Energy paradox: will fixing the electricity tariff be a salvation or a hidden burden for Ukraine?

Imagine a state that, under constant enemy fire, is fighting for its existence, rebuilding what was destroyed every day and striving for stability. In this struggle, the energy system becomes not just infrastructure, but a vital artery pulsating with light in the darkness. Against the backdrop of these challenges, when every Ukrainian feels the burden of war, the issue of electricity tariffs becomes particularly acute. Is it possible to find a balance between the need to restore the destroyed infrastructure and maintain the availability of electricity for millions of households? The proposal to fix the price of electricity until the end of martial law and for a year after its end is not just an economic solution, but an attempt to respond to this complex challenge facing Ukrainian society.

Tariff Maze: Current Status and New Initiative

Currently, Ukrainian household consumers pay for electricity at a single fixed tariff of UAH 4,32 per kWh. This price was set by the Cabinet of Ministers of Ukraine from June 1, 2024 and is 64% higher than the previous tariff of UAH 2,64 per kWh. The government extended the validity of this tariff until October 31, 2026. However, what will happen next remains a question that worries millions of Ukrainians. It is this uncertainty that has become the impetus for the emergence of an electronic petition registered on the website of the Cabinet of Ministers of Ukraine, which proposes to fix the electricity tariff at the level of UAH 4,32 per kWh for the entire period of martial law and for another 12 months after its termination.

The petitioners emphasize that the constant extension of the tariff for short periods creates uncertainty for families, pensioners, communities and businesses, who cannot plan their expenses and budgets in the face of constant changes. They also propose to introduce a preferential price of UAH 2,64 per kWh for households with electric heating, as well as houses without gas and centralized heating for the entire heating season. In addition, the petition calls on the Cabinet of Ministers not to increase tariffs without first introducing targeted assistance for vulnerable households and to automatically provide a preferential tariff for electric heating without the need to submit applications and certificates. An important demand is also a ban on disconnecting electricity for debts in regions where consumption restrictions are in place, and permission for interest-free debt restructuring for the period of martial law.

The Ministry of Energy of Ukraine previously stated that no automatic tariff increase is expected from November 1, and the mechanism of imposing special obligations (PSO) continues to operate. The transition to market pricing is planned to be considered after the end of martial law. Prime Minister Denys Shmyhal also stated that electricity prices for the population will remain unchanged at least until the end of 2026. However, as the authors of the petition note, the lack of a legally binding document that would guarantee the preservation of the tariff after October 31 creates a sense of uncertainty.

Economic realities: why tariffs are more than just numbers

Raising electricity tariffs in Ukraine is not just a government desire, but a forced step, driven by deep economic realities exacerbated by a full-scale war. Energy Minister Herman Galushchenko emphasized that raising the tariff is a difficult but necessary step to maintain the energy system and carry out large-scale reconstruction, which requires enormous efforts and funds. Russia is systematically destroying Ukraine's energy infrastructure, and these attacks, unfortunately, will continue, requiring the use of all possible resources. According to him, the previous tariff of UAH 2,64 covered only a third of the real cost of electricity.

Total losses in Ukraine’s energy sector as of May 2024 exceeded $56 billion, of which over $16 billion is direct damage. More than 70% of generating capacity has been lost or occupied, including the Zaporizhzhia NPP and the main thermal power plants. This creates a colossal deficit of financial resources for restoration. The Director of the Energy Research Center, Oleksandr Kharchenko, called the main problem for restoring electricity generation capacity precisely the lack of money. The energy sector is in a situation where it is “absolutely without money, huge debts, complete lack of financial resources.” This applies to both private and state-owned companies.

It is important to note that the increase in electricity tariffs for the population in 2023 and 2024, according to the temporary special commission of the Verkhovna Rada, was carried out without proper economic justification. The parliamentarians state that the tariff revision took place in violation of the laws “On the Electricity Market” and “On Prices and Pricing”. They also believe that the deficit of Energoatom funds was formed due to “artificial” depreciation charges and other operating (intangible) costs.

Who bears the burden? Balance of interests and social justice

The fixed tariff for the population is supported by the mechanism of imposition of special obligations (PSO), which is financed by two state-owned companies - Energoatom and Ukrhydroenergo. These companies bear an additional financial burden to maintain tariffs for the population. However, such a system leads to the accumulation of debts by these enterprises, which, in turn, creates a financial crisis in the energy sector and prevents other energy companies from preparing for the heating season. For example, Energoatom's debt to the Guaranteed Buyer and electricity suppliers reached UAH 27 billion, of which about UAH 19 billion is funds that the system operator Ukrenergo did not receive from the transmission tariff. These debts, in turn, lead to the formation of debts to "green" generation, which will play a significant role in the energy security of individual regions.

