Ukraine Market Report — Q2 2019
The electricity market opened to competition in July, replacing a single-buyer model that had governed the sector since independence.
Overview
A new electricity market model took effect from July, replacing the single-buyer arrangement under which all generation had been sold to a state intermediary and resold to suppliers.
An early parliamentary election was called for July.
What the electricity reform did
The new model introduced bilateral contracts between generators and suppliers, a day-ahead market, an intraday market and a balancing market — the standard European market architecture.
Its commercial significance for an industrial consumer was direct: for the first time, a large electricity user could contract directly with a generator rather than buying at a regulated tariff from a monopoly supplier.
For a company assessing Ukraine as a location for energy-intensive production, this changed the analysis. Electricity cost became negotiable rather than administered, and a competitive procurement of power became possible.
The reform was, like the procurement system before it, a case of building new market infrastructure rather than reforming an existing institution — which is why it was implemented while other reforms of the same period stalled.
Its early operation was uneven, with disputes over price caps, transitional obligations and the position of the state generation and transmission companies. That is normal for a market opening of this kind and does not undo the structural change.
Macro position
Growth continuing. Inflation falling. Currency strong on continued portfolio inflows. Reserves rising.
Sectors
Energy-intensive industry — a new ability to contract for power directly.
Renewables — a feed-in tariff scheme had attracted substantial investment, with the resulting cost burden becoming a policy problem in the following year.
Exporters — margin pressure from the strong currency.
Agriculture — a good harvest in prospect.
What the quarter settled
That Ukraine's electricity supply had become a commercial market rather than an administrative allocation, and that the same reform design principle — build new infrastructure rather than reform an existing institution — had worked again.
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