Annulment of PSO, price caps on electricity market should be of high priority for govt – Energy Community

Ensuring that the price caps and other restrictive measures such as disproportionate PSOs are limited in time and phased out in order to stimulate participation to the market and allow competition to develop should be treated with high priority by the Cabinet of Ministers, the Energy Community has said.

According to a report posted on the website of the Energy Community, on July 1, 2019, the wholesale electricity market in Ukraine started operating within the new legal regime that was supposed to replace the single buyer model. Despite numerous unresolved issues, all market segments (except the market for ancillary services) started functioning without major problems due to strong market regulation via various price caps as well as PSOs that do not allow full competition to develop.

"Yet, the regulations go well beyond what is necessary to protect households," the Energy Community said. Despite the fact that the PSO Act was already changed several times, the amendment procedure is not duly followed and the act is not being consulted with the Energy Community Secretariat. The government, in particular, has changed the PSO act several times. Its latest version not only increased the volumes that the state generation, in particular Energoatom and Ukrhydroenergo, should sell to the state-owned enterprise (SOE) Guaranteed Buyer under PSO, and in this manner, the Guaranteed Buyer became the old-new single buyer.

The PSO Act, adopted in June 2019, stipulated that during the first 18 months7 after market opening, Energoatom was obliged to sell 75% and Ukrhydroenergo 20% of their portfolio to the Guaranteed Buyer. The Guaranteed Buyer was obliged to sell this electricity to universal service suppliers (USS). Additionally, Energoatom had to sell 15% of its portfolio through auctions to the network operators (the TSO – transmission system operator and DSOs – distribution service operators) for covering network losses.

"Choosing a supplier of their choice by the universal service suppliers as well as the network operators (as all other eligible customers) is in practice not allowed," the Energy Community said.

The volumes that Ukrhydroenergo has to sell to the Guaranteed Buyer have also increased to 35% instead of the 20% required under the PSO Act from June 2019.