There will be no third chance for Ukraine to reform the electricity market – director of Energorynok
Yuriy Gnatyuk mentions that Energorynok is considering the possibility of using the Norwegian algorithm for power market operations after the reform
Yuriy Gnatyuk mentions that Energorynok is considering the possibility of using the Norwegian algorithm for power market operations after the reform.
Director of Energorynok Yuriy Gnatyuk talks about whether it's possible to reduce the impact of the NEURC as a regulator, whether the Ukrainian electricity market reform will be implemented at all, and what it will look like.
The National Energy and Utilities Regulatory Commission (NEURC) is an extremely important authority, whose decisions affect electricity and gas tariffs and the rules of market operation. Since November, the operations of this important regulator have been blocked due to staff issues. What's more, in December, president Petr Poroshenko got an opportunity to personally affect activities of the commission via the right to temporarily assign all members of the commission.
The lack of the necessary quorum in the NEURC legally blocked decision making on issues important for the market.
NV Business asked the head of Energorynok, Yuriy Gnatyuk, how to solve this problem. This is the structure that regulates all flows of energy and funds on Ukraine's power market.
– Will the reform of the Ukrainian electricity market be implemented? What will it look like, and when when will it start?
– The reform will be implemented. I think there will be no third chance for Ukraine. Everyone knows how the previous reforms were carried out. And this in spite of (the requirements of – ed.) the Second EU Energy Package. But this year, the law on electricity was adopted in line with the requirements of the Third Energy Package.
A coordination center was established in Ukraine, chaired by Vice Prime Minister Volodymyr Kistion. Its main task is to coordinate processes with the use of new power market.
Our enterprise is being entrusted with functions associated with the activities of the current market. This is till July 1, 2019. By then, Energorynok will have undergone reorganization, as a result of which two independent companies will be established – an operator of the next-day and intra-day markets and a guaranteed buyer.
The structure of the next-day market will be based on the principles of exchange trade; that is, the price of electricity will be defined (buying and selling) for the next day. This operator will also feature an intra-day market.
The guaranteed buyer will be a state company that will fulfill the state's obligations to pay producers from alternative sources using the green tariff.
In line with the requirements of the law, this year, two branches of Energorynok were established, which in the future will be transformed into two separate enterprises.
– What is your general opinion of the current model of electricity market operations?
– First of all, it doesn't fit into the general architecture of European power market models. Second, it turned out to lack flexibility in the face of events that are affecting all of us – the annexation of Crimea and the temporarily occupied territories. It wasn't adapted to current conditions, it wasn't improved. In my view, it is already obsolete.
The reform has been launched, and we have no other option. However, in view of the amount of complex technical plans and projects, it is very difficult to meet the deadlines stipulated in the law. They're very short, just half a year. But the date is set, our partners' requirements are set, these have to be observed.
- What is your opinion of the Rotterdam+ formula? How fair is it?
– This is none of Energorynok's business, so I can't comment.
– Is it possible to create a free market in Ukraine, and when can this be achieved?
– The very architecture of the new market model implies its liberalization.
As regards the future electricity market operator in Ukraine, it will be established on the basis of our enterprise. In my view, it is advisable for us to use the best experience of our European colleagues. At present, the largest regional European power exchanges are Scandinavia's Nord Pool and EPEX Spot, which own the most modern software systems. We're actively discussing cooperating with them.
If their rules and software are used, then their principles of operations will be implemented, which will make it possible for us to get faster and more efficiently integrated into the European power marketplace.
- Will this eliminate the issue of non-payment?
– I will answer for those functions that our enterprise will be implementing. On the next-day and intra-day markets, which, for now, fall to us, through the settlement system that is being planned, non-payment is almost impossible. We will require a guarantee of funds in the amount that the buyer or trader is willing to buy in this market segment. So there will be a requirement, either financial bank guarantees or deposits. These will be real funds.
– Here's the last question about alternative energy. What will be the share of alternative energy in Ukraine's fuel and energy balance?
– Unfortunately, we haven't carried out any studies on this. I can only say what the current share is. The pace of growth is positive. At present, the share is insignificant, 1.3%. However, last year, approximately 140 MW was commissioned. This year, 210 MW has already been registered, if I'm not mistaken. Up to 350 MW can be commissioned by the end of the year. Once again, because of these suspended issues with the regulator (NEURC – ed.) over licenses and setting the green tariff. But the trend is positive. I think there will be growth.
– But this electricity is very expensive. Nuclear energy is much cheaper. Isn't it better for us to develop nuclear energy?
– I also heard this from experts. The full cost of production needs to be estimated: construction, electricity generation, utilization, and decomissioning. And how expensive alternative energy is compared to all these measures for a certain period of operation. I don't have such information. It was the first time I heard what experts are saying, including about the environmental impact, the impact on health of the population, etc. If you list all these, it's actually possible to give some objective numbers.