Electricity prices soar: Ukraine becomes a donor for European energy system?

Author : Olena Holubeva

Source : 112 Ukraine

After Ukraine's integration into the electric power space of Europe in 2022, electricity prices in our country will inevitably rise
23:31, 21 October 2021

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Ukraine confirms its commitment to the idea of ​​unification with the European energy system ENTSO-E and is actively moving in this direction. “In practice, the obscure abbreviation hides the physical disconnection of Ukraine from the energy space shared with Russia and Belarus, as a result of which the technical flows of electricity from Russia, with the help of which the Ukrainian energy system was balanced, will cease, and the technical possibilities for importing cheap electricity from Russia and Belarus will be lost. If you carefully analyze the statement of Ukrainian officials, they do not deny the obvious: unification is needed not so much for Ukraine as for Europe itself. Ukraine is assigned the role of a donor that will effectively balance the European electricity market," Olga Stefanishyna, Vice Prime Minister for European and Euro-Atlantic Integration, says openly. "Synchronization will add stability and stability to the European energy system," stressed Minister of Energy German Galushchenko. That is, not the Ukrainian, but the European system.

Related: Rising world electricity prices don't affected tariffs in Ukraine, - Zelensky

The truth is that the stability and stability of Ukraine itself will be undermined. After all, most of the neighboring countries of Ukraine, including Poland, Slovakia, Hungary, the Balkan countries, are experiencing a shortage of power generation capacity. "Synchronization is not a project to help Ukraine, it is a project that is needed first of all by the Europeans, because they are doing very badly with generation. The active transition of European countries to renewable sources is not provided with a sufficient level of base capacity, which works in an even schedule. And the only country in the region that can be connected, and which has a surplus of capacity, today is Ukraine. Europe has no other alternative," an official in government circles told.

Few people know, but it was in this context that the topic of integration was discussed at the meeting of the Ukrainian delegation at the White House during the visit of President Volodymyr Zelenskyy with Biden. The idea is very popular with the Americans, who proposed the construction of five nuclear power units in Ukraine using Westinghouse technology. All these are links in one chain. The United States is killing two birds with one stone - selling its technology and building, taking another step towards solving the strategic task of isolating Russia and Belarus: after integration into the European system of the Baltic states, which is planned for 2025, it will be possible to talk about a complete cessation of electricity trade with Russia and Belarus. And they are improving the supply of electricity to Europe, which obediently adheres to the "green transition" blessed by Biden.

In an interview with the Ukrainian newspaper, US presidential advisor Amos Hochstein (ex-member of the Naftogaz supervisory board, oversees the Ukrainian issue in the White House), said that Ukraine should "move from the transit of molecules to the transportation of electrons." “I don’t think the United States or Europe should work with Ukraine only on the issue of preserving revenues from the transit of natural gas. You cannot depend only on oil and gas. Have you seen how many memoranda of understanding President Zelensky signed in the nuclear energy sector?” said Hochstein.

Related: Over half of Ukraine’s power units of state thermal power plants do not work due to lack of coal

Integration with markets where the price is significantly higher than the Ukrainian one, and the ability to export electricity there will lead to its outflow from Ukraine and an inevitable rise in prices. But Hochstein and Ukrainian officials who advocate integration prefer to remain silent about this.

After Ukraine joins ENTSO-e, 2 MW of throughput capacity, and in case of launching the Khmelnytsky NPP -Rzeszow 3 MW line, will be loaded with electricity, which will flow to the European market. Who will sell electricity to Ukrainian enterprises at a cheaper price if it can be sold at a higher price in Europe? We will have one more "import parity" by analogy with gas and coal, because the authorities sell gas supplied from the Poltava region to Ukrainians at the price of an exchange in the Netherlands, and coal from Ukrainian mines was sold at the price of the exchange in Rotterdam.

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At the same time, according to experts, the problem is systemic. They emphasize that record electricity prices in Europe are associated not with consumption dynamics, but exclusively with market conditions. It is unlikely that in the near future Europe will be able to increase its basic power generation capacity, build the required number of batteries, or adjust its climatic goals, becoming less vulnerable. This means that there is no hope for a sharp collapse in prices - there will be no low electricity prices in Europe in the coming years. Ukraine intends to open its energy veins ENTSO-e as soon as possible - by the end of 2022. This means that starting next year, Ukraine, according to all the laws of communicating vessels, will have to forget about low electricity prices.

I wonder how then Zelensky will be able to manipulate the facts, who takes personal credit for the fact that electricity tariffs in Ukraine have remained unchanged, despite the rise in prices on the world market? Of course, there has been no growth yet, since before joining ENTSO-e Ukraine was not integrated into the world electricity market and, moreover, can still receive the missing volumes of electricity from Russia and Belarus at prices much lower than European ones. After disconnecting from the energy system common with the countries, this will be impossible. Technical flows between countries will also stop, with the help of which the situation is balanced, in cases of major accidents.

Related: Russian Energy Ministry makes proposal to resume electricity supply to Ukraine

And although the president prefers not to talk about this publicly, at the beginning of autumn, prices for electricity for the industry in Ukraine increased significantly. Since the beginning of August, electricity for Ukrainian enterprises has risen in price by almost 70% due to an increase in price caps. This was due to a change in the PSO model, on which the president is also actively promoting himself. By giving Ukrainians a discount on electricity at 24 kopecks. per kWh from October 1, the authorities pushed up the price cap, which allowed Energoatom and other generations to raise significantly more funds from the sale of electricity. In the bottom line, now Ukrainians pay for electricity less in payment, but more through the rise in prices for food, services, rent. In the winter months, when daily consumption increases and the volume of its output from "green" generation (sun, wind) decreases, prices may rise, even more, experts warn. Realizing this and the fact that the coal warehouses are empty, the Ukrainian authorities are negotiating on the supply of electricity from Belarus. Rumors about this have been persistently plying the last few weeks, although the Ministry of Energy officially denies the fact of such negotiations.

Related: European electric power producers ask more coal from Russia to cope with power crisis

After joining ENTSO-e, Ukraine will finally lose the opportunity to equalize prices on the market with the help of cheap electricity from Belarus and the Russian Federation but will receive a "growth factor" in the form of European prices. Preferential prices for electricity for the population are likely to persist for some time, but prices for the industry will rise significantly, which the population will feel for itself anyway.

Related: What's wrong with Ukraine's electricity market?

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