Deepening the problem of chronic underfunding of the industry and the debt crisis in the markets of natural gas and electricity (in case of continued administrative regulation of energy prices for household consumers).
Restrictions on competition in retail markets (due to price restrictions, suppliers are not able to compete with each other).
There are fewer incentives for consumers to take energy efficiency measures (both due to continued regulation of energy prices and due to insufficient financial support for energy efficiency measures by the state and local authorities).
Paralysis of the Energy Efficiency Fund and discrediting the idea of energy efficiency in case of the absence of funding for these purposes in the budget.
Replacing direct price regulation in the retail market with quasi-SR, which eliminates the possibility of fair competition, and thus deprives the consumer of incentives to change suppliers, and suppliers - to "fight" for the consumer.
The draft law № 3508-d adopted by the Parliament contains significant risks, including corruption, offering to cover the commercial debts of gas distribution network operators at the expense of the state budget.
Terms of gas supply for the needs of communal heating enterprises by Naftogaz provide for advance payment and a very strict regime of gas selection with significant penalties for non-selection or overuse of ordered volumes. Such conditions create a great risk for communal heating enterprises, which has significant debts for previous periods, cannot guarantee advance payments and risks receiving serious fines and gas at the price of the “last hope” supplier, which in turn will lead to an avalanche of tariffs for heat and social protests by consumers.
The transfer of the Regulator's authority to set the heat tariff to local governments runs the risk of potential abuse by communal heating enterprises and local governments in both fuel purchases and tariff calculations, leaving consumers without access to inflated tariffs.
Financial instability of state-owned companies, which have special responsibilities in the electricity market (Energoatom, Ukrhydroenergo) due to the continued operation of the SR mechanism in its current configuration.
Continuation of manipulations on the wholesale electricity market, in particular due to the inaction of the authorities in terms of transposing the provisions of Regulation (EU) 1227/2011 (on the integrity and transparency of energy markets) into Ukrainian legislation.
Restriction of competition in the retail market of natural gas due to the introduction of annual tariffs.
Low liquidity of the Ukrainian Energy Exchange, which cannot yet be a transparent market price indicator.
Postponing the increase in electricity prices for household consumers worsens the overall financial condition of the industry.
- On July 17, 2020, 47 MPs appealed to the CCU with a petition to declare the legislative provisions of the Law of Ukraine "On Alternative Energy Sources" and the Law of Ukraine "On the Electricity Market" as unconstitutional. According to the MPs, by adopting the Law of Ukraine "On Alternative Energy Sources", the Parliament went beyond its powers and interfered in the constitutional powers of the executive branch, without any alternatives establishing coefficients and mechanisms for calculating the "green" tariff, thus depriving the executive branch of discretion and power to change it. Hence, there is a threat of declaring the "green" tariff in Ukraine as unconstitutional and its complete abolition.
- The threat of another retrospective change in legislation is the introduction of an excise tax on electricity produced from renewable sources (draft law № 5600). The adoption of such a law contradicts the signed Memorandum of Understanding between the Government and associations of renewable energy producers and creates an additional illegal burden on investors in "green" energy. This could result in a further deterioration of the investment climate, increased arbitration claims and an increase in the market price of energy from renewable sources.
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The monitoring revealed that no significant progress was made in reforms of the energy sector during 2020–2021. The recommendations provided for priority actions for 2020-2021 remain relevant in the future.
The priority steps in the reform of the energy sector in the near future should be:
Combating manipulation and dishonest behavior in the market (implementation of the REMIT regulation on the integrity and transparency of the wholesale energy market) and support for the integrity and institutional capacity of the Regulator, which has repeatedly signalled attempts of commercial and political pressure.
Solving the debt problems both in the old gas and electricity markets and in the new ones, which continue to accumulate. So far, certain "traditional" instruments are being considered (internal borrowing or loss of income by state-owned companies or some manual adjustment of settlements by market participants themselves).
Fighting populism. Lower tariffs for a number of energy services remain a source of chronic problems and losses for the sector, taking away significant resources from local governments to cover the deficit of utilities and discouraging consumers to take action. Energy prices should not be an instrument of social policy. In order to make the right decisions, consumers must receive correct, not distorted, price signals and projected and continuous government assistance. Effective protection of vulnerable consumers includes large-scale thermal modernization of buildings, more structured and targeted social assistance, as well as ensuring transparency and control over those suppliers that are historically linked to natural monopolies in the gas and electricity sectors.
Supporting the liquidity of energy markets and curbing the "market power" of individual companies. It is necessary to continue to develop exchange trade in the presence of short and long standardized products, to improve rules and codes. State-owned companies operating in the energy markets need to come out with larger volumes of gas and electricity and become real market-makers, i.e. to balance dominant private players, set certain price indicators and maintain liquidity.
Not declarative, but real implementation of the goals of the European Green Course. Renewable energy policy should be meaningful and systematic, in line with the country's declared strategic goals. Investments in the decarbonisation of the economy are becoming vital along with such an important area for Ukraine as energy efficiency. It is necessary to start clearly planning the replacement of the obsolete fund of energy capacities with new ones on the basis of clean technologies, and at the same time not to ignore the issue of fair transformation of coal regions.
Sufficient funding for energy efficiency projects. State support for the implementation of energy efficiency measures should be systematic: not only in words but also in practice. Large-scale modernization of Ukraine's housing sector requires annual capital investments of at least UAH 40 billion. In order to ensure the necessary pace of such modernization, the existing state support mechanisms (Energy Efficiency Fund) should function in a sustainable and well-planned manner, and if necessary, new ones should be created in compliance with the principles of transparency, sustainability and mandatory monitoring of the implemented measures in view of increasing energy efficiency of buildings.
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