Executive Summary:

The past months were characterised by new appointments and organisational changes in the political and regulatory bodies that govern Ukraine’s energy sector. A new ministry that is responsible for environment, energy efficiency and energy with seven new deputy ministers has been created. New commissioners were appointed at the regulator. And most MPs that form the Energy and Utilities Committee of the Rada have not been in parliament before.

In terms of substantive discussion, the question of how to achieve a new gas transit contract with Russia took centre stage. With the unbundling of Naftogaz Ukraine met long-standing European demands. But so far trilateral negotiations between Russia, the EU and Ukraine do not yet indicate how a compromise could look like.

The other big topic remains the electricity market opening. To keep prices low the new administration resorted to allowing electricity imports from Russia and Belarus as well as obliging state-owned power producer to sell more electricity below market prices.

Moreover, the new government indicated its desire to revise the Energy Strategy of Ukraine. We think this can be an opportunity to guide and streamline sectoral plans and policies (e.g., on renewables, transmission, energy efficiency) in a sector that is characterised by long investment horizons and also to improve the process of strategy implementation.

Finally, we observe an ongoing discussion on how Ukraine should deal with increasing cost from the old feed-in tariff system for renewable electricity. We argue that the cost of retroactive changes, in terms of possible legal action and increasing future capital cost, exceed the potential gain of somewhat lower subsidies.