Power sector overview

Ukraine’s power sector is structured along the major business activities: generation, transmission, distribution and supply of electricity.

Electricity generation is mainly presented by the nuclear power plants of Energoatom and thermal power plants.

The Ukrainian electricity market is currently organized under a single-buyer model. A competitive wholesale electricity market (WEM) was established in 1996, with the state enterprise Energorynok functioning as market administrator.

Transmission is organized within NEC Ukrenergo, which owns and operates the high voltage network.

Distribution is carried out via 27 regional distribution and supply companies (so-called Oblenergos).

Supply is conducted by Oblenergos (suppliers at regulated tariff) and independent (non-regulated tariff) suppliers. Currently there are no eligible customers, however, large industrial consumers can acquire non-regulated supply licenses and supply electricity to themselves.

The sector’s regulation is performed by the National Electricity Regulatory Commission (NERC) and the Ministry of Fuel and Energy.

The following major power generation companies exist in Ukraine at present:

• 5 thermal power generation companies – Centrenergo, Donbasenergo, Dniproenergo, Skhidenergo and Zahidenergo comprising 14 powerful thermal power plants with total installed capacity of 27.3 GW;
• 4 nuclear power plants with total installed capacity of 13.8 GW united in the State Enterprise Energoatom;
• 2 hydro power generation companies - Ukrhydroenergo and Dniester HPSP comprising cascades of hydro power plants at Dnieper and Dniester rivers with total installed capacity of 4.6 GW.

Besides there is a number of combined heat & power plants (CHPs). Some of them are being operated by local power distribution companies and other institutions while others became separate enterprises. In addition, small electricity producers (small hydro and wind power plants) operate in Ukraine, but their share of total electricity production is insignificant.

As of 2009, total installed capacity amounts to some 52.2 GW with around 66% being installed in thermal power plants, 26% in nuclear power plans and 9% in hydro power plants. Nuclear plants account for the largest share in electricity generation with 47% of the total electricity production of around 192 TWh in 2008 produced in nuclear power plants and 47% in thermal power plants and CHPs with the remaining 6% produced by hydro and renewable energy sources.

Some 97% of electricity produced in Ukraine is consumed domestically. Industry remains the largest consumer, comprising 52% of consumption, while households account for 22%. As of 2008, domestic electricity consumption decreased 0.5% due to GDP growth slowdown to 2.1%. Consumption per capita in Ukraine is more or less in line with that of neighboring countries (3,300 kWh) like Poland, but still does not reach the EU average of 6,500 kWh.

27 power distribution and supply companies (Oblenergos) are responsible for electricity distribution and retail supply. There are 24 regional companies, 2 companies in the cities of Kyiv and Sevastopol and 1 company in the autonomous republic of Crimea. Oblenergos distribute and supply electricity to retail customers at regulated tariff. However, there are also independent suppliers that hold licenses for electricity supply at non-regulated tariff. Majority of them are industrial customers that purchase electricity for their own needs. Independent suppliers are allowed to use Oblenergos’ networks for distribution.

NEC Ukrenergo is the system and network operator that owns high voltage transmission network and cross-border lines of Ukraine.

Total length of the transmission lines is more than 22.000 km:

• 4,115 km 750 kV lines
• 375 km 500 kV lines
• 340 km 400 kV lines
• 13,000 km 330 kV lines
• 4,170 km 220 kV lines

Ukraine’s power grid has interconnections with its neighboring countries, including Russia, Moldova, Belarus, Poland, Slovakia, Hungary and Romania. With the European UCTE grid only the power plants on Burshtyn Island in Western Ukraine are connected. The export capacity of the island is 550 MW. As a net exporter of electricity Ukraine sold 7.7 TWh, in 2008 which is 15% less than the 9.2 TWh it exported in 2006. Ukraine imported 0.6 TWh from Russia in 2008.

