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Business appealed to the Secretariat of the Energy Community for assistance in creating market conditions for the functioning of the energy market

12/ 07/ 2023
  In July 2019, a new electricity market model was launched in Ukraine to liberalize the energy sector and ensure its stable operation through market mechanisms. However, from the beginning of the updated energy market, price limitations (price caps) were introduced, artificially restraining the price of electricity. As a result of these regulations, by the autumn of 2019, the first consequences of these limitations emerged, including the accumulation of debts to electricity producers from renewable energy sources. According to calculations by the EBAs member companies, due to price limitations, the debt of the State Enterprise National Nuclear Energy Generating Company Energoatom to the State Enterprise Guaranteed Buyer and electricity suppliers for the obligations imposed on it to finance the tariff for the population amounts to 18.2 billion UAH. Additionally, during 2023, settlements were almost not fulfilled. Out of this amount, approximately 14 billion UAH represents the money the State Enterprise Ukrenergo did not receive for electricity transmission. The State Enterprise Ukrenergo owes the State Enterprise Guaranteed Buyer 21.5 billion UAH for the service related to the development of the renewable energy industry. While the debt of the State Enterprise Guaranteed Buyer to the renewable energy sector reaches 25.4 billion UAH. Due to financial problems in the energy market, Ukrenergo is forced to take loans and use revenues from the sale of access to interstate sections to partially settle its debts. At the same time, this winter has demonstrated the importance of the proper functioning of the energy market and its significance for the country, as well as for citizens and businesses. However, the aforementioned financial condition of the energy market poses a risk that generating companies may not be able to adequately prepare for the next heating season. And one of the consequences could be a power shortage in the energy system. Of course, importing electricity from the EU is an option, but due to price limitations with an upper cap, procuring European electricity is seen as economically impractical for businesses. Therefore, lifting price limitations on the upper price cap would enable price synchronization between neighboring markets and ensure that Ukraine has electricity during the deficit. The authorities made a difficult and unpopular decision to increase the electricity tariff for the population to balance the financial state of the energy sector. Additionally, according to businesses, there were plans to liberalize the wholesale electricity market by removing price caps. The market viewed these intentions positively, as along with the tariff increase for the population, such a decision would improve the financial condition of the energy market and allow energy companies to accumulate funds for preparation for the next winter season. However, on June 26 and 27, 2023, the National Energy and Utilities Regulatory Commission (NEURC) conducted a public session during which the Commission decided not to remove the price caps. Instead raised the upper price limit and lowered the lower limit. This decision was made despite many energy sector representatives advocating for the removal of price caps and renewable energy producers expressing concerns about the artificial creation of a situation that would significantly increase the debts of the State Enterprise Guaranteed Buyer. Therefore, the decision of the NEURC did not solve the problems in the market and, according to the assessments of experts from the European Business Association, essentially postponed a comprehensive solution to the problem and created conditions where payments to green producers could potentially drop from the current 50% level of settlements to no more than 30%. At the same time, businesses again emphasize the importance of striving for market conditions creation in the energy market, as any regulations and limitations do not contribute to it. The market should determine the price, just in European Union countries.  Therefore, the European Business Association requests the Director of the Secretariat of the Energy Community, Artur Lorkowski, and the Deputy Director, Head of the Legal Department of the Secretariat of the Energy Community, Dirk Busch, to consider the possibility of conducting consultations with the NEURC to facilitate the removal of price caps. The price caps are seen as hindering the stable functioning of the energy market and, according to business representatives, not fully aligning with European practices, where the market should determine the price of electricity. This is crucial to prevent a significant decrease in settlement levels for renewable energy sources.

In July 2019, a new electricity market model was launched in Ukraine to liberalize the energy sector and ensure its stable operation through market mechanisms. However, from the beginning of the updated energy market, price limitations (price caps) were introduced, artificially restraining the price of electricity. As a result of these regulations, by the autumn of 2019, the first consequences of these limitations emerged, including the accumulation of debts to electricity producers from renewable energy sources.

According to calculations by the EBA’s member companies, due to price limitations, the debt of the State Enterprise “National Nuclear Energy Generating Company “Energoatom” to the State Enterprise “Guaranteed Buyer” and electricity suppliers for the obligations imposed on it to finance the tariff for the population amounts to 18.2 billion UAH. Additionally, during 2023, settlements were almost not fulfilled. Out of this amount, approximately 14 billion UAH represents the money the State Enterprise “Ukrenergo” did not receive for electricity transmission.

The State Enterprise “Ukrenergo” owes the State Enterprise “Guaranteed Buyer” 21.5 billion UAH for the service related to the development of the renewable energy industry. While the debt of the State Enterprise “Guaranteed Buyer” to the renewable energy sector reaches 25.4 billion UAH. Due to financial problems in the energy market, “Ukrenergo” is forced to take loans and use revenues from the sale of access to interstate sections to partially settle its debts.

At the same time, this winter has demonstrated the importance of the proper functioning of the energy market and its significance for the country, as well as for citizens and businesses. However, the aforementioned financial condition of the energy market poses a risk that generating companies may not be able to adequately prepare for the next heating season. And one of the consequences could be a power shortage in the energy system. Of course, importing electricity from the EU is an option, but due to price limitations with an upper cap, procuring European electricity is seen as economically impractical for businesses.

Therefore, lifting price limitations on the upper price cap would enable price synchronization between neighboring markets and ensure that Ukraine has electricity during the deficit.

The authorities made a difficult and unpopular decision to increase the electricity tariff for the population to balance the financial state of the energy sector. Additionally, according to businesses, there were plans to liberalize the wholesale electricity market by removing price caps. The market viewed these intentions positively, as along with the tariff increase for the population, such a decision would improve the financial condition of the energy market and allow energy companies to accumulate funds for preparation for the next winter season. However, on June 26 and 27, 2023, the National Energy and Utilities Regulatory Commission (NEURC) conducted a public session during which the Commission decided not to remove the price caps. Instead raised the upper price limit and lowered the lower limit. This decision was made despite many energy sector representatives advocating for the removal of price caps and renewable energy producers expressing concerns about the artificial creation of a situation that would significantly increase the debts of the State Enterprise “Guaranteed Buyer.”

Therefore, the decision of the NEURC did not solve the problems in the market and, according to the assessments of experts from the European Business Association, essentially postponed a comprehensive solution to the problem and created conditions where payments to “green” producers could potentially drop from the current 50% level of settlements to no more than 30%.

At the same time, businesses again emphasize the importance of striving for market conditions creation in the energy market, as any regulations and limitations do not contribute to it. The market should determine the price, just in European Union countries. 

Therefore, the European Business Association requests the Director of the Secretariat of the Energy Community, Artur Lorkowski, and the Deputy Director, Head of the Legal Department of the Secretariat of the Energy Community, Dirk Busch, to consider the possibility of conducting consultations with the NEURC to facilitate the removal of price caps. The price caps are seen as hindering the stable functioning of the energy market and, according to business representatives, not fully aligning with European practices, where the market should determine the price of electricity. This is crucial to prevent a significant decrease in settlement levels for renewable energy sources.

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