UKRAINIAN BUSINESS CAN BUY ELECTRICITY CHEAPER

Market coupling with the European Union countries will reinforce the Ukrainian power system and strengthen the energy independence of the united Europe, the Acting Director General of the JSC «Market Operator» Oleksandr Havva said in his column for the Ekonomichna Pravda.

The purchase and sale of electricity for business in Ukraine take place according to the European rules from 2019. The price is formed by the market based on demand and supply, and it is the lowest in Europe.

For example, in 2021 the business of the neighboring European Union countries was forced to purchase electricity on the spot market by 50% more expensive than the corresponding price in Ukraine. In 2022, electricity prices in the same European market started to grow rapidly and reached their historic maximum in August. The electricity price in 26 European countries amounted to 20 357 UAH/MWh as of August 30, while in Ukraine this price was 3 128 UAH/MWh. The difference between them is more than six times.

The European Union ministers of energy took the political decision to balance prices and approved a package of stabilization measures on September 30. Electricity prices began to fall and became lower at some hours than in Ukraine. In general, electricity prices in the neighboring European countries dropped by over 40% in October.

If we analyze the price on the «day-ahead» market in October in Slovakia and Romania, where Ukraine has a common intersection, then the price was lower by 16% in 50 hours there, and sometimes the price reduction was more than 40% compared to Ukrainian DAM. Therefore, Ukrainian business could take an advantage of these market conditions and buy electricity cheaper. Or vice versa - to export, if the situation in our country will contribute to this, obviously. It is extremely important for Ukraine to launch market coupling with the EU to achieve this goal.

What is the market coupling or how does the European Single spot electricity market work?

The European energy market has been operating under harmonized rules for capacity calculation, congestion management, and electricity trade since 2015. This joint electricity trade in Europe is called market coupling.

Each EU country that has a cross-border interconnection with another EU member state has designated a Nominated electricity market operator (NEMO). NEMO ensures the efficient operation of the Single day-ahead market (SDAC) and the Single intraday market (SIDC) in cooperation with the Transmission system operator (TSO).

The electricity price for market coupling is calculated under a common price consolidation algorithm - PCR EUPHEMIA, considering the cost of cross-border capacity allocation on the auctions’ basis. In other words, this system calculates the electricity price based on the applications and offers provided by the NEMO, as well as the available capacity and system restrictions provided by the TSO. This process maximizes a social well-being (buyer's revenue, seller's revenue, restrictions fee) and considers trading price limits and network restrictions.

The graphs below show how it works in reality. This is an example of two trading zones coupling, when, with available capacity, there is a flow (export) from a trading zone with a cheaper price of 44 EUR/MWh to a zone with a more expensive price of 60 Euro/MWh. In case of the market coupling and the available capacity, it is possible to equalize the price of 55 EUR/MWh in the two trading zones. 

The Market operator has analyzed the SDAC work in Slovakia and Romania and modeled the DAM price in Ukraine in case of market coupling. We considered 500 MWh of the available capacity between Ukraine, Slovakia, and Romania, compared the hours with significantly lower prices, and determined that the maximum decrease in the BASE index for Ukraine would be almost 4%.

Market coupling is possible in the second quarter of 2023

According to the European Union rules, cross-border trading is possible only between the EU member states. Nevertheless, Ukraine has a chance to join the European spot market as a Contracting Party of the Energy Community, due to the work, done by the Ministry of Energy of Ukraine. The EU Regulation 2015/1222 CACM is expected to be approved in December 2022, and its proper implementation will allow to launch the market coupling in a testing mode already in the second quarter of 2023.

In addition to the amendments of the regulatory documents that form the Ukrainian electricity market rules operation, the JSC «Market Operator» should be recognized by NEURC as a Nominated market operator, and at the same time, the NPC Ukrenergo has to conclude cooperation agreements with other system operators and JAO auction office.

The work of the Ukrainian electricity market operator is facilitated by the fact that the JSC «Market Operator» works meeting the European spot market standards from the very beginning of its operation. The implementation of market coupling with the SEE countries in 2020 was declared in our strategic development plan, approved by the Cabinet of Ministers of Ukraine. Our trading platform is close to the mechanism used by the Slovak market operator — OKTE, and all business processes correspond to the status of a nominated market operator. That is why the JSC «Market Operator» has recently received approval from all NEMOs to become an observer in the All NEMO Committee for the preparatory period. This European institution governs the European market coupling. We are preparing to sign the relevant agreement.

Consequently, the Market operator is ready for a new challenge both organizationally and technically. Together with the Ministry of Energy of Ukraine, the NEURC, and the Energy Community Secretariat, the JSC «Market Operator» works on ensuring Ukraine becomes a part of the European spot market in the nearest future. The market coupling will strengthen the Ukrainian energy system and reinforce the energy independence of the EU. This is our win-win strategy.