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Energy Community praises Ukraine for progress in cost-reflective power prices

The Energy Community Secretariat has praised the Ukrainian government for its recent measures to bring end-user power prices closer to cost-reflective levels. These actions mark a “significant milestone” towards ensuring a more sustainable and equitable electricity market in Ukraine, the Secretariat said.

On 30 May, 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. From 1 June, the electricity price for households (including network charges, fees, levies and VAT) of 0,066 euros/kilowatts per hour (kWh) will apply by the end of this year.

This adjustment represents a significant increase in end-user prices for households, with an 83 per cent price hike for households consuming less than 250 kWh per month and a 57 per cent increase for households consuming more than 250 kWh per month. However, despite 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 euros/MWh in 2023 in Ukraine, the Secretariat said.

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-subsidisation, enhancing market transparency, and promoting energy efficiency, the Secretariat said.

This decision also aligns with the roadmap for further market integration, developed under joint efforts of the High-Level Working Group on Energy Markets, which is co-chaired by the European Commission and the Ministry of Energy of Ukraine, the Secretariat added.

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, the Secretariat said in a press release. In this context, it “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,” the Secretariat said.

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