implementation of energy saving technologies and energy saving.

We are talking about the market and about its competitiveness. What the market on the language of economy means? Market. There are well-known formulations of the market in the literature; the following definition can be given, the agro-production market is a form of economic relations in the agro-production economy, within the framework of which the demand, supply and prices for goods and services are formed. The main product of the agro-production market is the production of agricultural and processing industries - raw materials, feed and food products.

What affects the mechanism of regulation of market relations?

The first - is the principle of cost, which determines the formation of the level of average prices and the level of material and labor costs for the production of agricultural products and food.

The second is the law of supply and demand, which determines the effectiveness of exchange between market players, the ratio of money and goods flows.

The third is the state of affairs. The economic situation at the market, which characterized by the ratio of demand and supply, the level of prices, stock of goods, etc.

Fourth - competition. Economic rivalry between separated producers or suppliers of goods (services) for the most favorable conditions of sale, the mechanism of spontaneous regulation of production processes through the transition of capital into more profitable segments of the market, resulting in failing of enterprises which are not capable.

With the understanding of what is said above, we often forget to mention the production cost. Not a simple question for any businessman, what can affect the four components of market definition at the same time, with the benefit of a participant in market relations. The question that everyone asks themselves, regardless of the form and size of their business. We have four criteria that make your business successful or unsuccessful.

As an example. By definition, the main product of the agro-production market is the production of agricultural and processing industries - raw materials, feed and food products. We already know that the mechanism of regulating market relations is influenced by the above-described factors and criteria. In fact, all four factors can be involved simultaneously under the conditions when the businessman considers, first of all, such a concept as the cost of production.

Cost of production - the most important qualitative indicator, which reflects all the successes and disadvantages of production and economic activity. It reflects the efficiency of the use of material and labor resources, fixed assets, the level of organization of production and labor.

Reducing the cost of production is the most important source of profit growth in market conditions. Unfortunately, our country according to this indicator is considerably inferior comparing to the developed countries. The share of the energy component in the cost of production in Ukraine, at present, is higher in 1.5 - 2 or more times. Historical changes have shown, that while maintaining other components of the cost of production at the same level, produced during the period of "perestroika" products appeared uncompetitive not only on the external, but also on the domestic market.

The first factor, that influenced the economic situation, is the monopoly position of energy supplying companies, which in turn inevitably caused further prices rise for manufactured goods and services for electricity and heat consumers.

Today the need for further tariff increases is augmented. The logic of arguments goes back to mentioning the obvious fact that the country must reach the world level of energy prices. At the same time, the real situation in the country's economy is not taken into account. Therefore, we need to get back to the real laws of the market. We know that the desire to earn as much as possible is limited by the affordability of the payer.

Nothing to pay, no buyer. As a result of violations of the laws of the market we get the result. And what can be this result? As a result, regular non-payments, which lead to a violation of the regime of sustainable energy supply of the consumer, while suffering from so-called "fan" disconnects also those consumers, who regularly pay for energy services.

In the conditions of the crisis suffers everyone, including energy producers. Subsequently, economic imbalances in the country causes the violations of economic links between individual enterprises, and entire industries. The absurdity of such a situation led to the idea of ​​regulating market relations by the state.

It's been a long time that the need to establish a balance between the interests of the producer and consumer of energy is over. Also, we need to realize that we are not competitive on the world market, with such an energy-intensive product, and hence of cost.

It is a long past time to establish a balance between the interests of the producer and consumer of energy. Also, we need to realize that we are not competitive on the world market with such an energy-intensive product.

If one understands the problems of the energy market as a whole, it has long time to understanding that alternative energy sources and energy saving are environmentally friendly, alternative, inexhaustible financial "drivers" of the economy.

Simple solutions for complex tasks