A debate is gaining momentum on the Ukrainian energy market over how justified state intervention in electricity pricing is. At a briefing, ICC Ukraine Vice President for Energy Affairs, Oleksandr Trokhymets, stated that the existence of price limits — so-called price caps — set by the National Commission that performs regulatory functions in the energy and public services sector (NRECU) may provoke a shortage of supply during certain hours and ultimately harm end consumers. In his words, if the cap set by the regulator is too low, it becomes economically unprofitable for producers to sell electricity during peak hours, which leads to a narrowing of supply on the market.
How Price Caps Distort the Market Mechanism
Trokhymets explained that price caps are upper price boundaries that the market cannot exceed. "The National Regulatory Commission sets so-called price caps — these are boundaries that cannot be crossed. And during certain hours, the presence of these price caps results in a lack of supply," the expert emphasized. Under such conditions, it is simply unprofitable for producers to enter the market: the margin does not cover generation and transmission costs, and as a result, volumes shrink during peak periods. A shortage arises, which ultimately falls on the shoulders of consumers — both industrial and household.
Price Should Be Formed by the Balance of Supply and Demand
In Trokhymets's view, electricity is a commodity, and its price should be determined by the market mechanism, i.e., the balance of supply and demand. The problem arises when the upper limit set by the regulator does not allow the market to respond adequately to rising demand or falling supply. As a result, the price signal that in a normal market economy would encourage producers to increase generation during shortage hours is blocked. The market ceases to perform its coordinating function, and in its place comes administrative regulation, which, according to ICC Ukraine, contradicts the logic of the energy sector reform.
Imports from Europe and Artificial Barriers
Previously, the former head of Ukrenergo, Volodymyr Kudytskyi, also pointed out that price limits on the Ukrainian energy market are absolutely artificial and prevent the full use of electricity imports from Europe. In conditions where price caps do not allow the price to reflect the real cost of cross-border generation, Ukrainian consumers are deprived of access to cheaper or, conversely, to the necessary volumes of imported energy. This is especially relevant in the context of restoring the energy system after years of infrastructure damage and the need to diversify supply sources.
Contradictory Data
At the same time, other assessments are also heard in the public sphere. In particular, in one of his statements, Trokhymets noted that industry continues to operate even after the price caps were changed, despite loud statements about possible plant closures. This creates a certain inconsistency: on the one hand, experts warn of the risks of a supply shortage and harm to consumers, while on the other — the actual dynamics of industrial consumer load does not yet demonstrate catastrophic consequences from the price limits. Perhaps this is a time lag between the introduction of new price caps and their real impact on the behavior of generating companies, or perhaps the current levels of limits have not yet reached the critical point beyond which the market begins to "slip" in volumes. Nevertheless, the very fact of the existence of an administrative price ceiling, in the opinion of ICC Ukraine, is a systemic obstacle to the full functioning of the market.
What's Next: Expectations from the Reform
ICC Ukraine experts consistently advocate for the removal of artificial price limits and a transition to full market pricing, in which the price in each hour reflects the real ratio of supply and demand. In their view, this will not only eliminate the risks of local shortages but also create incentives for investment in generation and grid modernization. However, the question of when and to what extent NRECU is ready to review the current price cap model remains open as of the time of writing. For consumers, the key question remains: is it acceptable for an administrative decision by the regulator to ultimately make electricity less affordable precisely during the hours when it is needed most.
