The energy sector of Ukraine is peculiarly close to my heart. As long as there were flights to Kiev I was there very frequently and kept my fingers crossed for the success of marketplace changes (unfortunately with little hope). usually in presentations at Ukrainian seminars I started with the proverb that "It's best to learn from another people's mistakesBut in Poland we do this seldom and always like to make ours from the beginning. Ukraine is very akin to Poland in many things, and present COVID-19 has only accelerated and intensified all the processes of marketplace disintegration, and has shown abruptly all the mistakes made here. It is nevertheless worth to analyse what is going on there – due to the fact that it may affect the full political stableness of our neighbour, and of course it may give any lessons for our concepts of energy change.
Entering the energy marketplace – actually the pseudomarket.
The specificity of the energy of Ukraine is simply a large function of atomic power plants. More than 50% of current production at very low costs – before deregulation and at rigid tariffs – atomic power plants sold power after approx. 40-50 PLN/MWh (!!!). An additional large part of water power (also very inexpensive (at constant prices of 60-70) was mixed with the remainder – gas power plants (mainly large heat and power plants) and coal power plants (here prices or actually production costs – akin to our marketplace 150-200 PLN/MWh). With specified an exotic puzzle of shot prices, it was decided to make a free marketplace – while inactive trying not to increase in any way the energy prices for the population (from our point of view, at an highly low level of 5-6 cents/kWh – at least twice as cheap). A reasonably exotic combination of marketplace constraints has been utilized (the marketplace in practice only for industrial customers – price release there, and powered by production from 10-30 % of atomic power and all heat plants, the dominant function of the RDN with a simplification in maximum prices and a simplification in balancing marketplace prices (approximately 15 % of maximum prices)). The marketplace was expected to be a kind of safe entry into marketplace processes with strong consumer protection and behaved as the marketplace did with specified restrictions – it almost did not work on the basis of these maximum price constraints (days with advanced demand).
Civil protection, Guaranteed Supplier and ... payment congestion.
In Ukraine and in all countries, energy mixes with politics. civilian protection (low bills) is so crucial. This was solved by the creation of the alleged Guaranteed Supplier – a peculiar government organization that was to have access to inexpensive energy (from atomic and hydroelectric plants) and specified inexpensive energy was transferred to the OSD and was then supplied to the population. The thought was to keep “old” prices and not rise fees, but of course people did not pay – at the beginning of 2020, around 30% of the accounts were not regulated, there were starting to be congestion, and the applicable companies slow stood on the verge of liquidity.
Dynamic improvement of RES
By the way, it is not entirely known why, in Ukraine the improvement of RES has been promoted (of course there have been excellent slogans that we know well – energy independence, innovation and large opportunities for Ukrainian industry).
For the marketplace to make – the FiT model was selected and the highest tariffs were introduced in Europe – over 500 PLN/MWh for wind and sun (of course all question for which it is so advanced – was answered with a consequence about marketplace formation and creating affirmative conditions for investors). Colorful posters and posters informed about fresh marketplace improvement and modern Ukraine. There was a surge of home investors (especially DEK Achmedowa) and abroad investors (from all countries). Everywhere (also in Poland) the enthusiastic opinions of renewable portals about the dynamic marketplace of Ukraine (first place in Europe) were printed – and the question was subliminally asked – why we did not go so well and that we may be losing our chance.
Indeed awesome growth – actually from nothing to more than 7 GW (2020), mainly in the sun, but already the first large wind farms and quite a few open projects. Projected €2.5 billion in abroad investments (it is hard to be amazed at specified tariffs). At specified a rate of improvement and with all planned projects – the RES department could even approach 15-19 % already in 2021-22, and the planned projects were plentiful, due to the fact that the strategy operator for unknown reasons (or possibly known) issued permissions for connecting conditions for everyone.
In addition, the problem of how to pay for it has been magically solved (recollecting – guaranteeing the energy charge itself for producers at the level of over PLN 500/MWh in the country where the final individual client paid – completely on the account about PLN 350/MWh). The RES was put together with the atom in the basket of the Guaranteed Supplier, who had an income from the trade in inexpensive atomic energy – and was to accomplish 2 goals – both to give low prices to individual customers and to pay and to FIT RES (i.e. for the first time in Europe innovative subsidization of RES without the cost of customers).
