Electricity market opening - still work to do
Ukraine’s electricity wholesale market has been opened for competition on 1st of July. In theory, large retail suppliers and industrial consumers can now buy electricity freely from different generators on the open market. Hopes are that this will lead to a more efficient electricity sector. However, despite two years of preparation, there are concerns that the sector is not yet ready for the opening.
In particular, there are concerns about a lack of competition due to the low number of producers. Furthermore, technical questions such as how to organise metering and settlement of payments have not been answered satisfactorily. A complex system to compensate the difference between market-based wholesale prices and regulated tariffs for households which are below market prices blurs price signals.
These issues need to be addressed before any further opening steps are undertaken to ensure a proper working of the market and for benefits to materialise. The risk is implicitly acknowledged by Ukrainian regulators, that introduced a tight corset of temporary price-caps for all market segments. Failure to resolve these issues endangers the stability of the electricity system, resulting in potentially high economic cost.
