Ukrainian wholesale electricity market opening: 53% of electricity generation traded on the free market, but reforms may be at risk

Electricity
5 September 2019

The new model of a wholesale electricity market in Ukraine started operating on 1 July 2019 and with it also all market segments including the bilateral, day-ahead, intraday and balancing markets. In the analysis published today, the Energy Community Secretariat reflects on the experience gained in the first two months of the functioning of the new wholesale electricity market model.

The Secretariat welcomes the start of the functioning of the new market model. In fact, 53% of generated electricity was being traded on the open market in the first two months. However, the old non-transparent, overregulated “single buyer” model that should have been replaced by a competitive electricity market structure was brought back through various Public Service Obligations (PSO) imposed by a Cabinet of Ministers’ PSO Act. Deplorably, 90% of electricity from Energoatom and 35% of electricity from Ukrhydroenergo, the two cheapest producers with more than 57% of all electricity generation in Ukraine, is foreclosed and currently cannot reach the open market.

In particular, the latest amendments to the PSO Act adopted on 21 August 2019 have increased the electricity volumes to be sold under the PSO framework, hampering market functioning. Additionally, the operational market segments do so also under regulated conditions. Sales are subject to regulated threshold prices at the bilateral market and price caps at the organised day-ahead and intraday markets.

Under such overregulated conditions, market participants are discouraged from participating in the new market segments, with the initial limited interest to trade on the day-ahead, intraday and balancing markets even declining. Moreover, problems with historical debts and unpaid bills further complicate the functioning of the market.

Ensuring that the price caps and other restrictive measures such as disproportionate PSOs are limited in time and phased out in order to stimulate market participation and allow competition to develop should be treated with high priority.

In Scope:

  • Ukraine Ukraine