Ukraine Is Looking Forward To New Electricity Market

On 13 April 2017 the Parliament of Ukraine adopted the Draft Law of Ukraine "On Electricity Market" No.4493 (the "Draft Law"). The Draft Law awaits the signature of the President of Ukraine and its official publication. The full scope implementation of a new market model will be introduced gradually.

The Draft Law foresees liquidation of the Whole Sale Market of Ukraine and provides for a new electricity market launching on 1 July 2019 based on the following trading platforms, or "markets", in particular the (a) market of bilateral agreements; (b) day-ahead market; (с) intraday market; (d) balancing market; (e) market for ancillary services and (f) retail electricity market. Such liberalized electricity market will result in a much more flexibility, competitive electricity prices and improvement of service quality.

The Draft Law fully implements the "unbundling" requirement of the Energy Community. The Draft Law determines the activities that are to be conducted on electricity market and attributes certain competences to various market participants: electricity generation (Power producers), electricity transmission (Transmission System Operator), power distribution (Distribution System Operator), sale and purchase of electricity (Market Operator), supply to end consumers (Suppliers) and resale of electricity (Traders). All activities require obtaining a license from National Commission for State Regulation in the Energy and Utilities.

A separate regime will apply to electricity produced from alternative energy sources. Renewable energy producers being part of a specially created balancing group shall sell the electricity to Guaranteed Buyer under the bilateral contracts at the "green" tariff (i.e. feed-in tariff). The difference between the "green" tariff and the price of electricity will be reimbursed to the Guaranteed Buyer by nuclear power plants until 1 July 2020 and until 1 January 2030 the Transmission System Operator.

The Draft Law introduces responsibility of the respective producers for the hourly imbalances at the day ahead market where they will sell electricity at “green” tariff. It is planned that the responsibility for power producers from wind, solar and hydro will be introduced gradually with increase by 10% annually starting with 2021 until 2030 with 20% tolerance for power producers from wind, 5% tolerance - for small power producers from water as well as 10% tolerance for power producers from sun. The producers of electricity from renewables which have commissioned their power plants before the entry into force of the Draft Law are exempt from liability for imbalances until 2030.

The Draft Law also envisages the possibility of signing preliminary Purchase Power Agreement before construction of the plant when a producer of electricity from renewables has executed title documents in respective lands, obtained a construction permit or executed a similar document under Ukrainian laws and signed a grid connection agreement. This novelty creates more confidence for investors.

The Draft Law foresees the adoption of more than 60 documents of secondary legislation. The Draft Law fully implements the electricity related parts of the Third Energy Package, including (i) Directive 2009/72/EC concerning common rules for the internal market in electricity, (ii) Directive 2005 /89/EC concerning measures to safeguard the security of electricity supply and infrastructure investment and (iii) Regulation (EC) No 714/2009 on the conditions for access to the network for cross-border exchanges in electricity.

For further information please contact Asters' counsel Yaroslav Petrov
and senior associate Marta Halabala.

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