Setting price limits on electricity has adverse effects on the market
Today, June 26, a meeting of the National Energy and Utilities Regulatory Commission (NEURC) will take place, during which a draft resolution titled “On Establishing Maximum Prices on the Day-Ahead Market, Intraday Market, and Balancing Market” will be discussed. This resolution proposes the establishment of maximum prices in the electricity market.
Experts from the European Business Association have thoroughly reviewed the proposals of the NEURC and believe that the proposed level of maximum prices does not correspond to market conditions lacks economic justification, and could critically impact the formation of a free (market) price and the bilateral contract market. Furthermore, according to Ukrainian legislation, such restrictions are only established in cases of significant price fluctuations, and the decision should have appropriate justification and undergo discussion with the Antimonopoly Committee of Ukraine (AMCU).
In addition, according to the experts of the Association, the proposed level of maximum prices by NEURC will not provide sufficient revenue to finance investments in new generating capacities, which are extremely necessary for the Ukrainian energy system due to the current generation mix and the deficit of balancing power.
In general, according to businesses, the practice continuation of regulating wholesale electricity prices, as proposed by NEURC, does not contribute to the adherence to the main principles of the new market model, namely transparency and competitiveness. And it also leads to the operation of the market under regulated conditions. It should be noted that price restrictions were introduced as a temporary measure at the beginning of electricity market reforms. However, they still have remained in effect in the market.
In addition, the Energy Committee of the Association has already officially reached out to the Energy Community with a request to analyze the mentioned draft resolution and the overall situation regarding the maximum prices in the electricity market.
According to EBA experts, the maximum price establishment proposed by the draft resolution of NEURC does not fully align with European regulations and provisions of national legislation. Therefore, businesses urge a reconsideration of the provisions of the resolution and not to adopt the proposed levels of maximum prices in the electricity market as currently drafted.