Feb. 18, 2019

How business will be buying energy in 2019. Contracts and terms

 On 31 January 2019 Ukraine’s energy market started changing. In December consumers were already getting notices on changes in electric power suppliers as well as persistent proposals to sign new contracts.

All these changes are brought by the Law of Ukraine "On the Electricity Market" and supplementary acts to it. The full launch of the market is scheduled for 1 July this year. However, certain provisions of that law have already become mandatory for market players.

What business should know about the energy market reform and how to prepare for change 

  1. Oblenergo companies, from which you used to buy electricity before, have been divided into two companies. One of them is now supplying electricity while the other is engaged in its distribution and maintenance of electricity grids. Thus, to purchase electricity, your firm needs two contracts, one for each company.
  2. The number of suppliers in the market has increased. 300 energy companies have licenses to supply electricity to consumers. This lets you choose from one of three options for purchasing energy:  
  • under "universal service" contract: among legal entities, "small non-households" with installations consuming up to 50 kW are eligible for this. The rates for universal service are set by the National Commission for State Regulation in the Energy and Utilities and consist of the wholesale price of electricity, the supplier’s margin and the share of the distribution system operator (fee for the delivery of electricity). You can find the universal service prices here: http://www.nerc.gov.ua/?id=37483
  • under contract of electricity supply to consumers: at free market prices and under terms specified in the supplier's business offer. These terms can differ by price calculation formulas, prepayment terms, penalties, etc.
  • under bilateral contracts with the supplier or producer of electric power, on "exclusive" conditions determined through negotiations.

What the consumer should definitely do in the new market is abandon the status of victims in need of protection and instead learn about their rights and options and exercise them.

Study the suppliers’ business offers carefully, don’t just sign them. Pay extra attention to the price formula, prepayment terms and penalties:

1. The supplier's price formula usually includes the purchase price of electricity on the wholesale market and the supplier’s margin. In its turn, the wholesale price can be based on the average wholesale market price for that day, which on this date is 1,618 UAH for 1 MWh, or on the per hour cost of electricity on the wholesale market (which in January ranged from 743 to over 2,000 UAH for 1 MWh).

That is, by choosing a per hour business offer, you can agree with the supplier on something similar to the "night" rate. Same results can be achieved by purchasing energy on the wholesale market.

2. Payment terms contained in suppliers' business offers usually require a prepayment. Study these provision carefully. Some suppliers require consumers to calculate the amount of prepayment on their own based on the previous month indicators and regardless of the receipt of bills that arrive at the end of the calculation period and reflect actual consumption.

If you subscribe to such terms and wait for the bill, you will make it possible for your supplier to impose penalties on you for late payments.

On the other hand, companies that take the time to examine business offers will be be able to avoid unnecessary costs, plan expenses and negotiate the best terms with suppliers, depending on their levels and schedule of consumption.

Keep in mind though that while negotiating and searching for the best terms, you should not ignore existing proposals entirely. If a company has no signed contract on power supply or universal service, it will be referred to the backup supplier - Ukrinterenergo state enterprise - which is 25% more expensive than universal service.

To better prepare consumers for the new power market, ILF and the All-Ukrainian Sustainable Development and Investments Agency started the Energy Literacy project.

During the webinar "Acquisition of electricity for business under the new rules" we talked about the pitfalls that companies may encounter as power consumers and how to recognize and avoid them - see the link: https://ilf.space/buy.electricity