For more than six months now, Energoatom has been emphasizing that the crisis in the Ukrainian energy sector was caused by the current model of the domestic energy market. Now this position has been confirmed by experts who have made an in-depth and balanced analysis of its causes. The rapid loss of financial liquidity and non-fulfilment of international obligations, especially within the framework of the EU-Ukraine Association Agreement, are not its worst consequences. That is why this model of the energy market needs to be urgently revised before it completely destroys the financial base of energy generating companies and causes electricity power blackouts.
The experts of the Razumkov Centre have prepared an analytical study “A set of solutions for sustainable development of renewable energy sources (RES) in Ukraine.” Energoatom specialists fully share the objective analysis of the factors that led to the current crisis in the Ukrainian energy market and are ready to support the actions proposed to solve it.
The key cause of the crisis in the electricity market, according to these industry experts, is the lack of a transparent and competitive market mechanism for the distribution of funds between participants and constant political and administrative interference in regulatory legislation. “This distorts trading operations by selling a resource that is not backed up by actual power generation volumes,” the study states. Such manipulations lead to an artificial fall in prices in the market segment of the day ahead (RDN), increasing the difference with the “green” tariff, which causes the risks of bankruptcy of heat generation companies, NNEGC “Energoatom” and SE “Guaranteed Buyer”.
The Razumkov Centre believes that a number of short-sighted management decisions have eradicated the very notion of a competitive environment in the electricity market. These include:
- extremely strict non-market price restrictions for Energoatom (obligation to sell 85% of electricity production at set prices);
- additional restrictions for GarPok in the application on the day-ahead market for the sale of electricity generated at the NPP;
- opening access to Belarusian and Russian exporters to the electricity market of Ukraine;
The ministry administratively formed price disparities between the price of electricity for the population and industry. These factors contribute to the rapid increase in the deficit of the Guaranteed Buyer, which according to these experts by the beginning of 2021 will be at least UAH 20 billion, with the total debt on the electricity market reaching UAH 80 billion. It is therefore clear that without a significant correction of the current market model, these factors will create the preconditions for sudden blackouts, according to the authors of the study.
What ways out of the crisis do they offer?
In view of the proposals of the Energy Community Secretariat, the following steps should be taken immediately:
- cancel the Guaranteed Buyer’s obligation to buy large volumes of electricity from Energoatom and sell them on organised market segments;
- give Energoatom the right to sell residual volumes of electricity (about 50%) under bilateral agreements to support its financial, operational and investment activities;
- ensure direct sales of electricity to the population by Energoatom through universal service providers (PUPs);
- remove the Guaranteed Buyer from the existing model of electricity sales for the population, leaving for it the functions of electricity sales at the “green” tariff and the organisation of auctions;
- instruct the National Commission for State Regulation of Energy and Utilities (NCRECP) to calculate the cost and real prices in the electricity market;
- develop and adopt amendments to the Law “On the Electricity Market” that will identify vulnerable electricity consumers;
- abolish the norm on preferential 100 kWh of electricity for households (at the price of 90 kopecks per kWh instead of UAH 1.68 per kWh).
“The proposal to improve the existing model is based on the fact that NNEGC Energoatom is a state-owned company that can receive sufficient funds in market conditions to ensure the fulfilment of special obligations to the public,” the Razumkov Centre experts conclude. Only such an approach, in their opinion, will allow the state to fulfil all financial obligations, including to investors in the RES sector, to restore balance to the electricity market and prevent the risk of random blackouts.
