Secretariat Commends Ukrainian Government's steps to achieve cost-reflective electricity prices

The Energy Community Secretariat praises the Ukrainian Government for its recent measures to bring electricity prices for the population closer to cost-reflective levels. These actions mark a significant milestone towards ensuring a more sustainable and equitable electricity market in Ukraine.

On May 30, 2023, the Ukrainian Government approved amendments to the Procedure on the imposition of special obligations (PSO Act) on electricity market participants, with the aim of safeguarding the interests of the general public in the functioning of the electricity market. As a result, regulated electricity prices for households in Ukraine will be increased. Starting from today, the electricity price for households of 2,64 UAH/kWh (0,066 EUR/kWh) (including network charges, fees, levies and VAT) will apply by the end of this year.

This adjustment represents a significant increase in end-user prices for households. Specifically, there will be an 83% price hike for households consuming less than 250 kWh per month, and a 57% increase for households consuming more than 250 kWh per month. However, it is important to note that even with this adjustment, the fixed end-user price, which encompasses network costs and levies, remains below the average day-ahead electricity market price of 68 to 81 EUR/MWh in 2023 in Ukraine.

The Ukrainian Government's decision to bring household prices closer to market levels is expected to rectify distorted market signals and reduce subsidies, primarily at the expense of generating plants responsible for maintaining the security of supply in Ukraine. The Energy Community Secretariat applauds this decision as a crucial and long-awaited first step towards achieving cost-reflectivity of end-user electricity prices.

By moving towards cost-reflective pricing, this initiative will help alleviate the negative impact of the current PSO Act on the electricity market and its participants. It will also contribute to reducing cross-subsidization, enhancing market transparency, and promoting energy efficiency. Furthermore, this decision aligns with the Roadmap for further market integration, developed under the joint efforts of the High-Level Working Group on Energy Markets, co-chaired by the European Commission and the Ministry of Energy of Ukraine.

The Secretariat acknowledges that the path towards full cost-reflectivity should take into account the current social and economic realities of Ukraine, including the ongoing war. In this regard, the Secretariat encourages the Ukrainian Government and the National Energy and Utilities Regulatory Commission (NEURC) to continue developing a comprehensive long-term plan, extending beyond 2023, to gradually achieve cost-reflective prices for households. It is vital to establish clear vulnerability criteria to protect affected consumers. This process can be guided by the Memorandum of Understanding signed between the Energy Community Secretariat and NEURC earlier this year.

The Secretariat remains committed to supporting Ukraine in its journey towards market integration and the establishment of a sustainable energy sector. The Ukrainian Government's proactive actions demonstrate its dedication to creating a fair and competitive electricity market while considering the welfare of its citizens.