Electricity market reform in Belarus

Electricity market reform in Belarus

In this analysis by Evgeny Makarchuk, the operation of the Belarusian energy system was described, including the power supply system, the demand for electrical energy, and the structure and efficiency of the production of electrical and heat energy.
Photo by Matthew Henry on Unsplash

Belarus is the last country in regions that didn’t reform energy system and now archaic structure can’t respond to actual calls such as decentralization, integration RES, and deep decarbonization. The system can’t dynamically develop in its current state and the technological gap between the Belarusian energy system and energy system other countries will rise. Currently, the reform of the energy system is impossible by a political and ideological view Lucashenko regime. But after the change political situation, reform is needed for the normal development energy system in the context of energy transformation and the possibility of energy shocks from the supply side.

In this analysis, the operation of the Belarusian energy system was described, including the power supply system, the demand for electrical energy, and the structure and efficiency of the production of electrical and heat energy. The regulatory framework and key energy policies were also considered. As a result of the analysis, it was determined that a significant limiting factor in the development of the energy system is the organizational structure of management in the form of a vertically integrated monopoly with partial de-monopolization of electricity production.

This situation, together with the electricity cross-subsidy system, creates a stimulus for businesses to generate their own electricity. But new independent electricity producers (IEP) make the energy system less flexible and robust given the lack of quality in the regulatory framework. As a result, Belenergo, having access to and employing the Ministry of Energy as an administrative resource, resorts to regulatory restrictions on the commissioning of new capacities. An example is the creation of additional requirements for the new IEP unit commission.

We can conclude that energy sources of various forms of ownership in the energy sector of Belarus work under different economic conditions, which causes discrimination against some producers. To solve the problem with IEPs, equality of operating conditions for power plants must be ensured, regardless of the form of ownership. The result of this analysis has been the development of 5 steps to reform the energy system, which will allow for the transition from existing conditions to an electricity market, thereby eliminating barriers to the development of the energy system.

After reviewing international experience in electricity market reform[1],[2],[3], we can recommend the following:

 In the Belarusian context, it is recommended to create an electricity market as a single goods market (without a power market). After the NPP is commissioned the Belarus energy system will have enough untapped capacity. This unused capacity ensures a reliable supply of electrical energy. 

From the point of view of pricing in Belarus, a zone principle of pricing is more appropriate. The Belarusian energy system has a developed network infrastructure that allows for the transmission of electrical energy anywhere in the country when generated at any power plant without a significant increase in losses in the networks.

According to the type of markets in Belarus, it may be necessary to create all the following types of energy market:

  1. a market of long-term contracts is needed as a basis for stabilizing the price of electricity in the long term
  2. next-day market – necessary to ensure the planning and preparation of energy capacities in the system’s work for the following day
  3. balancing market – necessary to maintain the quality of electrical energy and ensure the reliability of energy supply
  4. services market – necessary to ensure the normal functioning of the financial component of the electricity market
  5. reserve capacity market – the need for this market needs to be described in more detail

The Belarusian power system is characterized by a large share of unregulated capacities (such as the nuclear power plant and CHPs) and a small residual load share that is filled with regulated capacities. As a result, the power system does not have enough regulated capacity in the operating mode that could compensate for the deviation of the other unit’s power from the planned values. Given this, special requirements are imposed on the reserve. Consequently, additional measures must be taken to ensure the reliability of the energy supply. To ensure the necessary level of reserve in the energy system, it is recommended to create the option of forming a market for a reserve. At the same time, regulated power units will receive additional financial support to units in spinning reserve mode and power units with variable capacity (WPP and PVs) will be able to buy reserves for their capacities, moving to the state of reliable suppliers. This will further eliminate subsequent administrative pressure on sources of this type in light of the desire to limit their capacities and impact on the energy system.

The power reserve market will also be able to provide incentives for the development of energy storage systems.

In the process of creating an electricity market, the main task must be kept in mind: to ensure equal conditions for the functioning of generators of various forms of ownership. The result of ensuring equal conditions will be the development of competition and, as a result, a decrease in the cost of electricity. However, the market also carries certain threats. In the case of low liquidity, if one of the participants in the electricity market receives significant market power (the share of production of one or more market participants will be sufficient to manipulate the price of electricity), this can lead to the destruction of the market and an increase in the cost of electricity.

To avoid this situation, two things are necessary – high-quality regulation of the electricity market and maximization of market liquidity. 

In the Belarusian context, both factors are important. The experience of development in recent years has shown that the Belarusian authorities do not have experience in quality regulation without direct interference in the work of organizations. At the same time, the structure of electricity generation does not allow for the creation of a liquid electricity market by simply dividing generating capacities among different companies. 

Regardless, the forming of a liquid electricity market at this stage must begin with the formation of a high-quality regulatory framework.

Step 1: Regulator Creation

The initial stage of creating an electricity market is the formation of a regulator of the electricity market.

The main functions of the market regulator are electricity market regulation based on a non-discriminatory approach and monitoring of the market situation to identify non-market behavior of participants.

The regulator of the electricity market should be as independent as possible. This is usually achieved by creating a regulator in the form of an NGO with collective management, the owners of which are large generators, grid companies, consumers, and a representative of the state. Financing of the regulator should be provided through a surcharge to the tariff for electric energy established by the antimonopoly authority.