COVID-19 accelerates disaster
The marketplace has staggered since the beginning of 2020, but the coronavirus exposed all problems with even greater dynamics. The decrease in energy request – 15% and of course little gross and no money for customers. A government declaration that deliveries for non-payers during the pandemic cannot be cut down – it deepened the blockage of payments and launched a full chain of avalanche-growing unpaid accounts and a deficiency of liquidity.
The full marketplace is shaking like a home of cards.
Final users do not pay and the liquidity problem is actually everyone. OSDs must supply energy and have no money and do not pay to the Guaranteed Supplier. The guaranteed Supplier has no money and does not pay atomic power plants or FiT for RES. Renewable energy pushes heat plants out of the marketplace in the face of low request (stone coal power plants practically stand – which causes further declines in dominoes). atomic power plants (grouped in Ukraine) do not want to sale to the Guaranteed Supplier (because they do not get the money) and start pushing into the free marketplace (pulling heat residues and deepening chaos). RES for variety produce as crazy utilizing tariffs giving a strong imbalance in the strategy (Ukraine has mediocre reserve capacity for regulation) and do not comply with marketplace operator's orders to reduce production.
Everyone according to the rule of "if they don't pay me, I don't pay me" has been exacerbated and slow no 1 knows who owes whom how much and when.
Energy road to hell
Unfortunately, there is inactive a lockdown and an economical problem. The weather may be sunny, but the economics continues the tornado. The projected decrease in Ukraine's production this year from 157 TWh to 143 TWh, or possibly more. RES represent 8 % of production and the strategy is incapable to balance more (there are even large problems with what is today).
All players are on the verge of insolvency.
Urgent action by the government to renegotiate RES contracts – proposed simplification of 30 % by min and full retention of fresh investments. Looking at the structure of investors (many from abroad) – lawsuits and trials against Ukraine – actually certain.
The request to introduce regulatory power – possibly an urgent proposal to introduce a power marketplace to save regulatory heat plants. Attempts to force RES to pay with imbalance.
All the time quarantine and pandemic – nobody leaves home (but besides seldom pays bills for energy that cannot be cut off).
Everyone talks about disaster – and the request to save the sector – so the staff carousel begins (minister, advisors, companies).
A fewer lessons (if we want to learn at all)
The improvement of RES must have been long-term, planned and reasonable price (for RES fans – besides advanced subsidies end in a speculative marketplace and then a disaster – we have examples of Spain, the Czech Republic, Poland and now Ukraine). For its sake, RES should itself defender sensible marketplace models, and surely not get excited with besides advanced tariffs and temporary dynamics – then it ends as now a disaster and as a consequence a negative influence on the perception of all renewable energy.
Helping citizens by allowing non-payment of energy bills is politically tempting, but then murderous economically (for energy and another sectors). This should be avoided as much as possible if you do not want to make major problems.
Energy bills must grow if we are planning to modernise the sector. Without that money – nothing will be done. Any ideas with compensation or kind of Guaranteed Suppliers – it's pouring from empty into vain and always ends negatively.
The energy marketplace should be as unchangeable and transparent as possible. Experiments with a combination of regulations, subsidies and the free marketplace do not work.
RES is best developed in the long word and unchangeable (and can only have an impact on home industry). Ukraine had preferences for investments involving 30% of home deliveries – and so what for today? It can be better to lobby (from all sides) and to make a compromise, well-thought-out, unchangeable RES support strategy (or how RES can make without support even better).
Without network investments and without flexible reserve capacity – the energy strategy is not working yet. The large improvement of RES in Germany is besides occupied with large costs (e.g. in distribution fees for customers).
So the future in the energy Ukraine is not pink. Although this country has amazing abilities to get out of large problem (as well as falling into them). I hope that this time, with any superhuman effort, the marketplace will be mastered, COVID-19 will be forgotten and Ukraine will be able to learn from others and on their own mistakes.
