Ukraine intends to reform the Wholesale Electricity Market

The National Electricity Regulation Commission of Ukraine, the state regulator of the electricity market, announced its intention to gradually reform the wholesale electricity market of Ukraine, starting in 2009.

According to the Resolution of the Cabinet of Ministers of Ukraine No 1056-p “On Approval of the Implementation Plan of the Wholesale Electricity Market Concept” dated 28 November 2007, the main point of the proposed reform is to introduce a new model of bilateral contracts and a balancing market for electricity 2015.

It is intended that the reform will be implemented in 4 phases, as follows:

I phase – 2009-2010

At the first phase a new legal framework will be introduced and limited categories of generators will be allowed to enter into bilateral contracts with consumers or distributors. Levels of generation and consumption will still be regulated through the old model of the wholesale electricity market (a pool with a single buyer), which is managed by the operator, a state enterprise “Energorynok”.

II phase – 2010-2011

During the second phase a “day-ahead” balancing market and settlement system for imbalances will be introduced. Market participants will be exposed to the risk of imbalance and will have to start predicting consumption and generation (“self-scheduling”) on a trial basis.

III phase – 2012-2014

During the third phase, the old wholesale electricity pool model will be completely substituted with bilateral contracts and a voluntary electricity exchange. Self-scheduling will be introduced for all market participants on a permanent basis.

IV phase – 2015

Finally, during the fourth phase, all the transitional mechanisms will be removed. Electricity trading will be voluntary and transparent.

This concept, if successfully implemented, should stimulate investment in the electricity sector of Ukraine, the development of ancillary services and competition on the market. The reform should result in the establishment of a fair market price for electricity. The Ukrainian market should become fully open, free and prepared for integration into the European market.