Yuriy Sakva. Ten Months Since the Power Market Reform Began: Time to Make Up Our Minds
What challenges will the power market reform face? Why has the timeframe for its implementation been shifted?
What challenges will the power market reform face? Why has the timeframe for its implementation been shifted?
Yuriy Sakva, Deputy Chairman of the All-Ukrainian Energy Assembly
The power market reform started in June 2017, when the Law on the Electricity Market was passed. Now it is in the active phase.
Unlike many other reforms, this one has very strict deadlines for certain phases of implementation, which are mandatory conditions for the success of the market reforms.
As a result of the reform, all business processes in the power market will undergo a large-scale transformation through changes in the regulatory framework.
Half of the period set aside for the transition to the new power market model (due to be operational in July 2019) has passed, and it is possible to sum up the initial results.
Drivers of reforms defined - there's still no drive
The most unexpected challenge of the reform, and the greatest disappointment, was the failure to conduct a rotation of NEURC members within the timeframe stipulated by law.
Permanent failures in the work of the regulator, starting in November 2017 and continuing to the present time, have become an additional barrier, and a serious one.
The regulator was supposed to become the main driver of the reforms but did not do so.
Other special bodies established for the coordination and implementation of the reform have not yet attained "design capacity," and many important and defining details of market transformations remain outside their field of attention and influence.
In April 2018, another agency was established, the Coordination Council for the Reform of the Fuel and Energy Complex under the Cabinet of Ministers.
This is the third authority of its kind, joining the Coordinating Center for Ensuring the Introduction of the New Power Market Model and the Project Office for the Implementation of the Power Market Reform.
The low level of interaction between government agencies and all stakeholders, including power market participants, remains the main obstacle to carrying out the reform on time and at a high level.
Subsidiary legislation: Deadlines vs. Quality
More than 100 normative acts should be adopted as part of the reform.
The key documents – Market Rules, Market Rules for the Day-Ahead Market and Intraday Market, Retail Market Rules, Transmission System Code, Code of the Distribution System, and Commercial Accounting Code – were adopted at a NEURC meeting on March 14.
Prior to that, in February, there were intense discussions about the proposed draft documents.
More than 1,000 pages' worth of amendments and comments from market participants were collected.
Ultimately, some, but not certainly not all, of the amendments were accepted.
The request of the market participants to arrange another discussion of these extremely complex and consequential documents was not supported.
The regulator approved the documents, explaining this decision with reference to the approved schedule and the possibility of making changes in the future.
The fact that the documents were adopted in this manner, as well as the formalized complexity of the procedures to review them, can mean only one thing – the documents adopted by the temporary members of the Commission will set the course for the power market for many years.
According to the procedures, the adopted documents will still be coordinated by the Antimonopoly Committee, which will play a key role in the new market.
Representatives of the Antimonopoly Committee of Ukraine participated in all phases of the discussion of the draft documents.
Now the Committee needs to determine whether they contain provisions that could threaten to distort competition in the new model of the power market.
In short, the adoption of the documents took place on schedule and the formalities were preserved, but there have been a fair number of criticisms regarding the quality of the documents. Obviously, there is a need for additional measures to iron out these inconsistencies.
Regional Power Distribution Companies: How and When Unbundling Will Take Place
Unbundling, or the division/separation of power supply companies, is one of the basic norms of the new model of the power market.
By December 11, all regional power companies must separate their monopoly distribution function from their competitive supply function.
Two companies will be established: a distribution operator, which will manage grids and ensure equal access to them, and a power supplier.
For now, only a few regional power distribution companies have announced their intention to unbundle.
Most of these regional power distribution companies belong to the DTEK Holding. Ukrenergoconsulting (Lvivoblenergo, Prykarpattyaoblenergo), and Ternopiloblenergo have joined them.
The position of other companies is still not fully clear, although the separation procedure is mandatory for all, regardless of the form of ownership, and the process should already have been initiated.
In some cases, the situation is critical.
Today it is difficult to imagine that, for example, the Lugansk Energy Association, Zaporozhyeoblenergo, Cherkasyoblenergo, and Regional Electric Grids, with their current problems, "zero" algorithms, wage arrears, and lack of funds for maintenance will be able to unbundle on time.
Kharkivoblenergo and Nikolaevoblenergo are also at risk.
According to the participants' predictions, the deterioration in the financial condition of energy companies immediately after unbundling, the emergence of a "cash gap" for two months, and additional tax liabilities, will be an additional and so far insurmountable obstacle to the process of unbundling.
This issue, too, urgently needs to be resolved.
There is no single mandatory matrix for unbundling for all power supply companies.
The government has declined to launch a legislative process to manage the separation of the supply and distribution functions, and now each company is acting at its own discretion with a whole range of issues that it cannot solve on its own.
It is clear that the creation of a full-scale power market, as understood by the requirements of the law and the expectations of consumers that they will have free choice, is merely a dream without effective unbundling.
Among other threats that could hamstring the new market and change the timeframe for implementation are:
- a delay in the purchase of software by Ukrenergo and Energorynok for the full operation of all components of the power market
- the lack of an agreed-on mechanism for the settlement of obligations in the power market
- an unmotivated delay in eliminating cross-subsidization
- political influence.
Time to Make Up Our Minds: Market or Quasi-Market
What members of the energy industry previously said in whispers is now getting louder and more categorical: taking all the circumstances into account, the full-scale power market will not be launched on July 1, 2019.
The only thing missing is the official position of the authorities to change the deadlines of the reform.
Or, despite the violation of the transitional regulations of the law, we continue the reform and go through the stage of the quasi-market. But experience shows that that will take a while.