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Only way to overcome crisis in electricity market is changing on the system and legislative level

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14.07.2021

In recent weeks, state-run energy generating companies, including Energoatom, have once again become hostages of the electricity market imperfections and unscrupulous traders, in fact having crushed prices. As a result, there were some threats, at least to the continuity of electricity supply to consumers and the integration of the Ukrainian power system with the European ENTSO-E, which is determined by the country strategic goal, but due to the current distortions and fluctuations of our domestic market is just impossible. Not to mention the losses of NNEGC «Energoatom», PJSC «Centrenergo», PJSC «Ukrhydroenergo» and SE «Guaranteed Buyer», which currently simply do not have the opportunity to construct their own effective sales strategies, and thus – lose profits, in turn, leading to losses of the state budget, which under the condition of lower «profit» of state-run enterprises significantly falls short tax revenues.

Therefore, the rules of electricity trade should be regulated at the legislative level as soon as possible in favor of the state. Energoatom has repeatedly drawn attention to it and offered various ways to solve the problem.

An unprecedented price crash in late June and early July this year catalyzed the situation, and the Ministry of Energy, at the request of electricity market participants, proposed such concrete steps to overcome the crisis:

• obliging to sell electricity only at auctions through the exchange;

 • guaranteeing the reliability and impartiality of exchanges;

 • making the price on the direct contracts market an indicative;

 • changing the PSO conditions, by abolishing the requirements for state generation to sell 10% of products in the day-ahead market.

First Deputy Energy Minister Yurii Vlasenko wrote about this in his blog.

A little more about it.

1. All electricity producers – both public and private, regardless of the form of ownership – should sell their products exclusively at auctions through exchanges.

Currently, Energoatom and other state-run companies under bilateral agreements are forced to do it exclusively on the Ukrainian Energy Exchange (UEE), according to the law, while other electricity producers have no restrictions on the sale of their products. Therefore, «equality» will promote fair competition and a significant improvement in the situation.

2. Establishment of exchanges should also be governed by fixed and understandable rules that will ensure their reliability and impartiality.

In the case of unpleasant «surprises», the exchange should be «punished with a wallet» and revoked a license – these levers are sufficient for transparency of operations and not falling under the influence of large producers.

3. Legislative introduction of a new price indicator, which will be the price of electricity in the bilateral agreements market.

It is referred to need to develop a procedure by which the market operator will systematize information on prices under such agreements.

4. The requirement for state generation to sell 10% of the total output in the day-ahead market should be abolished.

All state-run companies in charge of public service obligations in the electricity market are free to choose how to trade in their goods. Only then will they be able to meet not only the demand of the public and industry, but also their own (government) needs  –  scheduled repairs, equipment upgrades, social support for workers, etc.

Thus, currently Energoatom producing more than 50% of all electricity in Ukraine, being forced to enter the day-ahead market, is actually depriving itself of profits, which greatly complicates all of the above. In addition, the current situation also affects the price in the day-ahead market, contributing to further market distortions. Similar situations are with other representatives of the state generation.

As for nuclear energy, according to Vlasenko, the best option is bilateral agreements on which the basic product is sold. «After all, a long-term contract gives the manufacturer stability and the ability to adequately forecast business, income and expenses.» Therefore, Energoatom hopes that the long-promised changes for the better will come soon.