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Business does not support the new draft law on the electricity market

06/ 11/ 2020
  In early October, the draft Law on the Electricity Market was unveiled for public discussion on the website of the National Energy and Utilities Regulatory Commission (NEURC). The draft law implies the imposition of tariffs for electricity transmission services  on export operations and tariffs for dispatch management services on the import and/or export of electricity. Thus, the draft Law provides for clarification and specification of the list of businesses that pay for electricity transmission services and dispatch management services. At the same time, there will be a separate category of the company’s energy exporters, for which the tariffs for electricity transmission services do not include the costs of the transmission system operator to meet special obligations for increased production from alternative energy sources. The European Business Association has previously expressed its position on the electricity transmission tariffs for exports. The business once again wants to emphasize that the introduction of payment for transmission services in the export of electricity may have a negative impact on the activities of domestic producers and the electricity sector as a whole. According to EBA experts, there is no fee for the transmission of electricity for export in the world practice of wholesale electricity trade, particularly, in the EU member states. It means that the transmission tariff is paid only when electricity is supplied to the final consumer, not in the wholesale trade, including the export-import operations. At the same time, the costs incurred by system operators for hosting transit interstate electricity flows within the EU are reimbursed in such countries by the compensation mechanism to the internal transmission system operator introduced by the EU Commission Regulation. Thus, the SE National Power Company Ukrenergo may become a member of the ITC-mechanism and receive compensation for losses incurred by it for cross-border transmission of electricity. However, according to the EBA member companies, this issue is still unresolved. The approach set out in the draft law is not entirely in line with the compensation procedure provided by the ITC mechanism, as it put an obligation to exporters to pay a tariff for transmission services. Besides, since February 1, 2011, Ukraine has been a contracting party to the Treaty establishing the Energy Community. Ukraines commitments prohibit the imposition of customs duties and quantitative restrictions on the import and export of energy products and materials for which transportation networks are used, and other measures that have a similar effect. This, the Secretariat of the Energy Community assessed the actions of the NEURC in setting the tariff for transmission at export and published its conclusions in a document Ukraine – electricity transmission and dispatch tariff with respect to the tariffs for export and import . It states that the tariffs for electricity transmission for export operations to/from the countries-parties of the Energy Community are measures equivalent to the customs duty, and therefore their introduction will violate Article 41 of the Treaty. At the same time, the EBA member companies estimate that the establishment of payment for electricity transmission services for exporters may lead to the impossibility of export operations, as this could potentially result in a significant increase in the cost of electricity exported, which distorts competition as the foreign energy traders do not pay a transfer fee. Also, the Ukrainian electricity industry may become uncompetitive in European markets in the future, given that the average margin of traders in the purchase/sale of electricity is 3-4% according to the business community. Given the declining trend in electricity consumption by household and some industrial consumers in connection with quarantine measures to prevent the spread of coronavirus COVID-19, which, according to experts of the Association, leads to a reduction in electricity production by domestic producers, further reductions in electricity production could lead to mass layoffs and escalating social tensions. Therefore, the European Business Association appeals to the Chairman of the National Energy and Utilities Regulatory Commission not to support the abovementioned draft Law, as it does not contribute to achieving a balance of interests of consumers, electricity producers, and the state. In addition, we draw the attention of the Director of the Secretariat of the Energy Community to the discrepancies of the draft Law with European legislation which Ukraine currently seeks harmonization with.   Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.  

In early October, the draft Law on the Electricity Market was unveiled for public discussion on the website of the National Energy and Utilities Regulatory Commission (NEURC). The draft law implies the imposition of tariffs for electricity transmission services  on export operations and tariffs for dispatch management services on the import and/or export of electricity.

Thus, the draft Law provides for clarification and specification of the list of businesses that pay for electricity transmission services and dispatch management services. At the same time, there will be a separate category of the company’s energy exporters, for which the tariffs for electricity transmission services do not include the costs of the transmission system operator to meet special obligations for increased production from alternative energy sources.

The European Business Association has previously expressed its position on the electricity transmission tariffs for exports. The business once again wants to emphasize that the introduction of payment for transmission services in the export of electricity may have a negative impact on the activities of domestic producers and the electricity sector as a whole.

According to EBA experts, there is no fee for the transmission of electricity for export in the world practice of wholesale electricity trade, particularly, in the EU member states. It means that the transmission tariff is paid only when electricity is supplied to the final consumer, not in the wholesale trade, including the export-import operations. At the same time, the costs incurred by system operators for hosting transit interstate electricity flows within the EU are reimbursed in such countries by the compensation mechanism to the internal transmission system operator introduced by the EU Commission Regulation. Thus, the SE National Power Company Ukrenergo may become a member of the ITC-mechanism and receive compensation for losses incurred by it for cross-border transmission of electricity. However, according to the EBA member companies, this issue is still unresolved. The approach set out in the draft law is not entirely in line with the compensation procedure provided by the ITC mechanism, as it put an obligation to exporters to pay a tariff for transmission services.

Besides, since February 1, 2011, Ukraine has been a contracting party to the Treaty establishing the Energy Community. Ukraine’s commitments prohibit the imposition of customs duties and quantitative restrictions on the import and export of energy products and materials for which transportation networks are used, and other measures that have a similar effect. This, the Secretariat of the Energy Community assessed the actions of the NEURC in setting the tariff for transmission at export and published its conclusions in a document ” Ukraine – electricity transmission and dispatch tariff with respect to the tariffs for export and import “. It states that the tariffs for electricity transmission for export operations to/from the countries-parties of the Energy Community are measures equivalent to the customs duty, and therefore their introduction will violate Article 41 of the Treaty.

At the same time, the EBA member companies estimate that the establishment of payment for electricity transmission services for exporters may lead to the impossibility of export operations, as this could potentially result in a significant increase in the cost of electricity exported, which distorts competition as the foreign energy traders do not pay a transfer fee. Also, the Ukrainian electricity industry may become uncompetitive in European markets in the future, given that the average margin of traders in the purchase/sale of electricity is 3-4% according to the business community.

Given the declining trend in electricity consumption by household and some industrial consumers in connection with quarantine measures to prevent the spread of coronavirus COVID-19, which, according to experts of the Association, leads to a reduction in electricity production by domestic producers, further reductions in electricity production could lead to mass layoffs and escalating social tensions.

Therefore, the European Business Association appeals to the Chairman of the National Energy and Utilities Regulatory Commission not to support the abovementioned draft Law, as it does not contribute to achieving a balance of interests of consumers, electricity producers, and the state. In addition, we draw the attention of the Director of the Secretariat of the Energy Community to the discrepancies of the draft Law with European legislation which Ukraine currently seeks harmonization with.

 

Be the first to learn about the latest EBA news with our Telegram-channel EBAUkraine.

 

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