Ukrainian Energy Regulator Passes Much Needed By-Laws

I. #COVID-2019: NEURC Passes Extraordinary Resolution to Ease Obligations of Electricity Market Participants During the Quarantine Period

On 8 April 2020, the National Energy and Utility Regulatory Commission (“NEURC”) has adopted a new Resolution which temporarily introduces restrictions and obligations on electricity market participants (the “Special Measures”).

Purpose

The objectives of the Special Measures are:

  • to stabilize the financial situation of the electricity market and avoid penalties for market participants during the quarantine period,
  • to ensure the functioning of Ukraine’s energy system through setting restrictions on import operations of electricity from countries who are not members of the Energy Community.

Duration

Special Measures are imposed for the duration of the quarantine or any other restrictive measures imposed to curb the spread of coronavirus, and for 30 calendar days after the suspension of such measures.

Scope of the Special Measures

1) Restrictions/obligations applicable to NPC “Ukrenergo” (TSO)

1.1) in relation to electricity suppliers, Ukrenergo cannot:

    • In the case of non-payment or delayed payment by electricity suppliers 1) Send them notifications of their pre-default status or place information on pre-default status on its official web site, 2) Cease registration of PPAs, cancel registration of PPAs or use financial guarantees to recover debts 3) Set a maximum sale volume of zero for electricity on day-ahead and intraday markets;
    • Apply late payment penalties (0.1%) or contractual fines (7%) in the case of late payment or non-payment by electricity suppliers.

1.2) in relation to distribution system operators (DSOs), Ukrenergo cannot:

    • Apply late payment penalties (0.1%) or contractual fines (7% — for transmission services, 3% — for dispatch (operational and technological) management services) in the case of late payment or non-payment;
    • Terminate delivering services in case of non-performance of contractual obligations by DSOs.

1.3) Regarding the import of electricity from countries who are not members of the Energy Community, Ukrenergo must:

    • Cancel all results of annual auctions for allocations of capacities at cross-border interconnectors for 2020; to compensate for such cancellation accordingly;
    • Offer 0 MW at monthly capacity allocation auctions at cross-border interconnectors.

2) Restrictions applicable to DSOs in relation to electricity suppliers

  • Cannot apply late payment penalties or contractual fines in case of late payment or non-payment for distribution services.

3) Obligations applicable to electricity suppliers (delivering universal services)

  • To organize mobile service points enabling payment for electricity by consumers;
  • To inform consumers of online payment options.

4) Restrictions applicable to all market participants

  • The indicated price for balancing electricity in market participants’ applications may not exceed 105% of the price cap set on the day-ahead market.

5) Obligations applicable to all consumers

  • To make timely payments for consumed electricity, and in the case of inability to pay due to quarantine-related restrictions to notify their electricity supplier and initiate a debt repayment schedule immediately after the quarantine ends in order to avoid discontinuation of electricity supply.

Legislation: NEURC’s Resolution “On Actions of Electricity Market Participants During the Quarantine Period and Restrictive Measures Related to the Spread of Coronavirus (COVID-19)” No. 766 of 08 April 2020.

 

II. NEURC approves the Transmission System Development Plan for 2020-2029

On 3 April 2020, the NEURC approved the Transmission System Development Plan for 2020-2029 (the “Grid Development Plan”), a strategic document which the electricity TSO (NPC “Ukrenergo”) is obliged to adhere to after the NEURC’s approval as per the requirements of clause 18 of Article 33 and Article 37 of the Electricity Market Law and Section II of the Transmission System Code.

Why is the Plan important?

  • The TSO may refuse access to the grid in the case of a deficit of transmission capacity. The decision should be objective and grounded, and contain information on the estimated time required to create transmission capacity on the basis of the Grid Development Plan, approved by the NEURC; should there be no approved Grid Development Plan, refusal of access to the grid is deemed unjustified by default;
  • The Grid Development Plan serves as a basis for outlining the investment program of the TSO;
  • DSOs outline and submit for approval by the NEURC their respective distribution system development plans for 5 years.

What is in the Plan?

