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26 April 2021

Energy sector of Ukraine: main changes

On 15 April 2021, Verkhovna Rada of Ukraine (the “Parliament”) adopted the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Certification of the Transmission System Operator” (the “Law On Certification”) based on the Draft Law No. 3364-1-д dated 01.02.2021.

Although from the title of the Law on Certification it is obvious that it regulates certification of Ukrainian transmission system operator (the “TSO”), Ukrenergo, the document itself contains a number of other important changes to the Electricity Market Law of Ukraine and other laws. We summarise the main changes below.

Certification of Ukrenergo

According to obligations on implementation of the Third Energy Package, Ukraine was obliged to perform unbundling of the TSO (Ukrenergo) in accordance with the model of Ownership Unbundling (the “OU”) with its certification in the National Energy and Utilities Regulatory Commission of Ukraine (the “NEURC”) on the basis of the conclusion of the Energy Community Secretariat.

In 2019, Ukrenergo received a preliminary decision on certification from NEURC. However, in February 2020 the Energy Community Secretariat provided:

  • a conclusion that Ukrenergo could not be certified under the OU model, given specifics of the Ukrainian legislation; and
  • proposals for working out the issue of amendments to the Electricity Market Law regarding introduction of the unbundling model – the Independent System Operator (the “ISO”) for the TSO on the electricity market.

For this reason, the Law on Certification includes amendments to the Electricity Market Law regarding introduction of the ISO unbundling model. Thus, according to the Electricity Market Law, the following entity can be certified as TSO:

  • the owner of the transmission system (OU model), or
  • a state enterprise (or a business entity with all of its authorised capital belonging to a state enterprise) which received the right of economic management of the state ownership objects used to carry out activities for the electricity transmission (ISO model).

Thus, Ukraine amended its legislation to provide Ukrenergo with an opportunity to fulfill all organisational and operational requirements established by the Electricity Market Law for its unbundling and certification as TSO, and then go through the certification procedure.

Rules on managing restrictions v. Rules on managing overloads

It should be noted that the Law of Certification replace the concept of “restrictions management” with “overload management”.

The “overload” is defined by the Law on Certification as a situation in which an interstate interconnection (due to its insufficient capacity) and/or the electricity transmission system, cannot accept all physical flows of electricity.

Methods (principles) of overload management used by the TSO during prolonged frequent overloads, including coordination of interstate interconnection’s capacity calculation, must be agreed in advance with the TSOs of neighbouring states.

Procedure for distribution of interstate interconnection’s capacities shall be:

  • drafted by the TSO and agreed with the relevant TSO of the neighbouring state – a party to the Energy Community, and may contain special regional conditions (applicable in the relevant region or at the corresponding crossing);
  • approved by NEURC.

TSO agrees on the capacity allocation structure for different time periods with:

  • TSO of the neighbouring state – in case of implementation of a joint coordinated procedure for allocation of the capacity
  • NEURC – in the absence of a joint coordinated procedure for allocation of the capacity

Possibility of using a single currency when applying joint coordinated procedures for the distribution of the interstate interconnection capacity with an adjacent TSO was noted.

Definition of the term “energy storage system” is established

There is no regulation of energy storage systems in Ukrainian legislation. Introduction of the term and its definition in the Electricity Market Law is an important step for the development of a regulatory framework on this issue.

According to the Law on Certification, energy storage system is an electrical installation, including energy storage equipment, engineering structures, energy conversion equipment and related auxiliary equipment, which is connected to the transmission system or a distribution system of electricity or power plant networks, or consumer networks for the purpose of taking electrical energy, accumulation, transformation and storage of energy, as well as further supply of electricity to the transmission or distribution system or in the power plant network, or in the consumer’s network.

Limitation of interstate interconnection capacity by NEURC

The Law on Certification extended the NEURC’s authority to limit daily and monthly available capacity, as well as to cancel the results of the annual auction which is used for limitations of electricity import between Ukraine and the states that are not parties to the Energy Community, for 2021. NEURC had the same authorities before, but they expired at the end of 2020.

Conclusion:

The Law on Certification introduces ISO model for TSO unbundling and an updated approach to the interstate interconnection capacity regulation. It also extends the term of a number of authorities on the electricity market, including to limit the interstate interconnection capacity and to cancel results of the capacity annual auction, as well as other state entities’ authorities, and amends a number of other laws of Ukraine.

To avoid being negatively impacted by the current or expected legislation changes and to take advantages provided by the legislation changes, you can contact the SK Energy practice team:

  • to get a qualified advice regarding advantages from the implementation of amendments to the Electricity Market Law
  • to analyse your current business strategy in the electricity sector, avoid risks and take advantages provided by the legislation
  • to audit your possible risks and benefits in the current situation

Information contained in this legal alert is for the general informational purposes only, does not constitute legal or other professional advice and should not be relied upon as a substitute for specific professional advice adapted to the specific circumstances.

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