On August 19, Dr. Georg Zachmann, project leader of Low Carbon Ukraine (LCU), took part in a meeting that President of Ukraine Volodymyr Zelensky held with representatives of the Cabinet of Ministers and relevant stakeholders on the situation in the electricity market. Beside the 30 participants from the Ukrainian side, the USAID Energy Security Project and project Low Carbon Ukraine were invited as foreign experts.
The new administration is concerned about increased tariffs for non-residential customers after the new electricity market started operating on July 1, and declared that it plans to undertake short-term measures to reduce electricity prices by at least 15-20%. Participants of the meeting discussed the impact of the rise in price of electricity on prices for water and heating for the population, tariffs for industry, as well as mechanisms for regulating the cost of electricity, taking into account the dominant position in the market of individual producers.
The situation that evolved after the market opening was discussed controversially: while representatives of the acting government mainly see the reform as a success with minor and surmountable technical issues, others pointed to the highly concentrated and little competitive electricity market in Ukraine that inevitably leads to higher prices.
Dr. Zachmann explained, that LCU analyses indicate a decoupling of wholesale market prices and marginal costs of production, leading to prices well above those in neighbouring countries. The reason can be found in structural problems of the Ukrainian electricity market, that is characterized by a significant concentration in generation (and resulting risks of market power abuse), the isolation of the power system and cross subsidies. Those issues can only be addressed by structural measures.
LCU rates the invitation as a recognition of the project’s previous work and the high quality of analyses and policy proposals, that have been delivered so far to support the Ukrainian government to promote the transition towards a low-carbon economy. Among the most relevant publications on the electricity market are:
Please note that all analyses and recommendations by LCU represent solely the view of the author(s). Comments and feedback would be appreciated.