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Energy market model

Wholesale Electricity Market (WEM) of Ukraine was established in 1996, modeled on the «model pool» of electricity in England and Wales. WEM is an ordered system of operations of purchase and sale of electric energy. For a long time since creation, the work of WEM, as well as the energy industry as a whole was unstable. This was due primarily to the problems of non-payments and accumulated debt of consumers for sold electricity. In particular, prior to 1999 was dominated various forms of barter, and only about 6% of payment carried out in cash. Reverse this trend was in 2000-2001. As a result of government actions, including those associated with the beginning of privatization process and the arrival of new managers in the industry since 2000, there has been a consistent trend towards full payment for sold electricity.

The basis of power sector in Ukraine is the United Energy Systems (UES) of the country, which provides centralized electricity consumers, interacts with the power of adjacent states, provides export, import and transit of electricity. UES brings energy generating capacity and distribution networks of regions of Ukraine, which are interconnected system of electricity transmission lines.

The market operates on the basis of regulatory and law base formed by the Verkhovna Rada, the President and the Cabinet Ministers of Ukraine. Ministry of Fuel and Energy - the central government authority authorized to draft and implement long and medium term program of development of the industry. National Electricity Regulatory Commission (NERC) - the state regulator, the state authorized to implement pricing and tariff policy in the industry, protect the interests of consumers in the market power of natural monopolies.

WEM operates on the outdated model of "single buyer" (pool). All the subjects of energy - Licensees (generating companies, distribution companies, electricity suppliers) form the Wholesale Electricity Market (WEM). Executive body of the WEM is the Council of the WEM. State Enterprise "Energorynok", is a commercial operator of WEM and thus a "single buyer". NEC «Ukrenergo» owner and operator backbones voltage class 220 kV-750 kV, performs dispatching a technical operator ORE.

Power-generating capacity of WEM is nuclear, thermal, hydro and alternative energy generation with installed capacity of about 52,730 MW (see Figure 1).

Set Power Energy Production

Figure 1. Installed power generation in Ukraine.                               Figure 2. Average annual electricity production ORE.


Average annual production of electricity of WEM  with the needs of consumers in Ukraine is about 195.5 billion kWh . (See Figure 2)

Energy distribution companies represented in the wholesale electricity market, the number of regions, 25 regional (oblenergo) and two municipal power companies (Kiev, Sevastopol).

Suppliers of electricity WEM divided licensing rules into two large groups - suppliers of the regulated (fixed by) the tariff and suppliers on an unregulated (free) rate . The first group is about 40 companies a monopoly in the territories: 27 energy distribution companies plus some medium-sized network owners in the regions (divisions "Ukrzaliznitsya", etc). The second group - it licensees working as energy company «Ukrenergoeхport» throughout the territory of Ukraine.

The consumer buys electricity through his choice of electricity suppliers in the SE «Energorynok», and SE «Energorynok», in turn, orders and buys the necessary amount of electricity from generating companies.

Physically, electricity produced by generation companies gets to the consumer through the transmission and distribution electric networks on the basis of agreements on the transfer of power between the relevant actors WEM.

Modern trends in power sector, the accumulated problems, require the transition from the market "single buyer" for a more efficient and focused on the needs of consumers of electricity market model.

Ukraine approved the concept of a phased transition from the existing market model to a more progressive model of competitive bilateral contracts with the balancing market.

However, the concept of preventing a number of unresolved social and economic problems in the country. One of them, cross-subsidization of some categories of consumers at the expense of others. Although in recent times has been eliminated cross-subsidies among non domestic consumers, the volume of cross-subsidization of the population at the expense of other categories of consumers is increasing. Price of electricity for the population was recorded in 1999 and today, this category of consumers paying less than half the actual cost of electricity consumed.