Ukraine's power sector is the twelfth-largest in the world in terms of installed capacity, with 54 gigawatts (GW). Generation and consumption fell sharply since independence, but they have increased since 2000 (see Fig. 3). EIA estimates that Ukraine generated 177 billion kilowatt hours (kWh) of electricity. The country is currently in the process of revamping its electricity sector, through privatization, increased utilization at existing facilities, and the completion of two new nuclear plants (see below).

In Ukraine, thermal power plants (oil, natural gas, coal) account for nearly 50 percent of generation, with nuclear power generating another 45 percent, and hydroelectric generation accounting for approximately 5 percent (see Fig. 3). Ukraine has sufficient generating capacity to supply more than twice its electricity needs. However, the country's transmission and distribution systems are in need of investment and maintenance. Also, several of the country's nuclear facilities are intermittently shut down throughout the year for technical problems.

With the surplus electricity, in 2006 Ukraine increased electricity exports by almost 25 percent, or by over 2 billion kWh compared to 2005 according to the Ukrainian Energy. After the completion of two new nuclear reactors (see below), Ukraine signed a deal with RAO UES, Russia's main electricity supplier, to supply 500 million kWh of power per month to Russia at a price of $.014/kWh.

The World Bank has been working with Ukraine on energy sector reform and has published a number of different studies on the effect of natural gas price increases on both the rest of the economy and in the electricity sector. Electricity sector reform and infrastructure development is one of the main components of the EU-Ukraine Action Plan, and the World Bank will be spending over $200 million in upcoming months to rehabilitate transmission substations, expand the transmission network, and stabilize the Crimea electric power grid, among other institutional and administrative reforms. More information is available at the World Bank’s project webpage.

Ukraine signed a contract to supply 2.5 billion kWh to Belarus during 2006 and stands to make $50 million from the contract. Ukraine also exports electricity from the Burshtyn thermoelectric power station to Moldova, Slovakia, Poland, and Hungary. It started exporting electricity to Romania in March 2005. The Burshtyn thermoelectric power station and part of Ukraine's western energy system have been connected to UCTE energy system of Europe since July 2002. EU officials met with Ukrainian energy officials in Kiev in early 2006 to discuss plans to fully integrate Ukraine’s electricity grid into the UCTE by 2008.

Ukraine currently has four operating nuclear power plants. These plants have a combined capacity of 12.8 gigawatts, accounting for approximately 24 percent of the country's total power-generating capacity.

On December 15, 2000, Ukraine permanently shut down the 925-MW, Unit 3 at the Chernobyl power plant, disabling the last remaining working reactor at the ill-fated facility. To replace the power generated by Chernobyl, which Ukrainian officials say accounted for approximately 5 percent of the country's total, Ukraine resumed construction of two 1-GW reactors at the Khmelnitsky and Rivne power plants. The construction of Khmelnitsky Unit #2 and Rivne Unit #4 began under the Soviet Union, and both were more than 80 percent finished when Ukraine received its independence and ran out of money to complete them. After financing from the EBRD was placed on hold, the Ukrainian government completed the reactors on its own and connected them to the electricity grid in August and October 2004, respectively.

During President Yushchenko’s previous administration in 2000/2001, privatization of the electricity sector was one of his key objectives and resulted in the sale of six distribution companies. AES, based in the United States, won 2 of the 6 tenders and is now the only foreign investor in the sector. Currently, only six Ukrainian distribution companies have been fully privatized, and 20-45 percent stakes in nine other utilities were sold in 1997-1998. Further privatization of the sector is not currently planned.

Map 3: Ukrainian Electricity Sector Infrastructure

Other problems hinder the full development of a deregulated market in Ukraine. First, there is a high level of transmission losses; in recent years, these have increased from 8 percent to 17 percent (compared to around 3 percent in the United States, see Fig. 5). Again, only six of those companies have begun the process of privatization, and the Ukrainian government has been reluctant to give new buyers more than a minority stake in the companies. There are also worries that the government will not receive enough compensation for the sale. Also, the industry itself is in debt from a long history of problems which stem from insufficient collection mechanisms during the 1990s. Distribution companies owe $3 billion in debt to the wholesale market. The combination of poor networks, high losses, corruption, and pressure to keep current tariffs low has created inefficiencies in the market and muted the necessary price signals.

Despite all these obstacles, market operators have made some progress. In 1999, cash payments for electricity purchased in the wholesale market represented only 7-10 percent of the actual value of electricity. By 2005, most distribution companies were paying back 100 percent of their electricity purchases and were beginning to pay back debt.