Disarm Putin’s energy weapon: Ukraine must connect to the EU network

Ukraine is at war with Russia. Unlike the more conventional conflicts of previous centuries, this hybrid war cannot be understood by the flags on the maps or the mere study of troop movements. Instead, it involves informational, economic, cyber, and infrastructural elements that are just as important as the results on the battlefield.

Gas has long been one of the main fronts in this war. In recent days, Russia has extended the battle front to electricity. Ukraine is generally a net exporter of electricity, but is in a tight spot. It must import more coal or electricity. The Kremlin has banned not only the export of Russian but also Belarusian electricity, because it is based on Russian fuel. Moscow even blocks Kazakh exports of coal to Ukraine via the Russian rail network.

In a quieter time in 2002, Anatoly Chubais, then CEO of RAO UES, the Russian state-owned electricity company, showed me the UES dispatch center. I was stunned. A map on a vast wall covered the whole of the former Soviet Union, showing how electricity passed from power plants to consumers. A Moscow dispatcher could shut down a power plant, for example in Ukraine.

Too little has changed. The European continent, apart from the islands (UK, Ireland and Cyprus), is divided into four different power transmission systems: Continental, Post-Soviet, Nordic and Baltic. The Nordic and Baltic transmission systems are gradually unified. But Ukraine, Moldova and other former Soviet republics still belong to the Moscow-controlled transmission system.

They must free themselves from the Russian electricity zone for reasons of national security. Moscow dispatchers no longer control the work of Ukrainian power plants, but the Ukrainian grid is still technically connected with Russia and Belarus. If it needs to import electricity, it can only do so from Russia or Belarus.

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Ukraine must move from the old Soviet network to the continental European network. It must therefore synchronize its electricity transmission network with the European Union.

Like God, the EU operates in often mysterious ways. The basis of Ukraine’s integration into the EU is its extensive Association Agreement with the EU, which entered fully into force in September 2017. But already in 2011, Ukraine joined the European Community of energy, whose task is to implement the third European energy package, which prescribed the separation of transport and energy production and marketing.

For electricity, the EU created the European Network of Transmission System Operators (ENTSO-E) in 2008. It is made up of 42 electricity transmission operators from 35 European countries, including the 27 members of the EU, all former Yugoslav republics and Turkey, but so far neither Ukraine nor Moldova.

Besides strengthening Ukraine’s national security, synchronizing its electricity transmission network with continental Europe would have many other positive effects.

This would allow Ukraine to trade electricity freely with Europe. Today, only the small western island of Burshtyn, controlled by DTEK, can do this. Ukraine is generally a net exporter of electricity, but sometimes it needs to import. If Ukraine finds itself suffering from an electricity shortage in the future, Russia will no longer be able to blackmail the country. Instead, Ukraine would simply import from the vast continental market.

Since the Dignity Revolution of 2014, Ukraine has carried out important energy reforms, but this process has been haphazard. A step towards reform has often been followed by unexpected price caps, new government subsidies or other market interference. If Ukraine integrates into the European electricity market, EU standards will block these government whims.

Another consequence would be an essential leveling of the many electricity tariffs in Ukraine. The two most obvious beneficiaries would be Energoatom and Ukrhydoenergo, the public producers of nuclear energy and hydropower, whose declining tariffs could be increased. The arbitrary regulation of consumer tariffs should also end. High green tariffs are more difficult to stop legally, but tariffs for new renewable energy producers could be moderate. Sudden or arbitrary price caps would no longer be allowed and the government would have to settle its public service obligations.

European integration would lead to a strengthening of the independence and integrity of the National Commission for Energy and Utilities Regulation of Ukraine (NEURC), which is currently not strong enough to cope with sudden ups and downs of the presidency or parliament. In 2020, the government first reduced tariffs for wind and solar power producers in Ukraine. Then he didn’t even pay the reduced rates. At present, the arrears of Ukrainian state transport operator Ukrenergo to renewable energy producers amount to almost $ 1 billion. As a result, virtually all foreign direct investment in Ukraine has ceased. Ukraine’s entry into ENTSO-E can ensure decent market rules, creating an environment where foreign investors dare to return to Ukraine.

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The three Baltic states have been discussing their exit from the Soviet electricity grid for years, but they have only partially done so. They reached a mutual agreement with the EU in 2018 and intend to complete their transition in 2025. However, their conditions are very different from those facing Ukraine. Two expensive cables worth € 1.6 billion had to be built, one to Poland and the other to Sweden, and the Baltic countries have requested EU funding to cover these costs . An additional problem was the disagreements between the Baltic countries themselves.

For Ukraine, the logistical challenges of integration should be much easier to resolve. Ukraine does not need special cables or major infrastructure investments. Instead, it needs a much needed modernization of its home network, for which it should seek international funding from the EU, the European Investment Bank, the European Bank for Reconstruction and Development and at the World Bank.

It would be quite natural for Ukraine to join ENTSO-E with Moldova, which currently has a sane and reformist government. This shouldn’t be a big deal, as Ukraine is about ten times the size of Moldova.

Ukraine and Moldova are expected to conclude an agreement with the EU to enter ENTSO-E as early as 2023. The two countries are expected to commit to carrying out the necessary electricity and regulatory reforms on time, while the The EU should commit to providing part of the necessary funding. .

The integration of the electricity grid should be seen as a geopolitical priority for Ukraine, Moldova and the European Union. It can and should be done now. Recent moves by Russia underscore the Kremlin’s willingness to use energy in its ongoing hybrid war against Ukraine. It’s time to disarm this weapon.

Anders Åslund is a senior fellow at the Stockholm Free World Forum.

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The opinions expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff or its supporters.

The Eurasia Center mission is to strengthen transatlantic cooperation by promoting stability, democratic values ​​and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia to ballast.

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Image: Power lines in a field near the Ivano-Frankivsk region in western Ukraine. (Photo by Mykola Tys / SOPA Images / Sipa USA)

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