The new electricity market was fully launched in Ukraine on July 1, 2019. The model it is based upon has proven its effectiveness in Hungary, Poland, Slovakia, Czech Republic, Germany, France, and the Baltic and Scandinavian countries.
The introduction of the new rules of market operation began January 1, 2019, primarily applying to the industrial enterprises. There is, however, little information about how to act in the changed environment, which raises concerns among the consumers. Previously, everything was more or less clear – Energorynok, oblenergo, tariffs, but now, everything has changed – wholesale market, new players, pricing. Let’s see how it all works now.
What was the market like before?
Since 1996, the Ukrainian electricity market was essentially a monopoly with all generating companies selling produced electricity to the EnergoRynok State Enterprise at a rate set by the National Energy and Utilities Regulations Commission (NEURC). Then, oblenergos (electricity suppliers) purchased electricity from EnergoRynok and sold it to the consumers: industry received electricity at one tariff, while households paid a different, subsidized tariff. The burden of subsidizing was carried on the shoulders of the industrial enterprises.
The monopoly position of oblenergos, which owned power lines and supplied electricity to end consumers, did nothing to facilitate development of competition and improvement of the level of service. Despite that, up to 2019, there were around 200 private companies supplying electricity based on the NEURC license.
Why the market reform?
Firstly, the absence of a full-fledged market does not facilitate development of competition and, as a result, the market does not develop. Secondly, and most importantly, energy market reform is one of Ukraine’s obligations to the European Union and a condition for allocation of EUR 500 million in financial aid.
New market – what is it like?
The new market has entirely different rules of operation. Firstly, the monopoly – SE EnergoRynok, was liquidated. There are now two entities in its place. The first is SE Market Operator (Operator Rynku), which ensures the function and organization of electricity purchases and sale transactions in the “a day in advance” market and in the intraday market. The second is SE Guaranteed Buyer (Harantovaniy Pokupets) involved in the procurement of produced ‘green’ energy.
Secondly, oblenergos were transformed into distribution system operators (DSO). In addition, new electricity suppliers were formed from the former oblenergos. As a result, the small circle of players that operated in the electricity market prior to the reform now have competitive business conditions.
Thirdly, the wholesale market consisting of four components, each performing specific functions, was formed. Only the supplier who knows the rules of the game can operate in this market.
In the bilateral agreements market, the electricity is purchased under long-term and bilateral agreements concluded directly between producers (generating companies) and consumers of electricity.
The “a day in advance” market is the market of purchase and sale of electricity with a coverage period of the next day, in which all agreements are approved by the DSO. These agreements are performed a day prior to the coverage period.
The intraday market covers electricity trade in the course of a day, after the conclusion of all agreements and contracts on the ‘day in advance’ market.
Balancing market is the market where the electricity supplier will additionally purchase lacking volumes of electricity to balance the level of production and import with the level of consumption. This market also envisages application of the mechanism for regulating imbalances (non-performance of the announced generation regime by the producer).
Fourthly, it has become easier to enter the market. In fact, any company can become an electricity supplier; it is not difficult to obtain the license.
Sounds great. What about the “but’s?”
One needs to understand that in 8 months of 2019, the number of electricity suppliers in the market grew to 500. The competition is very stiff and the fight for consumers requires suppliers to improve their level of service.
Suppliers control all processes – from the payment of bills to controlling consumers’ imbalances. In the new electricity market, the consumer is indeed always right and bears no responsibility (unless provided for by the agreement), for example, for violating the terms of payment for electricity. The supplier, on the contrary, operates in very tough conditions and is always under the threat of being penalized.
Indeed, any company can obtain the license for supplying electricity, purchase electricity for own needs and sell it to other companies. Experience, however, shows that it is not that easy. This is, however, not the main reason.
Imbalances – they raise the biggest number of questions and concerns on the part of the consumers. If a company requires additional volumes of electricity, the supplier goes to the imbalance market for additional volume, which costs more than stipulated by the agreement. And vice versa, if the company factually consumed less electricity than planned, the supplier goes to the imbalance market and sells the excess at a price much lower than on the exchange.
Each of these situations carries a risk of financial losses for the company. The suppliers that have been operating in the imbalance market for a long time can offer their conditions for working on the imbalance market – tolerance, within the framework of which the consumer’s imbalances will be sold.
How to avoid ‘imbalances’ and who to approach for information?
One of the options for minimizing the losses due to imbalances is reducing them inside the group. For example, TEK Company, which has been in the market for 10 years, sets off nearly 40% of its imbalances between the consumers. Furthermore, TEK can also reduce them within the external balance of the group – set-off electricity between different suppliers.
Every client of TEK gets a personal manager, who provides support throughout the validity of the agreement. In case of any legal questions or when switching from another supplier or when concluding the agreement, the client can expect qualified legal support.
TEK has developed a Personal Account for Consumers — enabling them to control consumption volumes, adjust consumption volumes within the current month, download bills for payment and scan-copies of all required documents — which, at the moment, operates in the test mode. This will help quickly and effectively control the costs of electricity consumption and enable 24/7 access to information.
Companies with automatic hourly electricity metering systems — the Automatic System of Commercial Accounting of Electricity (ASKOE) or Local Equipment for Data Collection and Processing (LUZOD), i.e. consumers of category A — have the possibility to influence the cost of electricity every day. TEK provides assistance with installing ASKOE or LUZOD, or can provide the client with a comprehensive consultation, as the company is interested in quality accounting of electricity.
TEK has regional offices in Zaporizhzhia, Dnipropetrovsk, Kharkiv, Lviv, Khmelnytskiy and Donetsk Oblasts. It has been one of the first companies to hold a number of educational seminars, where it explains in detail the peculiarities of the new market operation: starting from July 2018, the company held over 60 seminars in every region of Ukraine.
The new market carries a number of difficulties, but a consumer who understands how this market works will be able to impartially evaluate the supplier and choose the best option of supply, or several options, or several suppliers, as the new market does not limit the consumer.