Step 2: TSO creation

It is important to understand that an independent dispatcher is one of the main steps towards building an electricity market. Therefore, without the creation of a truly independent dispatcher of the energy system, the normal development of an electricity market is impossible. It is needed to guarantee non-discriminatory loads distribution. 

The main functions of the dispatcher are dispatching the power system operation mode, including the generator and network segment and calculation, and coordination of opportunities for the import and export exchange of electricity.

It is assumed that the dispatching organization will be a legal entity. The organization should be financed through a tariff established by the antimonopoly authority and is a surcharge to the tariff for electric energy.

The management of the organization will be carried out by the director, who is appointed through a decision of the market regulator. 

Non-interference in the activities of the dispatcher is determined by law. Dispatching control of the energy system is conducted based on public regulatory acts, which are developed by the regulator of the energy market and approved by the Ministry of Energy. It is not recommended to combine the functions of dispatching control with the functions of the network operation. Belarus has a positive experience in the separate work of the dispatcher.

Step 3: Transition to the “procurement agency” model

The financial balance of generating and grid companies must be separated, and electricity transition and distribution tariff must be regulated by an antimonopoly body. 

Legal entity BelGeneration, which includes all power capacities of SPA Belenergo, should be created. Regulation of the tariff for the purchase of electricity from BelGeneration will be conducted by the antimonopoly authority. The share of BelGeneration will be extremely high, such that it will be a monopoly player in the market. Therefore, the electricity production from a monopoly player must be regulated by the antimonopoly body.

An IEP that can produce electricity cheaper than BelGeneration will have guarantees that they can sell the electricity. This tariff will be a key price signal for the creation of capacities by private investors. If there is an opportunity to supply electricity to the network at a price lower than the tariff, it is a signal for investing in new capacities.

At the same time, due to the current cost of generating electricity from renewable energy sources, they do not need financial support and will compete on the market on equal terms.

Step 4: Poll model creation

Most countries regulate the cost of electricity from nuclear power plants and СHPs through an antimonopoly body. The structure of the energy system capacity of Belarus shows that for a significant portion of the year minimum electricity power will be higher than the electricity load. These issues will be solved through electricity boilers. But overproduction of electric energy at CHP and NPPs will lead to the fact that for a long period of time the cost of electricity will correspond to regulated tariffs.

At the same time, residual generation (except for nuclear power plants and CHPs) will remain insufficiently large to ensure effective market price regulation. The difficulty of determining the functioning of the electricity market is in the fact that the production of electricity changes during the year and from hour to hour. As discussed above, the energy system will experience periods of overproduction of electrical energy, which means that essentially during this period the cost of electric energy will be determined by tariffs. A good functioning wholesale market in these conditions is impossible.

The timing of the start to this stage will be determined not only by solving the tasks of the previous stage but also by ensuring the necessary external conditions both inside the energy system and outside it. This can occur due to an increase in electricity consumption and a decrease in the CHP capacity with the replacement of heat supply by other technologies.

Based on the modeling of the electricity market, BelGeneration must be further divided. NPP and CHP must also be allocated separately.

Large units connected to networks of 110 kV and above will also participate in the wholesale electricity market. 

It is expected that by that time the share of IEP (in fossil fuels and renewable energy) will be significant. 

The distribution networks of the region should be divided into 6 companies that will be wholesale players to provide electricity to the population and small organizations with connections from networks below 110kV. They will own the distribution networks. The distribution tariffs for these companies will be regulated by the antimonopoly authority. At the same time, they will be able to purchase electricity not only in the wholesale market but also by concluding direct contracts for the supply of electricity. This will stimulate the development of distributed generation in the areas of their work. 

The transmission grid will be operated by one grid company. The main task of the grid company is to ensure the transmission of electrical energy. It will retain a monopoly on the transmission of electricity, but the transmission tariff will be regulated by the antimonopoly authority. 

Consumers supplied directly by the transmission grid (110 kW and above) will have access to the wholesale market.

Step 5: Retail market

At this stage, the normal operation of clearing companies must be ensured, and the functions of electricity sales and distribution must be divided. After such a division, sales companies already working can be participants in the electricity market independent of their location and form their own pricing policy depending on prices in the electricity market.


The key problem of the development of the energy system is the difference between the legal and real state of the energy system. In fact, the energy system operates as a procurement agency, but legal regulation is carried out as if it is a vertically integrated company with a monopoly on the production of electrical energy. The initial solution to this problem is ensuring that the legal and real conditions correspond to the further transition to the electricity market. To form the electricity market,5 steps are proposed, of which the 3 first steps can be taken in a short period of time without restrictions on external conditions. The fourth and fifth steps should be taken when certain external conditions are met.

The article was prepared by a participant of the SlovakAid scholarship program, Evgeny Makarchuk. The mentor of the Energy transition program was research fellow Veronika Oravcová


[1] ELECTRICITY MARKET REFORM: An IEA Handbook – https://iea.blob.core.windows.net/assets/10ec1ae6-f4ba-449f-8988-c0d7a45a89f4/ElectricityMarketReform.pdf

[2] COMPETITION IN ELECTRICITY MARKETS – https://iea.blob.core.windows.net/assets/a2ebe026-aff4-4e1a-951b-8b647f7ef3e3/CompetitioninElectricityMarkets.pdf

[3] http://www.np-sr.ru/market/wholesale/index.htm