Integration of Ukrainian and EU Electricity Markets: What Are the Benefits for Ukraine?

October 19, 2021

The integrated power system of Ukraine (IPSU) currently works synchronously with Russia, Belarus, and Moldova. Today, only a small part of the Ukrainian power system – Burshtyn Energy Island (BEI) – is physically connected to European Union countries. BEI operates separately from the IPSU, so in the process of Ukraine’s overall synchronization with the European system, BEI will be connected to the IPSU. Connecting to the European network is key to reforming Ukraine’s energy sector and will help balance the power system and reduce dependence on Russia. As a result of power system synchronization, Ukrainian electricity generators will gain access to new solvent markets, and Ukrainian traders and electricity suppliers will be able to diversify their resource portfolio, thereby increasing market competition and ensuring balanced operation of different segments of the Ukrainian electricity market. So, what will synchronization with the European system mean for Ukrainian consumers? Synchronization with the European energy market will give Ukrainian end consumers access to new suppliers at competitive prices, and thus provide reliable and high-quality electricity.

Decision to integrate IPSU with the European Network of Transmission System Operators (ENTSO-E)

In 2017, at the ENTSO-E Assembly Meeting in Brussels, the Ukrainian TSO Ukrenergo signed an agreement on the terms of future integration with ENTSO-E, and thus met one of the goals of the country’s European course. The agreement provides for a set of steps that must be made in order to ensure successful integration. The integration of Ukrainian and European energy markets is a necessary step to ensure the energy security of the entire European region, and Ukraine in particular. This will help diversify electricity supply routes, increase IPSU flexibility, improve reliability and sustainability of power systems across the continent, expand opportunities for trade in electricity and contribute to the decarbonization of the Ukrainian economy.

What Needs to Be Done to Make Ukraine Part of the European Energy Space?

Ukraine needs to be physically disconnected from the Russian and Belarusian power system and connected to Europe’s network. Preparing for synchronization is a complex technological process. For full integration of the IPSU into ENTSO-E, the operating rules and standards of the Ukrainian system must comply with European ones. Not only power system synchronization is important for integration, but also the compatibility of the structure and operating rules of the Ukrainian and European energy markets. The launch of a new wholesale electricity market model in July 2019 started harmonization of Ukrainian and EU energy markets.

To integrate into ENTSO-E, Ukraine needs:

  • To harmonize its legislation with European electricity norms. Ukrainian legislation has not yet been fully harmonized with the rules and standards effective within the EU, in particular those concerning external economic transactions in electricity exports and imports, market monitoring and supervision in line with Regulation No 1227/2011 of the European Parliament and of the Council of 25 October 2011 (REMIT) and regulation and organization of a forward market for standard contracts, etc.
  • To create a joint unit to regulate the Ukrainian and Moldovan power systems.
  • To build new power transmission lines and upgrade power units, software, and hardware for dispatch stations.
  • To ensure power system control under European Transmission System Operators’ standards.

Ukraine’s power system island operation should be the final stage of synchronization. It will prove system stability and the compliance of its parameters with previous calculations. Testing that is currently being conducted by Ukrenergo with the support of USAID ESP will assess the readiness of the IPSU for integration into the European power system. For the 2021/2022 Autumn-Winter period, in preparing for synchronization with the European power system, Ukraine’s power system will operate under island mode for several days after disconnecting from Russia’s power system.

The certification of Ukrenergo as a European-type transmission system operator must be completed. It is worth reminding that in May 2021 the Ukrainian President signed the Law “On amendments to several legislative acts of Ukraine concerning the certification of a transmission system operator”, No. 1396-ІХ, that the parliament approved on April 15, 2021. The Law specifies the certification of Ukrenergo under the ISO (Independent System Operator) unbundling model. On October 1, NEURC made a relevant preliminary decision. A conclusion by the Energy Community Secretariat is now awaited to confirm that the company’s activity complies with current European legislation.

Today, the level of preparation of the Ukrainian side for the synchronization of power systems is highly regarded in the ENTSO-E Secretariat.

What Was Achieved with USAID ESP Support?

In 2019, with USAID support provided through the Energy Security Project, the wholesale electricity market was launched in “safe mode”, and in 2020 – the related ancillary services market was launched.  In order to launch the new ancillary services market, the Regulator approved the monitoring methodology which ESP developed and tested. The newly developed methodology seeks to ensure effective and careful monitoring of ancillary services in accordance with the requirements for integration into ENTSO-E. Since October 2019, USAID ESP has been assisting NEC Ukrenergo to test power units of Ukrainian power plants for certification for the provision of ancillary services. The ancillary services market plays a key role in maintaining the stability and functioning of the power system, providing certified power plants with a platform to provide ancillary services. Currently, 18 power plants, including including eight hydro power plants, eight thermal power plants, one nuclear power plant, and one combined heat and power plant are certified.

Next year, the IPSU – in the process of operational testing – must prove its ability to function stably in isolated mode. These tests will assess the readiness of the system to integrate with the European energy system. During testing, the IPSU must demonstrate the ability to balance supply and demand deviations under normal and emergency operating conditions in order to maintain the frequency level only with its own internal resources.

In September 2021, with USAID ESP support, the technical staff of NEC Ukrenergo involved in the planning of the IPSU, started a practical 10-module training course on power system analysis with PowerFactory software from DIgSILENT. The training is conducted in accordance with the Network Development Plan (NDP) for 2022-2032 and will help strengthen NEC Ukrenergo’s capacity for successful integration of the IPSU into ENTSO-E.

In addition, USAID, through the Energy Security Project (ESP), has developed a unique energy storage system for Ukrhydroenergo, Modern batteries and the relevant software for their management will increase the speed of response to changes in electricity load and boost flexibility in the Ukrainian grid, which will facilitate Ukraine’s integration with ENTSO-E. Connecting to this European network is key to reforming Ukraine’s energy sector and will help balance the power system and reduce dependence on Russia. The Energy Security Project prepared a detailed feasibility study, which made it possible to raise World Bank funding of $212 million for the project’s implementation.

To continue this support, the Government of Ukraine and the Government of the United States of America signed an “Additional Agreement to the Agreement on the Implementation of the Development Objective” for a total of $9 million on September 27, 2021. The document was signed by Prime Minister of Ukraine Denys Shmyhal and Director of the USAID Mission to Ukraine James Hope.

For reference:

ENTSO-E – the European Network of Transmission System Operators for Electricity. The organization was created in 2009 and now comprises 43 operators from 36 countries.

The USAID Energy Security Project (ESP) works with the Government of Ukraine, the private sector and civil society aiming to enhance the energy security of Ukraine and transform the national energy sector into a modern market-oriented and EU-integrated driving force of economic growth. The Project works to improve the regulatory and legal framework in the energy sector and increase the reliability of energy supply that will help Ukraine in ensuring sustainable economic development. The Project’s work focuses on assistance to Ukraine’s Government in creating competitive energy markets and improving the transparency of the energy sector, reducing corruption, and improving the wellbeing of Ukrainians. The Project also assists Ukraine’s government and partners in the energy sector in improving energy supply and mitigating Russian aggression.