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Integration of Ukrainian Power System to ENTSO-E: challenges and opportunities

In 2017 Ukrainian power transmission system operator Ukrenergo signed an agreement on the interconnection of the power system of Ukraine ENTSO-E. This decision was taken a long time ago – in 2005, but due to Ukrainian European integration efforts, reinforced after Euromaidan of 2014, active work started later.

By 1993 all Ukrainian power system was a part of single Soviet Union’s one. Today, the Ukrainian power system consists of two separate, not interconnected parts: a major one – United Power System (UPS) – integrated with energy systems of Russia, Belarus and Moldova and a smaller one – Burshtyn Power Island (BPS) – synchronised with ENTSO-E. BPS is located in the western part of the country and covers only 4 per cent of the total country’s energy consumption. The process of BPS’s disconnection started in 1995 and since 2003 it was synchronised with systems of European’s transmission system operators.

As planned, in 2023 UPS and BPS will be united and the Ukrainian power system will be a part of the European network. Key expected benefits for Ukraine from integration with the ENTSO-E are enhancing competition at the electricity market with a positive impact on prices, improving the reliability of supply and decreasing dependence on Russia.

Dependence on Russia

But today UPS and Ukraine correspondingly, are deeply dependent on Russia, which is a serious economic, political and security challenge considering military aggression towards Ukraine.

In 2014, when warfare at Donbass started, Ukraine started experiencing shortages of coal supply, which mostly was produced in that region and affected electricity availability correspondingly. Ukrenergo requested technical emergency assistance from Russia, according to existing agreements. But Russia did not respond and the urgent step was introducing rolling blackouts in Ukraine.

Besides, as a legacy of a single soviet power system, UPS still relies on Russia in frequency regulation.

Electricity imports from Russia and Belarus raise serious concerns in Ukraine. With dumping Russia may increase long term energy dependency on Russia, badly affect Ukrainian power companies and later convert it into political dependence. Ukraine has experienced this with natural gas supplies earlier. And in the case of Belarus, imports mean support of the recently launched nuclear power plant, against which many European countries protest.

So, disconnecting from Russia and becoming a part of the transparent power market, which is Europe, will contribute to decreasing dependence on Russia. But also, it will affect transparency and strengthening competition in the Ukrainian electricity market. Disconnecting from the Russian energy system will mean fewer opportunities for Russia to impact Ukraine politically.

Contribution to transparency and competition

Power production in Ukraine is highly-concentrated: more than 50 per cent come from nuclear power plants and 5 from hydropower plants, both owned by two state-owned companies, about a third part – from thermal power plants with two key players – state and private-owned. For any concentrated market, there is a chance of lowering the price after competition improves as new players appear.

After the moment Ukraine join ENTSO-E, it will become a part of the big European power market, shares of these companies will be incomparably small and they will have no serious effect on market prices, which means better competition in the Ukrainian market.

There are also expectations in Ukraine, that ENTSO-E integration will affect decreasing market prices in Ukraine. However, wholesale market prices are restricted with caps, which were introduced after the new electricity market design came in force in 2019 and till 2023 in order to avoid prices hike. Probably, both actions – caps’ cancellation and joining the European market may not decrease prices seriously. But there is for Ukraine that volumes of import will increase if prices become higher. UPS’s integration with Russia and Belarus does not solve the competition issue.

Besides, merging with European markets will also contribute to solving the renewable and nuclear power mix in Ukraine. Electricity production by renewables is increasing quickly in Ukraine. These were responsible for 7.3 per cent of power production in 2020, compared to 3.6 in 2019.

Growing installed capacities of renewables are decreasing residual capacity for nuclear power plants and higher demand for coal thermal power plants. Joining the big European market means opportunities for international trade and solving the problem of nuclear power plants residual capacity. And today, it is only BPS trading electricity with EU member states.

Today, Ukrainian transmission system operator and other companies are keeping to the schedule of steps on ENTSO-E integration. In 2022 the Ukrainian power system has to demonstrate its ability to operate in island-mode – cover all electricity needs by its own capacities. In the very beginning, it was planned that the system has to work in an isolated mode for the whole of 2022. But later, this condition was softened – just one week in summer and one in summer.

However, there are some fears about possible sabotage or attacks on power stations and grids to fail-safe passing of isolated mode period. And these may be inspired by Russia in order to keep its leverage of impact on the Ukrainian power system. That was Russia which was suspected of cyber-attacks on Ukrainian critical infrastructure, which affected energy supplies as well in late 2015 and 2017.

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