The effect from the government’s decision concerning imports from Belarus and Russia

After the launch of a new market, retail electricity prices for various consumer categories went up by 5-30%. Therefore, the government’s recent decision concerning imports from Belarus and Russia may produce a certain positive effect in a short term, first of all, for large consumers. Development of competition and the strengthening of consumers have been, and still are, some of the key goals which reform of the domestic electricity market had to attain. In turn, these factors had to result, via the action of market mechanisms, in optimization of prices, increasing quality and reliability of power supply. But for that to happen, certain conditions are needed which we actually don’t have and are not going to have anytime soon with our internal generating capacity. In addition, the rapidly growing renewable energy segment is one of the factors destabilizing the new market. Due to the effect of a relatively high "green" tariff and low controllability of renewable energy generating capacities, it may only aggravate the situation and increase physical and financial imbalances of the market.

It is worth taking a look at the short-term results we have "achieved" by liberalizing the structurally suboptimal, highly concentrated wholesale market. First of all, we can note a visible rise of retail electricity prices. Under these conditions, decisions allowing to expand electricity import opportunities onto various segments of the domestic market and increase its liquidity and competitiveness must produce positive effect for the country and consumers. That’s how electricity markets in European countries are developing: via international integration and increasing cross-border trade.

But since the complete integration of Ukraine’s electricity market with markets of ENTSO-E member states will take place, according to an optimistic scenario, some time after 2023, it is extremely important to find, until that happens, alternative ways of enhancing competition in all segments of the domestic market. It must become a strong impetus for domestic producers to improve their effectiveness and competitiveness by implementing technological modernization and optimizing costs.

Overall, legislative changes expanding the opportunities for electricity imports from countries outside the Energy Community (Belarus and Russia) to the bilateral contracts market must help increase the commodity supply in this segment. And by the way, this market is the "cheapest" comparing to other – day-ahead, intraday and especially balancing – markets. At the same time, one has to remember that integration of Ukraine’s IPS with electrical grids of ENTSO-E member states for operation in the synchronized mode would mean discontinuation of simultaneous operation with electrical grids of Russia and Belarus. Moreover, during one year before that, Ukraine’s power system would have to operate in isolated regime to prove its self-sufficiency and reliability. Therefore, time has come already to take serious care of the balanced development of Ukraine’s own generating capacity and electrical networks. Otherwise, there is a risk that by increasing its dependence on electricity deliveries from Belarus and Russia for domestic needs, Ukraine would find it hard afterwards to fulfill ENTSO-E’s technical requirements and fully integrate into the European market, which is the country’s strategic priority.

Bohdan SerebrennikovManager on consultancy and analytical services
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