In the electricity sector, ESP promotes competitive market reforms, unbundling monopoly service providers, and strengthening regulations to ensure a level playing field for effective competition.

ESP’s implementation strategy is centered on helping Ukraine and its energy sector partners fortify the country’s power supply to decrease dependence on Russia for power system balancing, modernizing electricity generation facilities, increasing cross-border trade with Europe, and improving access to reliable electricity at fair and affordable prices.

Activities

Unbundling Monopolies

ESP supports the new retail electricity market, which launched on January 1, 2019 in compliance with the Electricity Market Law. The new retail market replaced the regional energy companies, or oblenergos, the previous providers of integrated distribution and retail services, with a combination of universal services suppliers, distribution system operators, and a supplier of last resort. ESP activities are addressing commercial metering and financial settlement issues in the wholesale market, which are a result of the unbundling of monopolies as well as public service obligation (PSO) tariff subsidies for households to control prices.

Promoting Competition

ESP supported the Government of Ukraine in opening and operating the wholesale electricity market, a key milestone in the liberalization of Ukraine’s energy market and in support of the EU’s Third Energy Package. The market launched on July 1, 2019, in “Safe Mode” – a concept developed by ESP to help smooth the market opening, keep end-consumer costs in check, and maintain the financial sustainability of wholesale market segments. ESP engaged local stakeholders and the donor community, as well as market players, and facilitated the market launch by supporting development of the regulatory framework, financial modeling and impact assessments, and training for market participants. ESP continues to monitor progress and assist policy and decision makers to improve market rules and relevant regulations through evidence-based analyses and concrete proposals.

Reducing Impacts on Consumers

Following the launch of the wholesale electricity market, transmission tariffs were required to include a renewable energy feed-in tariff (FIT) surcharge. This change led to a significant increase in electricity prices for all consumers, especially for large industrial consumers connected to the Ukrenergo grid. To prevent price increases, ESP proposed to transfer this function partly to the Guaranteed Buyer, supported by the public service obligation (PSO) for a transitional period. Based on ESP's innovative price control recommendations, the Cabinet of Ministers of Ukraine adopted amendments to relevant PSO procedures, which helped reduce Ukrenergo’s payment obligation and ultimately kept consumer prices in check.

Integrating into European markets

As a strategic goal, ESP assists Ukrenergo with integration into the European Network of Transmission System Operators for Electricity (ENTSO-E) via development of network models and flow studies, analysis of island mode operation, least-cost generation scenarios and long-term network planning. ESP also advises Ukrenergo on Ukraine-Moldova market coupling, cooperation between Ukraine’s market operator and its Hungarian and Romanian counterparts, and integrating Ukraine and Moldova into the EU market.

Improving Sector Stability

ESP analyzed the structure and root causes of debt accumulation in the electricity sector. Debt accumulation poses a significant risk for successful operation of the electricity market, particularly under the new market model, and needs to be addressed. In this regard, ESP analyzed the problematic debt accumulation of Ukrinternergo, the Supplier of Last Resort and a key player in the retail segment, and developed recommendations for wholesale and retail market regulations to reduce debt.

Strengthening Systems

ESP is helping transmission system operator Ukrenergo to develop an ancillary services market, which supports electricity system stability, and to certify electricity generators as ancillary service providers. With ESP’s support, multiple generators are now certified to participate in ancillary service auctions and the market is open. This is another key factor in Ukraine’s energy sector reform, and will advance integration into ENTSO-E and decrease dependence on Russia for system balancing.