Cabinet plans to lower electricity price for households

Ukraine’s PM Denys Shmyhal announced on Aug. 11 that
the Cabinet would initiate a decrease of electricity prices for households
consuming less than 250 kWh per month by 14% since October. Currently, the rate
for all households is UAH 1.68/kWh, while from October, those consuming less
than 250 kWh will pay UAH 1.44/kWh.

According to Energy Minister Herman Haluschenko, about
80% of households will see an electricity price decrease following this
initiative. He stated that this will become possible after the introduction of
a new system of Public Service Obligation on the electricity market, in which
state companies generating electricity from nuclear fuel and water (Energoatom
and Ukrhydroenergo) will participate.

Alexander Paraschiy: This is a
purely populistic move aimed at promoting the images of the government and the
president. The price of UAH 1.44/kWh does not even cover electricity
transmission and distribution costs in certain locations (which range from UAH
0.67/kWh to UAH 1.80/kWh in Ukraine).

The decline in rates will cost the energy sector about
UAH 2.0 – 2.5 bln in annual terms, and someone will have to shoulder this
additional burden. Taking into account Haluschenko’s words, those will be state
holdings Energoatom and Ukrhydroenergo. But it could also happen that other
market players, including business consumers of electricity and private power producers
(including renewables) will also have to take on part of this burden.

All in all, the initiative looks neither logical nor
beneficial for Ukraine’s power sector and public finances.