What will happen to electricity tariffs in Ukraine and should we expect blackout
BusinessCensor has been looking into what is happening with Ukraine’s power system, how its condition will affect electricity tariffs and whether we should prepare for rolling blackouts now, as it was during the "black winter" of 2022.
On the morning of 8 May, Russian troops attacked energy infrastructure in six regions. Gas infrastructure in the west of the country was also damaged.
After Russia's shelling, Ukraine's power system can be compared to Swiss cheese - it's full of holes. According to Energy Minister Herman Halushchenko, we have already lost 8 GW of generation, which is a huge figure for any power system. He estimates the losses in recent weeks alone at more than $1 billion. It is noteworthy that the enemy has focused on destroying shunting generation, i.e. power plants that usually operate only when there is a high demand for electricity - peak demand.
Ukraine is currently actively cooperating with European countries that are helping to provide equipment for the restoration of power facilities. First of all, we are talking about the Baltic countries - Lithuania, Latvia, and Estonia. For example, the Lithuanian Ministry of Energy has offered to dismantle its closed thermal power plants for spare parts for the Ukrainian power system.
About 50% of the Ukrainian power grid's facilities need to be repaired.
What cannot be repaired will have to be rebuilt from scratch. For example, the Trypillia TPP in the Kyiv region, which was completely destroyed by the Russians during a massive missile attack on the night of 11 April. Prior to that, on 22 March, the enemy completely destroyed Zmiivska TPP in the Kharkiv region. Restoration of such facilities requires hundreds of millions of dollars. However, the most valuable resource in this situation is time, as we are talking about years.
The needs of electricity consumers are currently covered by own generation, imports and emergency assistance. In addition, favourable weather conditions allow the power system to be balanced by renewable energy sources, primarily solar power plants.
"In summer, there is a certain increase in electricity consumption. Perhaps it will be an increase of 20-30%. In general, these daytime peaks will be covered by an increase in electricity generation from renewable sources. Therefore, we do not expect any critical situation. However, the issue of economic consumption will remain relevant," says Ruslan Slobodian, Head of the State Agency for Energy Supervision.
Will there be a blackout in the summer?
The power shortage in Ukraine's energy system will be felt for many months to come. And, according to Ukrenergo CEO Volodymyr Kudrytskyi, even the maximum imports may not be enough to balance the system at some point in time.
A total blackout is the worst-case scenario for any power system. It cannot be ruled out completely, but such a scenario is currently unlikely.
On the other hand, with almost every Ukrainian thermal power plant damaged, it is difficult to do without scheduled power outages. However, it remains to be seen how widespread they will be.
All available forecasts and calculations are based on the current situation. It could deteriorate significantly in the event of new attacks on critical infrastructure. However, even under such conditions, Halushchenko emphasises that there will be no total blackout.
"Unfortunately, there is no doubt that [Russian strikes] will continue. There are a lot of experts now, and everyone knows that tomorrow there will be a blackout and a total catastrophe. It's all a lie and a falsehood. There will be no total blackout in the country," he says.
At the same time, the Minister calls on Ukrainians to prepare for different scenarios:
"It is better to be prepared for any scenario. But the energy sector is doing everything to ensure that these scenarios never materialise. And as the experience of last year shows, we have kept our word."
Scheduled outages: when will they happen?
Kudrytskyi says that power restrictions are a last-resort measure that power companies can use to maintain the power system. However, they are already used primarily for business.
In Ukraine, there is a problem not only with generation but also with the ability to transmit electricity due to the constant shelling of substations. That is why restrictions are being imposed on industrial consumers in many regions. The only exceptions are the Kharkiv and Dnipropetrovsk regions, where restrictions also affect household consumers. These regions are currently facing the worst electricity situation.
Businesses are mostly restricted in the evening during peak hours, when electricity consumption increases, as there are generally no problems during the day. At the same time, the limits do not apply to the defence industry and critical infrastructure facilities, such as hospitals.
In general, the most difficult period, according to forecasts, will be July-August. This is because, firstly, electricity consumption always increases during this time due to hot weather, and, secondly, NPP and TPP units are scheduled to be taken out of service for repair to prepare for winter. This will exacerbate the power shortage, which will increase even more with the onset of cold weather.
The frontline areas are at risk, where Russians are trying to destroy everything they can get their hands on. Take, for example, the shelling of the Sumy region on the night of 6 May, which simultaneously cut off power to more than 400,000 customers in Sumy and the region. Power engineers managed to quickly restore power supply to most local consumers thanks to backup schemes, but the overall situation remains tense.
At present, no massive scheduled outages are expected, but Ukrenergo urges to use electricity sparingly, especially during peak hours - from 07:00 to 10:00 a.m. and from 6:00 to 10:00 p.m.
Will electricity tariffs increase?