Electricity export is carried by State Enperprise Ukrinterenergo which is de-facto monopoly taking benefit of technically limited cross border capacity. The NERC approves tariffs for electricity purchased by SE Ukrinterenergo from the WEM. Export from Ukraine can be liberalized in the nearest future if NEC Ukrenergo starts competitive allocation of cross border capacity, which has been allocated to date to serve only Ukrinterenergo’s contracts.

National wholesale electricity market operator State Enterprise Energorynok is the single buyer of electricity in Ukraine. SE Energorynok buys all electricity from the generation companies, averages the prices and sells the electricity to electricity distribution companies and independent suppliers at a blended rate. Apart from this function Energorynok administers WEM’s settlements and funds.

Each member of the WEM must sell all electricity produced and imported for sale in Ukraine exclusively on WEM except of:

• electricity used for own needs by each electricity producer;
• electricity produced at CHPs and supplied to consumers of the region (territory) where they are located;
• electricity produced at power stations with installed capacity and annual electricity output lower than determined limit indices - 20 MW and 100 GWh correspondingly.

The WEM is divided into two parts with TPPs and few large CHPs functioning on the competitive segment and the remaining generation plants (nuclear, hydro, wind, CHP) working on the fixed tariffs segment (with the tariffs approved by the NERC).

Reform of the WEM

On September 29, 2008 the Ukrainian Government held the First Ukrainian Electricity Market Reform conference, outlining core directions for the WEM reform. The market should be divided into several parts according to how generation companies will sell their output: bilateral contracts, day-ahead market, balancing market, system/ancillary services market and export/import electricity auctions. This is done in compliance with the WEM Concept approved by the Government in 2002 and re-confirmed in 2007.

National Electricity Regulatory Commission

The National Electricity Regulatory Commission (NERC) is the major agency regulating activities of the energy market. NERC was established in 1994 simultaneously with the restructuring of power sector in Ukraine.

The NERC implements Government policy for development and operation of the WEM, oil & gas industries; as well as issues and supervises over the fulfillment of production, transmission, wholesale market operation, distribution and supply licenses.

The NERC implements price and tariff policy in power and oil & gas sectors. NERC sets tariffs for the transmission and distribution of electricity and for all electricity produced by nuclear, hydro stations, renewable sources and CHPs.

Fuel & Energy Ministry

The main function of the Fuel and Energy Ministry is implementation of the Government policy in energy sector, regulation and reformation of the power industry and energy market. It is also responsible for keeping integrity and reliability of the Ukrainian energy system.

The Ministry takes part in the forecasts and scheduling of energy generation, development of technical, social, financial and other areas in the industry, as well as development and implementation of investment policy in the industry.

Fuel and Energy Ministry manages NEC Ukrenergo, Energoatom and holding Energy Company of Ukraine which in its turn manages state’s stakes in the state owned power companies.

Retail electricity price is compounded of the wholesale electricity price, transmission, distribution and supply tariffs.

Retail tariffs for households and exports are regulated and set by the NERC, while retail tariff for other customers reflect wholesale price fluctuations. Retail tariff for households is not equal its cost recovery level, i.e. does not fully recover the distribution and supply expenses as well as wholesale price.

Households are therefore subsidized by the industry, and industry tariffs are adjusted as follows:

• the tariff is higher than the cost recovery level;
• tariffs are the same for all regions regardless of distribution and supply cost.

Privatization is legally possible, but requires consensus between key political decision-makers. Privatization of 60%+1 stakes in 4 Thermal Gencos (Centrenergo, Dniproenergo, Donbasenergo, Zakhidenergo) may be announced already in 2009-2010.

Tender conditions will include investment obligations of potential buyers and will be approved by the Government for each company. Sale will be conducted by the State Property Fund on a competitive basis (auction or tender).

Oblenergo privatization is not priority right now except selling blocking (25-27%) stakes in several companies, which are controlled by private investors.

CHP privatization is planned after removal of legal ban.