After a struggle over prices, state nuclear company Energoatom has scored a victory in the Cabinet of Ministers.
Energoatom has been pushing for the government to lift restrictions on how it sells its energy. At the start of the month, the Cabinet partly approved a plan to allow Energoatom to sell 40% of its electricity in two-way deals, up from 5% earlier, according to Cabinet press releases.
However, a lawmaker revealed that the energy ministry put in a last-minute change that would set a very high price floor for nuclear power. Energoatom then publicly complained that this would make its energy uncompetitive.
On Aug. 19, the company’s labor unions gathered for a protest on Khreshchatyk Street in central Kyiv, calling for the resignation of acting energy minister Olga Buslavets, the removal of the Cabinet’s price formula and the payback of outstanding debts from the government to Energoatom.
Later that day, the Cabinet announced that it had corrected the formula. Shortly thereafter, Energoatom announced that it sold 21.6 gigawatts in two-way deals, earning Hr 25 million ($911,000).
Ukraine’s energy market has four segments. From least to most expensive they are: two-way deals between producers and consumers; the day-ahead market; the same-day market; and the last-resort balancing market.
Until May, Energoatom was restricted by a public service obligation (PSO), forcing it to sell 85% of its electricity to state company Guaranteed Buyer at minimal prices. The rest was sold on the day-ahead and same-day markets.
This was done to ensure low energy costs for the population, but it also held Energoatom back from competing and added to its growing financial shortfall.
The European Energy Community wrote that this model wasn’t working well, saying that even with the PSO in place, Guaranteed Buyer wasn’t able to cover the costs for households. The government also owes billions of hryvnias in debt to the nuclear operator.
In May, the energy ministry lowered Energoatom’s PSO from 85% to 80%, letting it sell 5% of its energy on the competitive two-way market. Buslavets said this would improve Energoatom’s dire financial situation.
Energoatom complained that 5% was too little. Experts added that the list of eligible buyers was too limited. Buyers were restricted to companies where electrical costs are 30% of the total cost structure, e.g. water utilities and ferroalloy plants.
Energoatom struggled to find buyers in its first two-way auctions following the change.
After pressure from the nuclear operator, the Cabinet held an Aug. 5 vote on a new transitional plan. This would let Energoatom sell 40% of its energy on the free market but it would also have to sell 50% of its energy to Guaranteed Buyer for 1 kopek per kilowatt-hour, several times lower than previously. The plan was publicized by the Cabinet.
Under the plan, Energoatom would make less money from households (via Guaranteed Buyer), but would make up the difference by competing in the commercial sector.
However, not all went according to plan. In a letter to President Volodymyr Zelensky, Servant of the People lawmaker Serhiy Nahornyak said that Buslavets introduced a last-minute change to the Cabinet’s plan before the vote.
According to the letter, the change added a formula for setting nuclear and hydroelectric energy prices. Under the formula, the prices would have to be much higher than Energoatom’s cost of production. Energoatom analysts calculated that this price floor is about double the cost of production.
In response to criticism, the energy ministry stated that the change would ensure that Energoatom would not suffer losses.
But Nahornyak and Energoatom stated that it was just a transparent way to hamstring Energoatom’s competitiveness. Traditionally, nuclear energy is the cheapest in Ukraine. By forcing it to be more expensive, it would lead to industrial consumers choosing Energoatom’s rivals, including the coal power producers at DTEK.
One of Energoatom’s biggest problems is having nowhere to sell the energy it produces, since nuclear reactors can’t be easily and quickly stopped.
Finally, the conflict came to a head. On Aug. 19, several hundred nuclear employees gathered for a demonstration down the street from the Cabinet of Ministers. Their union representative, Oleksiy Lich, deputy head of the Nuclear Workers Union, told reporters that he met with the Cabinet shortly before the demonstration.
The pressure appears to have worked. The Cabinet stated that it was releasing a new formula, which changes how it calculates the cost of production. The result is a lower price floor for Energoatom.
Since the announcement, the nuclear operator has already joined the two-way market, according to an Aug. 20 announcement.
