29.12.2023
The opening of EU accession negotiations marks a new stage of reforms in Ukraine’s energy sector. Based on the European Commission’s Ukraine 2023 Report, key directions can be outlined, progress on which will determine the prospects of our country’s European integration. However, the issue is not solely about the European integration process. Reforms are both a means of European integration and a means of achieving a new level of quality in the Ukrainian energy sector’s operation.
The report positively assesses Ukraine’s progress, considering the wartime conditions, and it is evident that our European partners show great understanding of the Ukrainian realities in which work must be done, including fulfilling obligations within the European integration process. However, the integration of energy markets is a very pragmatic matter, and until we prove the compliance of Ukrainian energy market operating conditions with European ones, there will be no concessions in practical integration. In this sense, although the war is a reason for a more lenient attitude towards Ukraine, it has also exacerbated Europe’s energy security concerns, and therefore the level of requirements for the entire energy sector has rather increased. Moreover, the energy sector itself is in a state of continuous reform, and this process somewhat outpaces Ukraine’s dynamics in fulfilling its obligations within the Energy Community.
As experts note, the European Commission’s Report is quite complimentary for Ukraine, but an extraordinary amount of work that remains to be done can be read between the lines. Furthermore, in many areas, the war has set us back in advancing reforms, and this lag must be compensated for in a short timeframe.
Ahead lies not only a large volume of technocratic work. Ahead lie perhaps the most painful decisions on the most sensitive issues for Ukrainians.
The Public Service Obligation (PSO) reform, which entails maximum liberalization of tariff setting and the elimination of cross-subsidization, is perhaps the most sensitive issue. But without this step, there will never be a logical conclusion to the reforms, and without it, there will be no results from these reforms.
The challenge of the PSO reform is compounded by the fact that the state’s capabilities in social policy have significantly diminished due to the war and will continue to decrease until a full economic recovery occurs, followed by its accelerated growth. However, such growth is impossible without further market reforms in the energy sector, including the reform of the PSO mechanism and the protection of the population from the risks of energy poverty.
The importance of developing the National Energy and Climate Plan (NECP) until 2030 should not be underestimated. Despite Ukraine’s traditional tendency to ignore the significance of plans and strategies, the NECP is an important component of European energy planning. Therefore, our European colleagues not only emphasized the importance of developing the National Plan in the European Commission’s Report but are also incorporating it as one of the key reform benchmarks for receiving funding under the “Ukraine Facility” of 50 billion Euros.
It is crucial for the Ukrainian professional energy community to realize the significant role of both the National Plan itself and the mechanism for its development, coordination, and approval, as such a mechanism is the foundation of European public governance in the energy sector – it is no coincidence that it is stipulated by the EU Regulation on the Governance of the Energy Union and Climate Action.
A major challenge for Ukraine is further progress in the energy transition, especially considering the challenges of the country’s reconstruction. Despite the urgency of decisions regarding such reconstruction, adherence to the principle of green recovery is extremely important. Balancing urgency and importance in practical operational and tactical decisions is an extraordinary challenge for the Ukrainian government.
The good news about NPC Ukrenergo obtaining full membership status in ENTSO-E was a very timely signal of progress in the direction of integration in the electricity segment. However, a whole range of fundamental decisions still need to be developed and adopted, first and foremost – the appointment of a NEMO (Nominated Electricity Market Operator).
But perhaps the biggest challenge is ensuring the real independence of the national Regulator (NEURC). It must be clearly understood that the European Union will not allow the integration of energy markets without confidence in such independence, as this would violate the basic conditions for market functioning and create risks of non-market distortions not only in the Ukrainian domestic market but also in the market of the entire united Europe. The NEURC faces the challenge of maximally strengthening cooperation with the European Union Agency for the Cooperation of Energy Regulators (ACER) to not only track the trajectory of this body’s work but also to prepare for prospective requirements and challenges in its operations.
Solving the problem of further increasing the share of Renewable Energy Sources (RES) and decarbonizing the energy mix in accordance with the goals and objectives of the European Green Deal is directly linked to the development of the National Energy and Climate Plan until 2030, as is the integration into this plan of work to implement the National Energy Efficiency Action Plan until 2030. These two areas of work on forming and implementing a real productive state policy are priorities from the perspective of compliance with the European Union’s fundamental policy on energy transition, enshrined in the European Green Deal and the “Fit for 55” package.
The volume of practical work on fully aligning the operating conditions of the Ukrainian energy sector with the requirements of the European Union is indeed extraordinarily large. But without fundamentally accepting and sharing the basic strategic principles and visions regarding the future of European energy, the success of this work is impossible. Ukraine’s aspiration to become part of the European family must be underpinned by a deep understanding and principled agreement with the basic values of Europeans, among which a significant place is occupied by the vision of the continent’s climate neutrality through efficient energy markets capable of providing Europeans with clean and affordable energy.
