Sector overview

The United Energy System (UES) of Ukraine is one of the largest in Europe with power plants’ total installed capacity of about 53.8 GW. The UES is operating synchronously with the energy systems of Russia, Belarus, Moldova, other CIS countries and certain Baltic States. It comprises nuclear, thermal and hydro power plants and well-developed electricity transmission and distribution networks.

The western part of the UES called the “Burshtyn TPP Island” is separated from the main system and is operating synchronously with the ENTSO-E system allowing electricity export to Hungary, Romania and Slovakia. There is also radial connection of Dobrotvir TPP with the Polish energy system.

The UES is dominated by large TPPs, NPPs and HPPs accounting in total for 87% of installed capacity and about 90% of generation output. Thermal and nuclear power plants hold dominant position in electricity generation. Shares of other power generating facilities are relatively small.

Installed Capacity of the Ukrainian Power Plants as of 31 December 2012

Ukraine Genco Installed Capacity 2012

Ukraine’s Electricity Generation Mix in 2012

Power Generating Facilities/Technology

Gross Installed Capacity

Gross Electricity Generation

GW

% of total

bln kWh

% of total

TPP

27.4

51%

78.9

40%

NPP

13.8

26%

90.1

45%

HPP/HPSP

5.5

10%

11.0

6%

CHP, other co-generation

6.5

12%

17.4

9%

Wind, solar, biomass

0.6

1.1%

0.6

0.32%

Total

53.8

100%

198.1

100%

There is still a surplus of generating capacity provided by aging power plants commissioned in the middle of the last century. Therefore, available capacity reserve of power plants is sufficient, if compared with consumption, only to meet “cold reserve” requirements. Technical condition of power plants and the UES is also unsatisfactory in terms of frequency and capacity regulation performance. In 2011-2012, when electricity demand reached pre-crisis level, the need of full-scale rehabilitation of power plants has re-emerged as a key priority.

Ukraine’s Capacity Balance on Maximum Load Day in 2011-2012, GW

 

2011

 2012

Installed capacity

53.2

53.3

Available capacity

48.4

48.7

Generation

30.7

31.9

Net export

1.1

0.1

Capacity surplus, % of available capacity

36.6

34.4

Source: TSO

Nuclear power plants account for the largest share in electricity generation. Operator of all Ukrainian NPPs is the state enterprise Energoatom, which is prohibited for privatization. Energoatom also supervises the initiation process for construction of two new 1,000 MW nuclear units at Khmelnitsk NPP site.

Thermal Gencos are the second largest electricity producers in Ukraine. Big TPPs are grouped in five large Thermal Gencos – Centrenergo, Donbasenergo, DTEK Dneproenergo, DTEK Zahidenergo, DTEK Shidenergo. At the moment, three Thermal Gencos (DTEK Shidenergo, DTEK Zahidenergo and DTEK Dneproenergo) are privately-controlled. Two remaining Thermal Gencos are public joint stock companies with the majority stakes are state-owned. In August 2013 privatization tender for the sale of 60.77% in Donbasenergo shall be held.

The Ukrainian TPP units were mainly commissioned in 1960-1975. Major fuel for TPPs is coal. Natural gas and heavy oil are used as a backup and firing fuel. Available capacity of the majority of TPPs is much lower than their installed capacity due to age, outdated and worn-out equipment, poor quality of coal and lack of investments into maintenance and rehabilitation. New thermal generating capacities have not been commissioned over the past twenty years with current focus on rehabilitation and expansion of service life of existing units.

Given the shortage of efficient regulating capacities in the UES, TPPs play an important role in regulating the load curves in addition to providing base load electricity.

Ukrainian large HPPs are concentrated in Dnipro HPP Cascade and Dniester reservoir.

All HPPs of Dnipro Hydro Cascade and Dniester HPP-1 as well as Kyiv HPSP and Dniester HPSP belong to public JSC Ukrhydroenergo which is prohibited for privatization. Ukrhydroenergo is a key player in hydro generation segment covering around 95% of total hydro generation.

Due to the shortage of efficient regulating capacities in the Ukraine UES, nowadays various investment projects for hydro rehabilitation and construction of hydro capacities are under implementation or consideration, in particular, hydro power rehabilitation project (co-financed by the IBRD and the EBRD), completion construction of Dniester HPSP’s 1st stage (972 MW) and 2nd stage (1,296 MW), Tashlyk HPSP, Kakhovka HPP extension project (250 MW), construction of Kanev HPSP (1,000 MW).

CHPs are key players in the Ukrainian cogeneration segment, but their role is more important in heat production rather than in electricity production. The Ukrainian CHPs were mainly commissioned in the 50th–70th of the last century and since that time have not undergone major rehabilitation.

