Debt crisis in the electricity market: causes and threats to the economic security of electricity companies

Abstract

The article states that one of the main sector conditions for Ukraine's accession to the European Union is the launch of a full-fledged energy market, for which purpose a number of institutional, economic and regulatory reforms have been implemented since 2015. It is proved that despite the government’s conscientious efforts to make a transition to the European model of energy markets, Ukraine has failed to do so due to a large number of regulatory restrictions on wholesale prices (price caps), an unbalanced policy of supporting renewable energy industry, the absence of market prices for households and the existing mechanisms for imposing special obligations, which together have led to the formation of a chain of debts “all to all” in the electricity market. It is substantiated that the debt crisis currently observed in the energy sector of Ukraine requires urgent measures. Further ignoring it is unacceptable, as it poses significant threats to both the country’s energy security and the financial viability of electricity companies. The article considers the chain of debts of electric power enterprises formed through the Public Service Obligations (PSO) model. The causes of the debt crisis in the Ukrainian electricity market are identified, including: incorrect operation of the PSO mechanism; significant underfunding of tariffs for households, as well as tariffs for electricity transmission services via the high-voltage trunk network and power system management (dispatching); granting debtors a preference - depriving them of "punishment" for late payment of the cost of consumed services. The author analyses the proposed measures to mitigate the crisis by: compensation of debts at the expense of the State budget; attraction of loans from State and international banks; cancellation of price restrictions established by the National Commission for State Regulation of Energy and Public Utilities (NCSREPU), the so-called price caps; allocation of part of the excise tax revenues to repay the debts incurred in the electricity market; increasing the volume of clean electricity exports to the EU; introduction of a market for guarantees of origin, under which each renewable energy producer will receive guarantees, i.e. an asset that can be sold. The advantages and disadvantages of each of the proposed measures are indicated.