The Ukrainian state operator of power transmission lines, Ukrenergo, signed an agreement on June 28 with the European Network of Transmission System Operators for Electricity (ENTSO-E) to integrate Ukraine’s power grid with the European one. Neighboring Moldova is also about to sign a similar agreement with ENTSO-E. Ukraine recently approved a law to transform its electricity sector in line with free market principles, which made it possible to sign the agreement. Integration with the European power grid should enable Ukraine to boost power exports to the European Union. It also should remove the need for Ukraine to turn to a hostile Russia in case of a power shortage, as was the case in late 2014.
Ukrenergo CEO Vsevolod Kovalchuk said the agreement was the starting point for Ukraine’s integration with the European power grid. He said that although integration with ENTSO-E was, in technical terms, similar to work with such neighbors as Russia or Belarus, it would be based on a completely different economic model, requiring the restructuring of the domestic power market so that Ukrainian consumers should be able to “import electricity from any EU country, and any electricity producer [should be able to] export it to the final consumer in Europe.” Kovalchuk noted that synchronization with ENTSO-E would be impossible without the full implementation by Ukraine of such a model, to be based on the European Third Energy Package, which was rejected by Russia (Ua.energy, June 29).
Ukraine has undertaken to introduce the new model by approving a new law on the power market. It was signed by President Petro Poroshenko in early June (UNIAN, June 8). The parliament passed the bill on April 13. It had been agreed with Ukraine’s donors and creditors in 2014, but its earlier approval had been thwarted by populist and nationalist parties. According to the law, Ukraine will have to replace, within two years, the current corruption-prone single power market structure managed by the government with a multi-layer structure similar to the ones in place in EU countries and consisting of a day-ahead market, an intraday market, a balancing market, a retail market, a market of auxiliary services, and a market of bilateral contracts (Pravda.com.ua, April 13).
Related: The Major Wildcard That Could Send Oil To $120
Through the integration of its power grid with the European one, Ukrenergo hopes to boost power exports from around 5 billion kilowatt hours (kWh) to 18–20 billion kWh, potentially increasing Ukraine’s power export revenue to $1.5 billion. Also, Ukraine’s power plants should receive access to the European market to balance peak loads on the grid, earning yet more (Oilreview.kiev.ua, May 24).
In spite of the continuing blockade of the Moscow/rebel-held areas in the east, which has produced chronic coal shortages for local thermal power plants (TPPs), Ukraine still has excessive power capacities. It used to export a great deal of electricity to neighboring Belarus, but Belarus will have excess power capacity itself after the launch of its first nuclear plant, expected in 2019–2020. Therefore, it is important for Ukraine to find new customers in the EU, and time is running out. Even with the signing of the agreement with ENTSO-E and the adoption of the new power market law, Ukrenergo estimates that full integration into the ENTSO-E system will take five years (Interfax, June 29). Ukraine increased power exports by 40 percent year on year to 2.6 billion kWh in January–May. Most of that went to EU neighbors Hungary (52 percent) and Poland (20 percent). In May alone, Ukraine was able to double power exports year on year to 0.6 billion kWh (UNIAN, July 4).
In addition to more export-generated profits, the national energy grid’s integration into Europe is likely to enhance Ukraine’s energy security. The hybrid war launched by Russia several years ago has been affecting Ukraine’s energy sector. Since the Russian incursion into Donbas, the country’s main coal region, Ukrainian TPPs have been experiencing problems with the coal supply. In December 2014, when the TPPs ran out of coal amid frosts, Ukraine found no other solution but to turn to a hostile Russia for electricity, which was humiliating and damaging to national security. Now that the TPPs are short of coal again because of the blockade of the occupied areas, introduced by Poroshenko last March (see EDM, March 29), Ukraine again may need to turn to Russia, a country that caused the problem in the first place. But by integrating with the European power grid, Ukraine will have a wide choice of foreign suppliers in an emergency. That is already the case with natural gas, which Ukraine has not been buying from Russia since 2015, having secured access to suppliers from the EU via Slovakia, Hungary and Poland (see EDM, February 11, 2016).
By The Jamestown Foundation
ADVERTISEMENT
More Top Reads From Oilprice.com:
- Is Abu Dhabi’s Oil Major Eyeing An Aramco Style IPO?
- The Technical Failure That Could Clear The Oil Glut In A Matter Of Weeks
- Oil Under Pressure As Saudis Break Key Promise