The Grid Development Plan contains the following key elements:

  • Analysis of the functioning of the Integrated Power System of Ukraine (the “IPS”) over the last 3-5 years and currently;
  • Analysis of the identified “bottlenecks” and limitations of transmission capacity of the grid;
  • List of required measures for development of the grid in the course of the next10 years, aimed at enhancing the effectiveness of the grid;
  • Risk assessment of various development scenarios;
  • List of and detailed information about the infrastructure objects of the grid that need to be constructed or renovated in the next 10 years with indicated timetables for construction / renovation works and sources of financing;
  • Information on existing and projected investments into the grid in the next 3 years.

Business Opportunities

  • Energy storage

In connection with the rapid increase of RES electricity production, the Grid Development Plan contains an indication of the immediate necessity to introduce more maneuverable capacity in combination with the use of energy storage systems.

  • Smart grid

The Grid Development Plan highlights the necessity to develop smart grids in order to tackle some of the critical problems of the IPS.

Legislation: NEURC’s Resolution “On Approval of the Transmission System Development Plan for the years 2020-2029 ” No. 764 of 03 April 2020.

 

III. NEURC has approved Guidelines for Congestion Management and Capacity Allocation to allow effective cross-border allocation

For the attention of importers / exporters of electricity: a new set of rules regarding capacity allocation of interconnectors has been approved on 03 April 2020. Particular attention should be paid to:

  • Rules for Congestion Management, which outline the procedure and methods for congestion management and methodology for defining the structure of capacity allocation of the cross-border interconnectors, as well as rules for publication of data on capacity allocation;
  • Guidelines for distribution of capacity allocation of the cross-border interconnectors.
    This is another step towards transposing the Third Energy Package into Ukraine’s national legislation, particularly Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (repealed by Regulation (EU) 2019/943 on the internal market for electricity of 5 June 2019).

Auctions

According to the new rules, the auction office (this function shall mainly be performed by the TSO) shall annually define the volumes of cross-border interconnectors capacity in accordance with ENTO-E practice (which includes coordinating with neighbouring TSOs) – not later than 10 business days prior to the annual auction, which must then be approved by the NEURC and published on the TSO’s web site. Access to cross-border interconnectors capacity is gained through participating in electronic auctions: annual (35% of the volume of available capacity of the cross-border interconnectors), monthly (35% of the volume of available capacity of the cross-border interconnectors) and daily (the total of: 30% of the volume of available capacity of the cross-border interconnectors, non-allocated and non-used volume of capacity allocated on annual and monthly auctions, and volume of capacity that was returned by the auction winner). The minimum volume of capacity which can be offered at auction is 1 MW.

Financial security

All registered auction participants have the right to take part in capacity allocation auctions on a non-discriminatory basis. Financial security is required to take part in the auctions, which may be formalized either as a bank guarantee (which may be issued by Ukrainian or foreign banks with at least BBB+ or Baa1 rating) or cash collateral (on escrow account in a bank specified by the auction office).

Peculiarities and Restrictions

Auctions are conducted in Ukrainian at CET. Market participants may be barred from accessing cross-border interconnectors capacity only in the following case (if both conditions are met):

  • If the increase of cross-border electricity flows due to their access impacts operational security, and
  • If the offered price is lower than bids of other auction participants who were granted access to cross-border interconnectors capacity.

In the case of bids exceeding allocation capacity, the highest bids win (in descending order). Otherwise, access to capacity is granted on a free of charge basis to all auction participants.

Auction participants connected to each other by relations of control (i.e., same group of companies) have the right to receive capacity allocation of each cross-border interconnector in a volume not exceeding 50% of the capacity offered at the respective auction. This restriction does not apply if the total volume of bids is equal or less than the offered volume at auction.

Allocated transmission capacity may be decreased only in the following instances:

  • Emergency repairs of the intra-state power lines or other elements of the grid;
  • Maintaining the operational security of the grid;
  • Occurrence of force-majeure circumstances;
  • On request of a neighbouring TSO.

Publication of data

The auction office shall publish daily on its web site auction terms and timetables, auction results, available capacity offered at auction as well as information on the load of each cross-border interconnector (information on decrease of allocated capacity, etc.). All published information shall be available on the web site for at least 2 years.

Legislation: NEURC’s Resolution “On Approval of the Rules for Managing Grid Limitations and Procedure for Distribution of Capacity Allocation of the Cross-Border Interconnectors” No. 763 of 03 April 2020.