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Price policy and market power of electricity producing companies

B. Serebrennikov

Economy and Forecasting, 2017, issue 3, 56-68

Abstract: Ukraine's electricity market can be considered as rigidly regulated by the state, low competitive and inefficient, and such that does not fulfill its main functions: regulatory, distribution, stimulating, informational ones etc. Its transformation in the context of European integration of the national economy requires the creation of an institutional environment that would enhance its openness, transparency and competitiveness at the expense of domestic and foreign sources and improved government regulation of economic relations on it. The purpose of the article is to assess the state of price competition in Ukraine's electricity market, the level of market power of the electricity producing companies and other market participants in terms of pricing and regulation of electricity prices. The methodological basis of the study is the institutional and behavioral approach to the definition and analysis of institutional conditions, in particular regarding the freedom, restrictions and government regulation of economic activities of the power generating companies on Ukraine's wholesale electricity market, assessment of the preconditions for the emergence and availability of market power in determination of electricity prices and implementation of price policy. The presence and abuse of market power of the electricity producing companies was assessed using a comparative analysis of their profitability. It has been determined that current conditions and rules of functioning of Ukraine's electricity market essentially determine the freedom of economic activities of power generating companies as regards pricing. In fact, the power generating companies are price-takers and have a limited impact on the terms of goods turnover on the market. Instead, the main players on the market with the highest market power are the government bodies, namely the energy regulator and the corresponding ministry. This situation can be characterized as an institutional monopoly. Assessment of the profitability of power generating companies in Ukraine according to Lerner coefficients and EBITDA margin indicates that they have no extra high yield (monopoly rent) compared to average industry indicators of Ukraine and groups of countries, which indicates their lack of market power or abuse of a dominant position on the market.

Date: 2017
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