Expert Opinion: To Launch or Not the New Electricity Market

Expert opinion

According to the Law of Ukraine "On the Electricity Market", from July 1, 2019, a balancing market and market of auxiliary services, a day-ahead market and an internal market, the market of bilateral agreements (hereinafter - a new electricity market).

Mats Lundin, Chairman of the Board of European-Ukrainian Energy Agency (EUEA), Director of Celynx AG, emphasized, that introduction of a competitive electricity market model in Ukraine is a commitment to the European Union that Ukraine has assumed under the 3rd Energy Package. He also added, that the goal of this reform is to liberalize the electricity market and stimulate the development of competition among electricity suppliers. The reform of the electricity market involves the introduction of a European model that will stimulate competition in Ukraine and the emergence of new market players.

Unfortunately, it turned out, that the market and key stakeholders are not fully ready for the new electricity market model. May was marked by activity directed not at the completion of the preparation for the launch of a new model of the electricity market, scheduled in the legislation as of July 1, 2019, but on the postponement of this date. Only during the last week of May, the Verkhovna Rada of Ukraine registered three Draft Laws and another one in June initiated by the President of Ukraine for delaying the launch of the electricity market [1] [2] [3] [4], they are:

Draft Law №10318, from 22.05.2019 – Initiated by Parliament members: Oleksandr Dombrovskyi and Lev Pidlisetskyi regarding postponing of new electricity market for 3 months and about granting NEURC within 12 months to set marginal prices in different market segments: day-ahead market, intra-day, balancing and market bilateral agreements.

Draft Law №10318-1, from 24.05.2019 - Initiated by Parliament members: Oleksiy Riabchyn and Yurii Chyzhmar, with the new date of market launch – 01.04.2020, it means postoponing for 9 months. 

Draft Law  №10343, from 29.05.2019 - Initiated by Parliament members: Oleksandr Dombrovskyi, Lev Pidlisetskyi and Olga Bielkova regarding:

  • postpone of new electricity market for 3 months
  • to provide NEURC authority within 12 months to set marginal prices in different market segments: day-ahead market, intra-day, balancing and market bilateral agreements.

Draft Law  №10376, from 10.06.2019 – Initiated by the President of Ukraine regarding postponing of new electricity market for 12 months and launching it on 01 July 2020.

On May 31, 2019, at a meeting of the National Security and Defense Council the issues of Ukraine's readiness to introduce a new electricity market were discussed at which the President of Ukraine Volodymyr Zelensky stressed the need for a unified position among key stakeholders about the launch date of the new model of the electricity market, which should be presented by the Cabinet of Ministers of Ukraine in two weeks.

Compliance with the legislation regarding the launch of a new market model in time, 01.07.2019, unfortunately has certain risks, although cost arguments. In particular, according to the report of NEURC (Regulator), all regulatory acts are adopted, and with regard to the risk of a electricity substantial price growth for consumers, the Regulator is planning a meeting on the possibility of introducing a price cap.

Vsevolod Kovalchuk, acting CEO of Transmission System Operator - NPC "Ukrenergo" believes, that implementation under the current conditions of the new model of electricity market is highly threatened. The new electricity market model will not create sufficient conditions for real competition and will therefore require measures to improve, for example, the monetization of subsidies, the use of new trading platforms (Prozorro.Sales), the opening of opportunities for imports of electricity from other countries. According to Mr. Kovalchuk’s words, it is necessary not to remove electricity from SE "Energoatom" and PJSC "Ukrhydroenergo" from the competitive market segment but to ensure their participation together with the coal thermal power plants segment in one transparent trading platform.

Energoatom is ready, if necessary, to ensure stability of the price of electricity for the population.

Distribution companies explain the urgency of the delay in issues of false accounting and the impossibility of providing universal financial services providers with financial guarantees.

DTEK, in its turn, declares its readiness to operate in the new electricity market. The company draws attention to the readiness for 90% of the regulatory framework and the level of readiness of the infrastructure necessary for the introduction of a new market. 

To successfully start a new electricity market, the following steps need to be taken:

• The legal establishment of a market operator and a guaranteed buyer

• A decision to extend the validity of an existing format for commercial electricity accounting

• Deciding to impose temporary measures to simplify trading on the market, the so-called “safe mode”.

At the same time, the European Bank for Reconstruction and Development, the World Bank, the Delegation of the European Union and the European Investment Bank in Ukraine, noted that timely launch of the market, unfortunately, could lead to its malfunctioning and to be counterproductive in relation to the interests of Ukrainian consumers and market participants. Therefore, international institutions recommend Ukraine to develop a detailed plan for launching a new model of the electricity market, launching it at a later date, or introducing it in stages, with a clear plan of action.

Thus, in spite of the different opinions of companies regarding the market introduction, there are a number of problems that are not contested by any market participant and which should be resolved as soon as possible, in particular:

  1. problem of cross-subsidization has not been resolved;
  2. from 01.07 the balancing market and the market of bilateral agreements will not start;
  3. the creation of a guaranteed buyer is not completed;
  4. commercial accounting of distribution system operators;
  5. there was no full test mode;
  6. software is not available for all;
  7. the actual bankruptcy of the provider of last hope and others.

Currently, few draft laws on the postponement of the launch of the electricity market have been registered in the Parliament, so the question is precisely in the process of finding the most optimal solution.

After the liberalization of the wholesale market of Ukraine should focus on the rapid integration of the Ukrainian grid with the European (ENTSO-E), which will, first of all, increase export potential and balance tariff policy at the expense of possible imports. According to experts, this task can only be carried out in a fully competitive market of electric energy.

The publication was prepared by European-Ukrainian Energy Agency (EUEA) and it is not the consolidate Position Paper of EUEA members.



[1] http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=65979

[2] http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=65992

[3] http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=66013

[4] http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=66067