Market participants strive to purchase electricity under the most favorable conditions.
Since mid-March 2022, Ukraine's energy system has been operating synchronously with the continental European network. By late June of the same year, Ukraine resumed export-import operations with its European neighbors. The country continues to work on increasing capacity and building new interconnectors with European nations to enhance electricity supply security and boost exchanges between Ukraine and the EU.
Importance of Electricity Trade for Ukraine
Amid the ongoing war and persistent Russian attacks on critical infrastructure—which have destroyed generation capacities and increased electricity deficits—the ability to import electricity is crucial for stabilizing Ukraine's Unified Energy System. Currently, more than 9 GW of thermal and hydro generation have been destroyed, and about 16 GW of nuclear and thermal generation are occupied by Russian forces. While imports cannot cover all domestic needs, they help mitigate the existing electricity shortfall.
Key Benefits:
- Covering Electricity Deficits: Imports assist in meeting domestic energy demands during shortages.
- Financial Gains: Exporting surplus electricity generates additional revenue for repairs and investments in generating capacity.
- Emergency Assistance: The synchronization with Europe's energy system allows for mutual aid during crises, such as after the Kakhovka Hydroelectric Power Plant explosion.
Factors Affecting Electricity Trade Volume with the EU
Technical Capabilities
Technical limitations dictate the maximum possible volumes of electricity import and export. Expanding trade volumes requires extensive testing and modeling to ensure stable energy system operations on both sides of the border. As of December 1, 2023, Ukraine achieved synchronization with the European grid, and NEC Ukrenergo joined ENTSO-E.
- Current Maximum Import Capacity: 1.7 GW (negotiations are underway to increase this to 2.2 GW).
- Current Maximum Export Capacity: 0.550 GW.
"Export of electricity from Ukraine is conducted only when there is no deficit in the Ukrainian energy system," noted a representative from NEC Ukrenergo.
Government Policy
- Strategic Decisions: Government actions are based on national needs and interests. During the 2022-2023 heating season, Ukraine halted electricity exports due to reduced generation capacity from Russian attacks.
- Price Caps: The National Commission for State Regulation in the Energy and Housing and Communal Services Sector (NKREKP) sets maximum and minimum prices in certain segments of the wholesale electricity market to prevent sharp price fluctuations.
Electricity Pricing
In the unified European energy market, electricity prices are dynamic and influenced by various factors. Purchasing imported electricity is economically viable when its price is lower than domestic rates.
Seasonal Factors
Weather conditions and natural phenomena, such as solar and wind activity or water temperatures, can impact electricity production from renewable sources, affecting trade volumes.
Transparent Market Auctions
Access to cross-border transmission capacities for electricity export and import is sold through transparent auctions adhering to European rules. In 2023, NEC Ukrenergo launched a platform for joint auctions with Romania's system operator, later expanding to include Moldova in 2024. Plans are in place to conduct auctions with Poland, Hungary, and Slovakia on the European Joint Allocation Platform (JAO) starting in 2024.
Advantages of Joint Auctions:
- Fair access for all market participants to cross-border capacities.
- Increased market efficiency through reduced administrative complexities.
- Enhanced transparency and better price determination reflecting actual supply and demand.
International Cooperation and Support
Ukraine has received offers of assistance from neighboring countries:
- Poland: Expressed readiness to activate its coal-fired thermal power plants to aid Ukraine during winter.
- Moldova: Agreed to supply electricity within the "gas for electricity" project, involving the placement of generating plants in Moldova using natural gas supplied by Ukraine.
These collaborations strengthen energy security for both Ukraine and the broader European region.
Conclusions: The Benefits for Ukraine
- Access to a Larger Market: Ukrainian electricity producers can tap into the extensive European market and its consumers.
- Enhanced Consumer Choices: European legislative practices offer Ukrainian consumers a wider selection of suppliers, improved service quality, and fair market prices due to transparent competition.
- Strengthened Energy Security: Electricity trade with the EU bolsters Ukraine's energy security and provides opportunities for emergency assistance.
- Operational Efficiency: Market integration optimizes the use of available generating capacities, reduces system costs, and increases efficiency.
- Technological Advancements: Participation grants Ukraine access to modern technological solutions in power generation.
- Attracting Investments: Unified and transparent market rules make Ukraine's energy sector more attractive to investors.
The integration with the European energy market not only enhances Ukraine's energy security but also contributes to the stability and reliability of electricity supply to consumers. By adopting European market rules and practices, Ukraine positions itself as a more attractive market for future investments and technological advancements in the energy sector.