Majority of large CHPs is still state-owned; however numerous CHPs and industrial plants are operated by private operators. Majority of industrial co-generation units is privately controlled. Some state-owned and many municipal CHPs are leased to private operators. In 2012 the Parliament of Ukraine approved the law allowing privatization of CHPs. In November 2012, Kharkiv CHP-5 (470 MW) was privatized. It is expected that in 2013 privatization tenders for other large state-owned CHPs will be announced.

Renewables. At the moment, renewables, in particular, wind and photovoltaic generation demonstrates more dynamic development than other power generating sources in Ukraine. It is explained by respective state policy of providing support to renewable power plants via the system of green tariffs.

Effective Green Tariffs for RES Power Plants, EUR/MWh

Types of RES 

For Power Plants Commissioned Within the Period

up to and incl. Mar 31, 2013

Apr 1, 2013 Dec 31, 2014

Jan 1, 2015 Dec 31, 2019

Jan 1, 2020 Dec 31, 2024

Jan 1, 2025 Dec 31, 2029

Wind plants with wind units the single installed capacity of which does not exceed 0.6 MW

64.6[1]

64.6

58.2

51.7

45.2

Wind plants with wind units the single installed capacity of which is greater than 0.6 MW but does not exceed 2 MW

75.41[1]

75.4

67.9

60.3

52.8

Wind plants with the wind units the single installed capacity of which is greater than 2 MWunit installed capacity of more than 2 MW

113.11[1]

113.1

101.8

90.5

79.2

Biomass plants

123.9

123.9

111.5

99.1

86.7

Biogas plants

123.9

111.5

99.1

86.7

Solar plants ground-mounted

465.3

339.3

305.3

271.4

237.5

Solar plants installed on the roofs or at a facade of buildings with capacity of more than 0.1 MW

445.9

348.9

314.1

279.2

244.3

Solar plants installed on the roofs or at a facade of  buildings with capacity of less than 0.1 MW

426.5

358.6

322.8

286.9

251.0

Solar plants installed on the roofs or at a facade of private buildings with capacity of less than 0.01 MW

358.6

322.8

286.9

251.0

Small hydro plants

116.3

116.3

104.7

93.1

81.4

Mini hydro plants

116.3

155.1

139.6

124.1

108.6

Micro hydro plants

116.3

193.9

174.5

155.1

135.7

Main and interstate electricity transmission networks include 22.9 thousand km of high voltage electricity transmission lines and 136 power substations of 110 – 750 kV in voltage and around 78.9 GVA in capacity. Transfer capacity of the HVL connecting the UES with the ENTSO-E system provides great foundation for electricity export from Ukraine. There are also good interconnections with neighboring CIS countries.

During last years the TSO has started implementation of the grid rehabilitation program. In the mid-term, the focus is on removing several internal transmission constraints and bottlenecks as well as increasing reliability of electricity supply in certain regions of Ukraine.

Electricity distribution networks consist of about 1 mln km of overhead and cable power transmission lines of 0.4 – 150 kV, about 200 thousand substations of 6–150 kV. About 20% of aerial and cable lines as well as substations are subject to rehabilitation or replacement. Operators of distribution networks are regional power supply and distribution companies (Oblenergos) which are mainly privatized.

Electricity Consumption in Ukraine is dominated by metallurgy, utilities and households and has relatively stable structure. Maximum historical consumption level was reached in 2007 being 148.3 TWh or around 70% of 1990 level. In 2010, recovery of the national economy was accompanied by the growth of electricity consumption that almost reached the maximum historical level of 2007. In 2012 net electricity consumption crossed exceeded its pre-crisis level.

Ukraine’s Electricity Consumption in 2012

Ukraine Electricity Consumption 2012

Wholesale Electricity Market (WEM) is the core part of the electricity market in Ukraine (over 90% of electricity is supplied through the WEM) and the only institutionally arranged electricity market in the country. In compliance with the Law of Ukraine “On the Electricity Sector”, power plants are obliged to sell electricity produced exclusively to the WEM. Besides, the Law allows particular groups of power plants to sell electricity bypassing the WEM. The WEM is arranged based on a “single buyer” model.

Wholesale Electricity Market Structure

 Ukraine WEM Scheme

The WEM was created as a contractual association of professional market participants – holders of the NERC’s licenses on electricity generation, distribution and supply. All WEM participants have to sign the Wholesale Electricity Market Members Agreement (WEMMA) and fulfil its conditions and requirements, the WEM Rules and other WEMMA Annexes.

Commercial relations in the WEM are regulated by bilateral contracts between the WEM members and the state enterprise Energorynok.

