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Oleksii Mykhailenko
Kyiv, December 14, 2019
Opening of the electricity market in Ukraine in 2019:lessons learned
Implemented by
«Features» of the Ukrainian wholesale electricity market, est 2019
2
High concentration in the generation segment
Generating companies with «mono portfolio» of technologies
«Social» economically unreasonable electricity prices for households
Overall infrastructure unpreparedness for market launch in July 2019
Two trading z0nes, with significantly different market conditions
Limited import / export
Imperfect metering and «culture»of non-payment
Imperfect mechanism of PublicService Obligations (PSO)
«Features» of the Ukrainian wholesale electricity market – liberalized as they could
3
IPS of Ukraine and Burshtyn Power Island
4
Public Service Obligations
6
There is no “single” market price - a context is relevant
7
•Price in the DAM/IDM/Bilaterals/Balancing market balancing markets
~ wholesale market price for traders≠ wholesale price for the consumer
•TSO & DSO tariffs
•The price of universal service
•Tariffs for households
•Prices for consumer at voltage grades 1 and 2
What can affect prices?
8
1,619 1,599
1,664 1,648
1,666 1,666 1,672 1,677 1,660
1,633
1,540
1,609 1,643
1,608 1,588
1,522
1,451
1,481
1,368
1,285 1,294 1,223
920
(500)
1,500
3,500
5,500
7,500
9,500
11,500
13,500
15,500
17,500
19,500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
MW
UA
H/M
Wh
week
«Day-ahead» market prices and average load dynamics (IPS)
DAM price Nuclear (avrg load) TPP (avrg load) Import (avrg load) Load avrg
The price should not be low. The price must be justified.Price has a key role to play - to be a signal to investors
What does volumes on market segments tell us and what they don’t?
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44.7%
35.0%
39.1%38.4% 37.8%
35.2%
32.7%
35.6%
33.3%
40.1%39.2% 38.7%
35.8%
28.5%27.2%
32.3%30.9%
32.5% 32.0% 31.7% 31.7%30.8%
27.2%
-4.0%
1.0%
6.0%
11.0%
16.0%
21.0%
26.0%
31.0%
36.0%
41.0%
46.0%
-
200
400
600
800
1,000
1,200
1,400
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
GW
h
week
Trade volumes and share of total load (IPS)
DAM IDM DAM + IDM share of total load
Absolute values should also be analyzed in relation to other segments.
Price / bid caps: a necessary evil?
10
-
20
40
60
80
100
15/07/2019 00:00 22/07/2019 00:00 29/07/2019 00:00
Healthy Country’s Market vs Smoker’s Market
UA IPS HU SK PL
Price restrictions affect the trading behavior of market participants.Any known and disclosed prices on the market allow you to adjust strategies.
IPS trading zone: Price caps - liquidity - impact on price
11
- More ask bids than sell bids during off-peak hours -> prices are closer to caps
- More sell bids than ask during peak hours -> prices are more dynamic
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
week
IPS DAM - off-peak hours
Supply minus demand Avrg. price deviation bid cap
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
MW
h
week
IPS DAM - peak hours
Supply minus demand Avrg. price deviation bid cap
Bursthyn zone: Market power in all its glory
12
Sometimes at night, prices in Slovakia are lower than off-peak price caps, but the massive supply shortage remains
(1,500)
(1,250)
(1,000)
(750)
(500)
(250)
-
250
500
750
1,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
MW
h
week
BEI DAM - peak hours
Supply minus demand Avrg. price deviation bid cap
(1,500)
(1,250)
(1,000)
(750)
(500)
(250)
-
250
500
750
1,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
week
BEI DAM - off-peak hours
Supply minus demand Avrg. price deviation bid cap
Import-export: changes after market opening
13
In market conditions, not only actual market volumes but also the impact of potential competition on player behavior are important
(120)
(100)
(80)
(60)
(40)
(20)
-
20
40
60
80
Exports from Ukraine / (imports to Ukraine)
BY+RU Entso-e (BEI) MD
14
* By importing 283 MWh from Russia, the electricity price could be lowered by 40 UAH/MWh
Source: own calculations, Market Operator data, ENTSO-E
0
500
1000
1500
2000
2500
0 1000 2000 3000 4000 5000 6000 7000
Price (UAH/MWh)
Volume (MWh)
Effect of Russian exports on prices
Russian imports
40 UAH*
dem
and
Supply curvebefore imports Supply curve
after imports
Import-export from Russia: limited impact at small volumes
Import-export from Russia: threat to security or to monopoly?
15
In market conditions, not only actual market volumes but also the impact of potential competition on player behavior are important
Start import from RussiaSupply volumes on Day-Ahead Market
Conclusions
➢ Was reform needed? YES!
➢ Was it worth opening the market in July 2019? NOPE!
➢ Is it possible to repair everything that is broken in Ukraine? SURE.
All remedies have long been invented for us.
We need a strategic vision of what the market should be like in the future, political will and coordination of ALL policy makers
16
Recommendations for 2020
➢ Adjustment of household prices to economically justified + reformat thePSO mechanism so it does not distort the market
➢ Balanced access for all buyers and sellers in each segment - a focus onbilateral agreements
➢ Launch of the Ancillary Services market + Increase the number ofparticipants in this segment
➢ The regulator's focus should be on volumes and liquidity - not onattempts to influence prices, but also to ensure data transparency andeffective market monitoring
➢ Revision (or formulation) of the methodology of price caps setting
➢ Ensure effective export-import in Burtshyn trading zone
➢ Reducing the market power of incumbent big players: e.g. market makerobligations, or an option to sell-off assets
17
Implemented by:
Project Leader Team Leader „LCU Task Force“Dr. Georg Zachmann Oleksii Mykhailenkozachmann@berlin-economics.com mykhailenko@lowcarbonukraine.com
Project ManagerIna Rumiantsevarumiantseva@berlin-economics.com
tel.: 030 2064 34 64 – 0 +38 063 053 69 79
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