Energoatom disputes new energy market pricing formula

17 August 2020

Ukrainian nuclear utility Energoatom said on 13 August that it considers the pricing formula in the energy market of Ukraine to be discriminatory.

The previous day a resolution "On Amendments to the Regulation on Imposing Special Duties on Electricity Market Participants to Ensure Public Interest in the Process of the Electricity Market Functioning" was posted on the official website of the Cabinet of Ministers.

The regulation relates to the Public Service Obligation (PSO) which obliges state companies to limit the price of power sold directly to the population. The resolution had previously been approved at a government meeting on 5 August. However, the final version, published on August 12, included an additional item that was not in the document approved by the Cabinet, Energoatom said.

Energoatom specialists and representatives of the Ministry of Energy had been working on a pricing formula since May. Within the framework of the new model, it was proposed to allow Energoatom to sell to the state-owned enterprise Guaranteed Buyer (GarPok) the amount of electricity the population consumes at the lowest possible cost, and to sell the rest (at least 40%) on the market through bilateral agreements based on equal participation and fair competition. This was the model agreed by the Cabinet of Ministers.

However, the additional clause contains a formula setting the pricing for the amount of electricity that the company can sell on the bilateral contract market, which Energoatom said has nothing to do with the functioning of a free market, and which is “openly discriminatory against Energoatom”.

Energoatom said the final version of the “is most likely evidence of overt lobbying and manipulation of information on the electricity market in order to mislead the leadership of the Cabinet”. Energoatom added that it cannot agree with the final version of the resolution and reserves the right to defend its interests in all ways provided for by current legislation.

Ukraine’s electricity market, which was set up in July 2019, tied Energoatom to selling 85% of its electricity production to GarPok at a fixed low price within the PSO mechanism. The other 15% could be sold on the day-ahead market. The new Cabinet resolution, before the new clause was added, permitted Energoatom to increase the percentage of electricity it produces for sale under bilateral contracts via electronic auctions to 40%, and increase the price of the power it sells to GarPok. Energoatom expected to be able to implement these changes at auctions on 10-11 August, but delayed publication of the resolution prevented this. Preliminary calculations using the formula detailed in the additional clause worked suggest indicate that Energoatom will not be able to sell electricity below UAH1.38-1.4/kWh.

Herman Halushchenko, Energoatom's vice president of development, told Energy Club that this is higher than the current market price, adding it was "absurd to set pricing for the company's resource, with which it should enter the market".

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