Like every other country, Ukraine is facing a Covid-19 crisis, but with the added complication that its electricity market is failing to deliver.
In March 2020, Ukrainian electricity demand fell by 7%, because of the Covid-19 lockdown. At the same time, power exports to Hungary, Slovakia and Romania surged by over 50% in the first quarter of 2020 from the synchronised Burshtyn region of Ukraine. This was because wholesale electricity prices outside Ukraine are far more attractive. To protect the country’s heavily indebted energy sector, the government imposed a 65% tariff on coal and electricity imports from Russia on 1 April 2020. Meanwhile, household, commercial and even industrial prices remain regulated with caps, despite an opening-up of the electricity market last year.
In its letter to President Zelenskyy, EURACOAL looks to the future and asks the Ukrainian government to stick with market-based solutions and electricity market liberalisation, rather than return to a failed system of central planning. As agreed in its Association Agreement with the EU, Ukraine should implement the EU Third Energy Package and did introduce the necessary legislation with a start date of 1 July 2019.
Protectionist measures are not working and Ukraine’s largest energy company, DTEK, has had to idle the big Pavlohradcoal mine. Energy companies, including SOEs, are not receiving enough income to operate. The State Company “Guaranteed Buyer” (responsible for subsidising household tariffs and renewables) has massive debts to the nuclear and renewable power companies (estimated at UAH 8.7 billion or EUR 300 million).
Part of the problem is that cross subsidies and over-generous feed-in tariffs for renewable energy sources have pushed up electricity prices such that huge debts have built up in the energy system. The government has responded by retrospectively reducing feed-in tariffs. A fairer solution would be to introduce an auction system for renewables. Electricity prices caps should be replaced with social support for those on low incomes. The caps mean heavy industry benefits from unfair subsidies. Unfortunately, the government has reduced social support intended to help with utility bills – this will lead to more debt.
Read our letter here.