In the heart of Ukraine’s energy sector, a debt crisis is brewing, threatening to disrupt the country’s economic security and the financial viability of electricity companies. This is the stark warning from a recent study published in the Economic Bulletin of the State Higher Educational Institution Ukrainian State University of Chemical Technology, authored by S. A. Levchenko from the Department of Internal Affairs and Communications of the Zaporizhzhya Region.
The article, titled “Debt crisis in the electricity market: causes and threats to the economic security of electricity companies,” sheds light on the complex web of debts that has formed within Ukraine’s electricity market. Levchenko points to a chain of debts “all to all,” a situation where every player in the market, from producers to suppliers, is entangled in a web of unpaid bills. “The debt crisis currently observed in the energy sector of Ukraine requires urgent measures,” Levchenko warns. “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 root of the problem, according to Levchenko, lies in the Public Service Obligations (PSO) model, a mechanism designed to ensure the provision of universal services at affordable prices. However, the model has been plagued by issues such as significant underfunding of tariffs for households and the absence of market prices for consumers. Moreover, the article highlights the preferential treatment given to debtors, who are often not penalized for late payments.
Levchenko’s analysis also delves into the regulatory restrictions on wholesale prices, known as price caps, and the unbalanced policy of supporting renewable energy. These factors have collectively contributed to the debt crisis, creating a domino effect that threatens to topple the financial stability of electricity companies.
The article proposes several measures to mitigate the crisis, each with its own set of advantages and disadvantages. These include compensating debts from the State budget, attracting loans from state and international banks, and canceling price restrictions. Levchenko also suggests allocating part of the excise tax revenues to repay the debts and increasing the volume of clean electricity exports to the EU.
The proposed introduction of a market for guarantees of origin, where each renewable energy producer receives tradable assets, is particularly intriguing. This could not only help alleviate the debt crisis but also boost the renewable energy sector, aligning Ukraine’s energy market more closely with European standards.
The research underscores the urgent need for reform in Ukraine’s electricity market. As the country seeks to align its energy sector with European standards, the findings of this study could shape future policy decisions. The debt crisis, if left unaddressed, could derail Ukraine’s progress towards a full-fledged energy market, impacting not just the energy sector but the broader economy as well.
For energy companies operating in Ukraine, the findings serve as a wake-up call. The debt crisis is not just a financial issue but a threat to the country’s energy security. As Levchenko’s research makes clear, urgent action is needed to prevent a full-blown crisis that could have far-reaching consequences for the energy sector and the economy at large.