Money remains one of the most acute problems in the domestic energy sector, which could also affect power outages. Due to the non-payment crisis, companies are suffering from a lack of liquidity. Total debts in the gas and electricity markets amount to almost UAH 300 billion. The lack of funds for energy companies is expected to cause problems during summer repairs and preparations for the next heating season. An increase in electricity tariffs could be a way out of the situation.
Since 2022, Ukraine has had a moratorium on raising tariffs for gas, hot water and heating. At the same time, on 1 June 2023, the cost of electricity for households increased from UAH 1.44 to UAH 2.64 per kWh.
In its updated Inflation Report, the NBU forecasts a gradual increase in utility tariffs to economically justified levels over several years, but electricity tariffs for households will grow faster due to the difficult situation in the energy sector.
Delaying decisions on raising utility tariffs will lead to lower inflation, but will accumulate quasi-fiscal imbalances and worsen the financial condition of state-owned energy companies.
"This will increase the risks of instability in the domestic energy market, worsen the investment potential of the industry, while price pressure will only be postponed to the future," the NBU said.
Leaders of the Ukrainian energy sector increased their revenues by 8%. Who earned the most
In 2023, the leaders of Ukraine's energy sector earned UAH 745.87 billion, which is 8% more than the total revenue of these companies a year earlier (UAH 688.45 billion).
It is noted that the rating includes five state-owned companies, four companies from Rinat Akhmetov's SCM group, and Kyiv Regional Energy Company LLC owned by Nelia Kostenko (nominee of the Russian VS Energy Vojvodina group).
Eight companies are engaged in electricity generation and trading, and two more in gas trading.
Read more about it here.
According to Ruslan Slobodian, head of the State Energy Supervision Service, an increase in electricity tariffs may take place this year, as there is an urgent need for large financial resources to restore the power facilities damaged by Russian shelling.
"We will probably have to consider raising internal reserves and revise the electricity tariff. The NBU has predicted a gradual increase in the tariff over the next few years. Since a really large financial resource is needed to restore electricity facilities, the first stage of such an increase may be advisable to make this year," he explains.
According to preliminary estimates, it is impossible to cover $1 billion in losses with the current electricity tariff and available international assistance.
Back in March, the head of the Union of Consumers of Public Utilities, Oleh Popenko, spoke about raising electricity tariffs. According to him, a tariff of UAH 3.5-4 per kWh was being considered. However, the Ministry of Energy denied the information, calling it a fake.
Serhii Nahorniak, a member of the Parliamentary Committee on Energy, Housing and Utilities, also said earlier that the cost of electricity for household consumers could be doubled. In this case, the tariff would be just under UAH 6.
In general, according to the calculations of the National Energy and Utilities Regulatory Commission (NEURC), the market price for electricity for households is UAH 5.5-5.8 per kWh.
"I don't think energy tariffs will be raised to market levels, even if they do increase. Because the market level is a high enough level, the one that industrial consumers are currently paying," says Andrii Herus, chairman of the Verkhovna Rada Committee on Energy, Housing and Utilities.
He emphasises that there is no decision to revise the electricity tariff for households, but all possible sources of funding for the restoration of the power system are being discussed.
At the same time, Volodymyr Omelchenko, Director of Energy Programmes at the Razumkov Centre, points out that the energy dimension of the war is no less important than the front line. After all, if the enemy destroys the entire energy sector of Ukraine, the rear will not be able to support the front. Therefore, the issue of raising tariffs is relevant.
Decentralisation of generation and partners' money
Ukrenergo CEO Volodymyr Kudrytskyi says that the only way to protect the energy system from the consequences of Russian attacks is to disperse electricity production across the country.
"The concentration of generation at a few sites is what leads to serious problems in the event of massive enemy attacks. We understand that the only sustainable way to protect the power system from such massive terror is to decentralise the capacities," he explains.
Kudrytskyi says that we need to build hundreds of small power plants that will be more resistant to massive attacks due to their dispersion. Accordingly, attacks will not lead to such severe consequences for the power grid as they do now.
Private companies are already considering investing in new distributed generation. For its part, Ukrenergo, as the power system operator, is doing everything possible to make these projects profitable for investors in the future.
According to Volodymyr Kudrytskyi, the Ukrainian energy system currently needs new thermal generation, not coal-fired, but one that will run on waste from the woodworking industry, agricultural sector, etc.
In addition, the power system needs gas pickers - small, highly manoeuvrable power plants that run on gas - and energy storage systems.
The government is already considering the integration of gas turbine power plants into Ukraine's Integrated Power System. Such turbines serve many purposes, including facilitating the start-up of existing power plants after accidents, covering peak loads and providing backup power for critical infrastructure.
The Energy Community of Europe is helping us with this. At the end of April, the Energy Support Fund of Ukraine started collecting tender bids for the purchase of gas turbines for Ukraine. The procurement procedure is being conducted by the Energy Security Project, funded by USAID and implemented by Tetra Tech.
Volodymyr Kudrytskyi emphasises that the transformation of the energy system should be funded by private investors and with the help of partners, and not be passed on to the population by raising tariffs.