Existing WEM does not have segments of direct bilateral contracts with consumers, balancing market and market of ancillary services. Currently, only hourly spot “day ahead” electricity market is functioning in the framework of the WEM. Its competitive segment functions on the principle of one-side auction with large TPPs, which are dispatched on the basis of the price and capacity bids submitted to Energorynok.

All other power plants are dispatched on a priority basis (taking into consideration system constraints set by the TSO) and sell electricity to SE Energorynok at the “cost plus” fixed tariffs approved by the National Commission that Performs State Regulation in the Power Sector (NERC).

The NERC is the state regulatory authority that regulates the activities of natural monopolies in power sector and companies operating in adjacent markets. The NERC is also responsible for the state regulation in co-generation segment concerning heat production by CHPs, TPPs, NPPs, co-generation units and units using alternative or renewable energy sources as well as oil and gas industries. It ensures implementation of pricing and tariff policy in power and gas sectors.

Concerning operations in the power sector, the NERC issues licenses for the following activities:

  • electricity generation;
  • combined heat and electricity generation;
  • electricity transmission and supply;
  • heat generation by CHPs and units using alternative or renewable energy sources.

The NERC approves electricity prices (tariffs), tariffs for electricity transmission, distribution and supply, heat tariffs for CHPs, TPPs, NPPs and co-generation units and units using alternative or renewable energy sources, gas price limits for entities generating heat for needs of households, etc.

It also performs other functions, including adjustment of the WEM rules, in particular, approval of funds distribution algorithms in the WEM, standard contracts, supervision of procurement procedures, coordination of the WEM reform process.

Activity on electricity transmission via main and interstate electricity networks is unbundled from electricity generation, distribution and supply and is performed by the national TSO which is also responsible for centralized dispatch management. TSO functions are performed on an exclusive basis by the state enterprise NEC Ukrenergo. Energorynok being the WEM Operator purchases these services from the TSO on behalf of the WEM members. Tariff for the TSO services is regulated by the NERC.

Electricity Distribution and Supply. Electricity distribution networks are owned and operated by Oblenergos holding simultaneously two NERC’s licenses – (i) for electricity distribution and (ii) for electricity supply at regulated tariff. Independent suppliers must enter into contract relations with Oblenergos to use their networks for electricity distribution and pay for respective services on the basis of respective tariffs approved by the NERC.

Electricity Export and Import. In order to provide electricity export, independent supplier shall purchase the right of access to the cross-border capacity at the auction arranged by the TSO according to the special procedure approved by the NERC. Technical support of the electricity export is provided by the TSO to the winner of the auction in compliance with the contract for access to cross-border capacity concluded with the TSO. Electricity for export is purchased from the WEM at the WEM Price reduced by the amount of cross-subsidies for certain groups of the Ukrainian consumers (households, etc.).

Expected WEM Reforms and Changes. Transition to the new WEM model (direct bilateral contracts between Gencos and energy suppliers/eligible customers and balancing market) shall be carried out in compliance with the WEM Reform and Development Concept approved by the CMU in 2002 and re-confirmed in 2007.

Although reforms in the power sector started in Ukraine more than 10 years ago, they did not lead to the development of efficient competition and considerable investment inflow to the sector.

At the end of 2012 the Draft Law “On Fundaments of Electricity Market of Ukraine” was passed by the Parliament of Ukraine in the first reading. It determines general features of the new market model, mostly reveals some details on the electricity market’s operation in the transition period and gives general principles for next stages. The Draft Law is not final as it is being amended further before submission for the second reading by the Parliament.

The structure of the prospective market model envisages the following market segments: (i) bilateral contracts market, (ii) “day ahead” market, (iii) balancing market, (iv) ancillary services market, (v) retail market.

New Electricity Market Model

 Ukraine New WEM Model

The Draft Law declares introduction of full-scale electricity market upon the Government decision, but not later than 01 July 2017. Prior to introduction of new market model (during transition period) market relationship should be governed by transition rules, which foresee simultaneously functioning of the current “single buyer” WEM, ancillary services market and retail segment of the new electricity market. Accordingly, purchase and sale of electricity during the transition period will be done in the WEM.

Off-take system for the electricity produced by renewable power plants will also change in the course of the market reform. In accordance with the Draft Law, the special fund for allocation of disbalance in electricity prices shall be created. NPPs, HPPs and electricity importers shall be obliged to provide payments to the fund for their further allocation between the suppliers of last resort, CHPs and the so called “guaranteed buyer” that will distribute money among renewable power plants.

Electricity export arrangements will not undergo major changes under the new market model. The need to obtain the right of access to the transmission capacity of cross border lines through the auction arranged by the system operator shall be retained.

It is expected that the Law shall be adopted at the end of 2013.


[1] Before April 1, 2013 total installed capacity of wind plant was considered for “green” tariff approval.