The current electricity market is not yet the model we are striving for

Of course, it is not yet possible to say that the reform of the electricity market has succeeded, because the state in which it is after the first year of operation in the new conditions can hardly be considered a target model of a competitive, mature market of European quality.

The current market, with many regulatory price caps, unbalanced RES support policy, non-market prices for the population and an existing mechanism of assignment of special obligations (ASO), is not like the model being built in the EU.

One can also observe some manifestations of abuse of market power by market participants, both in terms of supply and demand, which lead to significant price fluctuations and destabilize the market. This is especially evident in the price zone of Amber Island, where even integration with EU markets does not yet lead to the desired competition.

Unambiguously, the domestic electricity market is highly concentrated, immature and very vulnerable to any influencing factors, especially administrative interventions or manipulative actions of its participants.

The first thing to do is move away from the current ASO mechanism and start bringing electricity prices for the population to market levels, while protecting vulnerable consumers through targeted subsidies. The transition to the ASO financial model should increase competition and help solve the problem of financial imbalances in the market.

An effective market monitoring mechanism by the Regulator and the Antimonopoly Committee also needs to be established. Signs of unfair competition must be identified in a timely manner and the penalties for such violations must be substantive.

It is too early to say who won and who lost since the transition to the new model in July 2019. After all, a full-fledged transition, as such, has not yet taken place. There is a struggle between various forces, both on the part of the energy business (especially the largest players – DTEK, NNEGC “Energoatom”, as well as electricity producers with RES) and the government for influence on the market. And since the market is unsystematic and regulated, the one who lobbies better can win.

Of course, to ensure a painless jump from point A to a qualitatively new point B will not work and therefore requires a certain transition period, adaptation to new conditions of all market participants, finding optimal forms of reform implementation and further market development. We need to move forward, taking into account the experience and best practices of EU countries. The main thing is to ensure transparency and non-discrimination of market policy and operation, independence and effective control by the Regulator and the AMCU and integration into the European energy market.

Bohdan Serebrennikov
Manager on consultancy and analytical services