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Ukraine passes new rules for allocation of cross-border electricity capacity

07/ 04/ 2020
  On 7 April 2020, the National Commission for State Regulation of Energy and Public Utilities of Ukraine published on their official web-site Resolution No.763 dated 3 April 2020 On the approval of the Rules to manage the restrictions and the Procedure for the allocation of cross-border electricity capacity (2020 Procedure), which repeals the previous auction procedure adopted by Resolution No.426 dated 28 March 2017 On auction procedure for the allocation of cross-border electricity capacity (2017 Procedure). The 2020 Procedure came into force on 8 April, except for provisions regulating financial security, certain conditions concerning the allocation of cross-border electricity capacity, provisions regulating return of the annual capacity and some other provisions, which will come into effect on 8 October 2020. An analysis reveals that amendments introduced by the 2020 Procedure are significant and change several cross-border electricity trading rules, including: Electronic auctions The new 2020 Procedure partially provides the same provisions as the 2017 Procedure, namely the electronic auctions for the allocation of cross-border transmission capacity shall be held by the Transmission System Operator (the “TSO” or “Ukrenergo”) on the online auction platform, with the use of an electronic document management system and electronic signature. Like before, electronic auctions will be conducted for yearly, monthly and daily capacity. According to the 2020 Procedure, however, the TSO will offer 35% of the available cross-border capacity for annual and monthly auctions, and 30% for daily auctions. According to the 2020 Procedure, yearly capacity means the capacity from 1 January until 31 December of the respective year (i.e. equal to the number of days in the respective year). Meanwhile, monthly capacity means the capacity from the first day until the last day of the respective month. Additionally, the 2020 Procedure stipulates that unallocated capacity and the capacity for which the physical right to transfer (the “PRT”) (i.e. access to the cross-border capacity) return mechanism is applied must be transferred to daily auctions. Allocation of the capacity to the bidders The 2020 Procedure does not change the procedure for allocation of capacity to bidders. Thus, the capacity will be allocated to bidders who offer the highest price until the relevant available cross-border capacity is allocated in full between the winners. The lowest price for which the capacity of the relevant interconnector can be won at auction is the “marginal price for access”, which must be paid by the relevant auction winners to the TSO. In the event that the volume of cross-border capacity requested by the participants does not exceed the volume of available capacity, the TSO will grant access free of charge. Time frame of auctions The 2020 Procedure does not establish the time frame for holding auctions. The time schedule for yearly and monthly auctions will be published by the TSO on its official website. Participation in the auction According to the 2020 Procedure, in order to participate in auctions and obtain the PRT, the market participant should: enter into an access agreement with the TSO no later than seven working days prior to the auction date; get access to the auction platform; meet the requirements for providing financial security. Financial security Similar to the 2017 Procedure, the 2020 Procedure provides for two types of financial security available for participants, namely bank guarantee and cash security. At the same time, the 2020 Procedure provides for the following changes regarding financial security for participation in auctions: the credit limit ((equal to an amount of effective securities except for outstanding indebtedness) should be equal or more than the amount of the bidding price submitted by participants. Until 8 October 2020, the amount of the financial security remains the same as in the 2017 Procedure: 100 minimal official salaries. The size of the minimal salary has changed to UAH 4,723. Therefore, the actual amount of the financial security is UAH 472,300 (USD 17,500); new mechanisms for checking financial security for submitted price requests; the ability to substitute one type of security with another (i.e. bank guarantee may be substituted with cash security or vice versa), and the ability to change the financial security during the auction through the use of escrow accounts. Additionally, the 2020 Procedure also changes the timeline for providing the bank guarantee. Thus, the participants are required to provide the bank guarantee to the TSO at least three business days before the auction commences. (The 2017 Procedure specified at least one day). The auction terms In accordance with the 2020 Procedure, the following auction terms have been applied: the results of long-term auctions (annual and monthly) are determined in two stages: preliminary results and final results. There is a time slot between stages for appeal. affiliated participants are given no more than 50% of the cross-border capacity for one cross border point or one PRT. the owner who received the PRT at the daily auction is obliged to nominate the corresponding PRT in volumes equal to 80% or more of capacity, receiving the right to use at the daily auction. Transfer of capacity The allocated capacity (except for daily capacity) may be transferred fully or partially from one participant to another (the capacity may be transferred only to the auction participant who: (i) itself possess allocated capacity, (ii) is a party to the effective access agreement) subject to the performance of the financial obligations regarding the capacity of the original holder. The transfer will be carried out in compliance with the detailed rules provided by the 2020 Procedure, subject to notification with the TSO. Return of the rights According to the 2020 Procedure, the auction winner can only return annual capacity for re-allocation during the following monthly auctions through non-nomination (i.e. no execution of nomination). Note that monthly capacity can only be returned through non-nomination; daily capacity could not be returned. Refund for the return of the PRT and non-nomination The 2020 Procedure provides refunds for the return of the PRT at the resale price if the reduction procedure was not applied during the delivery period. If a reduction procedure was applied during the delivery period, the refund is made at the price of the initial auction. Refund for restrictions In case of restrictions, the funds are returned for unused capacity from the TSO to the auction winners for any reason, including balance issues. For more information on how these changes could affect your business, contact your regular CMS advisor or local CMS experts: Vitaliy Radchenko, Maryna Ilchuk, Anna Pogrebna. Authors: Vitaliy Radchenko, Partner, vitaliy.radchenko@cms-cmno.com Maryna Ilchuk, Senior Associate, maryna.ilchuk@cms-cmno.com Kateryna Korneliuk, Associate, kateryna.korneliuk@cms-cmno.com Anna Pogrebna, Partner, anna.pogrebna@cms-rrh.com Sergiy Datsiv, Associate, sergiy.datsiv@cms-rrh.com

