Andrian Prokip
Dr., Senior
Associate
Kennan
Institute, Woodrow Wilson Center
Washington
DC USA
Director of
Energy Programs
Ukrainian
Institute for the Future
Kyiv,
Ukraine
In December 2023, the European Council agreed to open membership talks with Ukraine. This decision was based on Ukraine’s progress toward reforms in different areas, including the energy sector, which is detailed in a separate report published in November. In the report the European Commission rated Ukraine's progress in implementing energy reforms as at “a good level of preparation.” For the specific period since the start of Russia’s full-scale invasion, Ukraine was ranked as having made "some progress."
In late 2023, the Continental European regional group of the European Network of Transmission System Operators (ENTSO-E) recognized that the Ukrainian transmission system operator, Ukrenergo, had achieved compliance with the key technical requirements necessary to enable a permanent interconnection between the power systems of Continental Europe and Ukraine. The Energy Community Secretariat, which acts as the guardian of the Energy Community Treaty, marked Ukraine’s impressive track record on electricity and gas market reforms in 2023.
All the progress the Ukrainian energy sector has made in the recent decade was huge, even considering a lot of work should still be done, and unsolved problems remain. This path was not easy and was full of obstacles like populism driven by paternalism, which blocked reforms, energy policy mistakes, and oligarchs trying to collect rent from the energy sector. But besides the internal barriers, there was an external one – Russia, trying to block Ukraine’s European integration. Since the moment of a full-scale invasion, it has resulted in direct damage to Ukrainian energy infrastructure with Russian air strikes and artillery shelling.
In 2011, Ukraine became a member of the European Energy Community. This meant the country had to implement energy regulations consistent with those in force in the EU. But the real progress was very weak. Conversely, these reforms would have meant some painful changes, first of all about establishing market energy prices for households. Victor Yanukovych’s administration, which was in power then, was more oriented on pretending reforms rather than being committed to fundamental changes, trying to build a good personal image. But the reforms would also threaten the power of oligarchs, and Yanukovych's closest circle, including his son, which tried to take control over the economy, including the energy sector.
Yanukovych’s decision to make a U-turn from European integration towards deeper connections with Russia pushed massive protests, also known as the Euromaidan (and later Revolution of Dignity), when people demanded the government follow the European track. In late 2013, Yanukovych fled away, and a new government that was established in Kyiv committed to continuing the efforts of European integration, and Russia unleashed the war against Ukraine in 2014.
Ukrainian energy became among the first victims of the war. After Russia annexed Crimea, using its proxies, it unleashed the war in the Donbas region, which was responsible for a considerable share of coal produced in the country. By that moment, coal was the only energy resource that the country was self-sufficient with, and it became import-dependent then. In 2014, Ukraine experienced rolling blackouts due to the lack of coal, and later, more expensive imported coal naturally affected the electricity prices. There is no need to mention that control of the energy assets worth billions of dollars in the occupied territories was lost.
Besides, together with the invasion, Russia blackmailed Ukraine with gas supplies. In 2010, Yanukovych’s administration negotiated a discount for natural gas in exchange for prolonging the Russian fleet location in Crimea till 2042. Even when discounted, the price was high, and later, in 2012, Yanukovych’s administration tried to diversify gas supplies – without much success, as Russia, being skilled in the gas business and blackmailing, blocked any efforts. After annexing Crimea, Russia canceled the discount, demanding to pay an extra high price.
Ukraine addressed the Arbitration Institute of the Stockholm Chamber of Commerce regarding the gas dispute and won the case in 2018. But in 2014, with the gas and coal shortage risk, the situation was critical before the winter. In some way, this pushed reforms and other steps to change the energy sector in the long term and prepare the country for winter in the short term.
During 2014-2017, a list of crucially important laws was adopted, called to comply with Ukraine’s energy legislation with European rules, strengthen the country’s energy security, and make the energy sector more financially sustainable. Meanwhile, Russia did not give up on threatening Ukraine’s energy sector. A couple of times, Russia-associated hackers attacked Ukrainian energy. In some cases, these attacks even resulted in blackouts, as it was in late 2016.
However, the path of energy reforms has not been smooth during all the years. In some periods, when energy security risks were not critical, different governments were tempted by paternalistic expectations and populistic steps. Mostly, that was about avoiding or postponing introducing unsubsidized prices for households. In fact, in the case of households, except for a short period, the country did not see liberalized markets for households with unsubsidized energy prices.
The lack of market approaches, predictability, and transparency of the energy policy restricted opportunities and interest for new energy investments. Most of Ukraine’s energy assets were deprecated and obsolete, which defined low efficiency and high energy losses.
The start of Russia’s wide-scale invasion coincided with a test operation of the Ukrainian power system disconnected from the Russian one. An isolated mode operation had to last less than a week. It was a preparation for a future disconnection from the Russian power system and synchronization with the European network ENTSO-E. The war speeded up the process, and Ukraine did not connect back to the Russian system and instead could trade electricity with the European countries. Ukraine exported electricity when European countries tried to save gas, as Russia launched blackmailing and undersupplied gas. But as Russia started widescale air attacks on Ukrainian energy facilities in September 2022, imports from the EU helped Ukrainians to survive.
Since the invasion, Ukraine continued energy reforms. A lot must be done yet. But the key enemies are still the same – lack of political will and populistic temptations on the one side and Russia trying to take control over Ukraine on the other. Despite all odds, Ukraine has changed its energy regulations and the sector since the Revolution of Dignity. Ukraine has been withstanding Russia and its aggressive policy for more than ten years. These ten years prove that Ukraine deserves future support as the Ukraine defense itself and its right for the European future.