On the other hand, business consumers have long been operating at market tariffs, which range from UAH 8,00 to UAH 11,00+ per kWh depending on the region, voltage class and selected supplier. This creates a significant burden on industry, which is also suffering from the war. Experts emphasize that changing tariffs in the energy sector requires transparent justification and assessment of the consequences for business.

The International Monetary Fund (IMF) proposes that Ukraine begin a gradual increase in tariffs for natural gas and electricity for the population from 2027. The memorandum of cooperation with the IMF emphasizes that any changes in tariff policy should occur only after the creation of an effective system of targeted assistance for socially vulnerable households. The IMF believes that gradually bringing tariffs to market levels will help ensure financing for the restoration of energy infrastructure, reduce the debts of energy sector enterprises, and reduce hidden budget subsidies.

The Burden of War: Restoring Energy Infrastructure

The Ukrainian energy sector has suffered over 1000 strikes on energy facilities since the start of the full-scale aggression, resulting in the loss of a significant portion of generating capacity. Restoring this infrastructure is not just a repair, but a large-scale reconstruction and modernization that requires huge investments and time.

Key challenges hindering effective recovery include:
* Financial deficit: As already noted, energy companies are experiencing an acute shortage of funds. Although there are initial signals of grants from the World Bank and loans from the EBRD, this is not enough for a full recovery.
* Bureaucracy and corruption: Journalists drew attention to the problems with the restoration of energy facilities at key enterprises in the industry - Energoatom, Ukrenergo, and Ukrhydroenergo. In particular, in 2023, the government approved the allocation of UAH 9,7 billion to Ukrenergo for the protection of substations, but due to bureaucratic reasons, the money has "stuck", and the repairs have not yet taken place, and the amounts are growing. Similar events are observed at Ukrhydroenergo, where money for the restoration and protection of systems is "flowing like a river", but the result is not visible.
* Equipment shortage: Despite the ability to find almost any type of equipment on the market, the process of purchasing and delivering it is complicated, and engineers often “do the same repair for the 15th time.”
* Decentralization of the energy system: One of the strategic directions is the transition from a centralized to a decentralized model of the energy system, which will increase its resistance to attacks. This involves the development of small-scale generation and energy storage systems, as well as the active involvement of renewable energy sources.

International context: lessons and support

Ukraine is actively integrating with the European energy market, becoming a full member with voting rights in the European ENTSO-E network. This provides additional opportunities for electricity exports and imports, which is critically important in conditions of shortages.

International partners are providing significant support to Ukraine in restoring its energy infrastructure. However, as Oleksandr Kharchenko, director of the Energy Research Center, notes, “so far these are only the first drops. We need a powerful stream in order to receive enough resources for restoration.” The success of restoration depends on effective support for the sector through the combined use of bank lending, state aid, and international investment.

Future horizon: what awaits Ukraine's energy sector?

The issue of electricity tariffs is just one aspect of the complex puzzle that Ukraine is solving in the context of war. The long-term recovery strategy involves a radical transition to a decentralized energy system model, the development of renewable energy, and ensuring energy-efficient consumption.

The government has already stated that a transition to market pricing for the population will be considered only after the end of martial law. However, even after the war, this transition should be gradual, economically justified, and accompanied by expanded subsidies and targeted support for vulnerable households.

Currently, the main emphasis is on the fact that no sharp price jumps are predicted, and all changes will be as predictable as possible for consumers. The Cabinet of Ministers calls on citizens to focus exclusively on official messages and not to give in to panic.

Freezing the electricity tariff, as proposed in the petition, may provide temporary relief for the population, but does not solve the underlying problems of the energy sector. It is important to find a balance between social protection and the need to finance reconstruction and modernization so that Ukraine can emerge from the war with a strong and sustainable energy system.

Sources

1. Current time information in Ukraine.
2. They propose to freeze the electricity tariff at UAH 4,32 until the end of martial law and for another year – Censor.NET
3. Tariffs for residential customers
4. The Cabinet of Ministers has set an electricity tariff for the population of 4,32 UAH/kWh from June 1 - First Deputy Chairman of the Rada Energy Committee - Interfax-Ukraine
5. Tariffs for electricity and light in Ukraine today – Bankchart.com.ua
6. The government increased the electricity tariff for the population to 4,32 UAH/kWh
7. Electricity tariffs are proposed not to be increased until martial law is ended: what price do they want to leave – sud.ua