On 7 April 2020, the National Commission for State Regulation of Energy and Public Utilities of Ukraine published on their official web-site Resolution No.763 dated 3 April 2020 On the approval of the Rules to manage the restrictions and the Procedure for the allocation of cross-border electricity capacity (2020 Procedure), which repeals the previous auction procedure adopted by Resolution No.426 dated 28 March 2017 On auction procedure for the allocation of cross-border electricity capacity (2017 Procedure).

The 2020 Procedure came into force on 8 April, except for provisions regulating financial security, certain conditions concerning the allocation of cross-border electricity capacity, provisions regulating return of the annual capacity and some other provisions, which will come into effect on 8 October 2020. An analysis reveals that amendments introduced by the 2020 Procedure are significant and change several cross-border electricity trading rules, including:

Electronic auctions

The new 2020 Procedure partially provides the same provisions as the 2017 Procedure, namely the electronic auctions for the allocation of cross-border transmission capacity shall be held by the Transmission System Operator (the “TSO” or “Ukrenergo”) on the online auction platform, with the use of an electronic document management system and electronic signature. Like before, electronic auctions will be conducted for yearly, monthly and daily capacity. According to the 2020 Procedure, however, the TSO will offer 35% of the available cross-border capacity for annual and monthly auctions, and 30% for daily auctions.

According to the 2020 Procedure, yearly capacity means the capacity from 1 January until 31 December of the respective year (i.e. equal to the number of days in the respective year). Meanwhile, monthly capacity means the capacity from the first day until the last day of the respective month. Additionally, the 2020 Procedure stipulates that unallocated capacity and the capacity for which the physical right to transfer (the “PRT”) (i.e. access to the cross-border capacity) return mechanism is applied must be transferred to daily auctions.

Allocation of the capacity to the bidders

The 2020 Procedure does not change the procedure for allocation of capacity to bidders. Thus, the capacity will be allocated to bidders who offer the highest price until the relevant available cross-border capacity is allocated in full between the winners. The lowest price for which the capacity of the relevant interconnector can be won at auction is the “marginal price for access”, which must be paid by the relevant auction winners to the TSO. In the event that the volume of cross-border capacity requested by the participants does not exceed the volume of available capacity, the TSO will grant access free of charge.

Time frame of auctions

The 2020 Procedure does not establish the time frame for holding auctions. The time schedule for yearly and monthly auctions will be published by the TSO on its official website.

Participation in the auction

According to the 2020 Procedure, in order to participate in auctions and obtain the PRT, the market participant should:

  • enter into an access agreement with the TSO no later than seven working days prior to the auction date;
  • get access to the auction platform;
  • meet the requirements for providing financial security.

Financial security

  • Similar to the 2017 Procedure, the 2020 Procedure provides for two types of financial security available for participants, namely bank guarantee and cash security. At the same time, the 2020 Procedure provides for the following changes regarding financial security for participation in auctions:
  • the credit limit ((equal to an amount of effective securities except for outstanding indebtedness) should be equal or more than the amount of the bidding price submitted by participants. Until 8 October 2020, the amount of the financial security remains the same as in the 2017 Procedure: 100 minimal official salaries. The size of the minimal salary has changed to UAH 4,723. Therefore, the actual amount of the financial security is UAH 472,300 (USD 17,500);
  • new mechanisms for checking financial security for submitted price requests;
  • the ability to substitute one type of security with another (i.e. bank guarantee may be substituted with cash security or vice versa), and
  • the ability to change the financial security during the auction through the use of escrow accounts.
  • Additionally, the 2020 Procedure also changes the timeline for providing the bank guarantee. Thus, the participants are required to provide the bank guarantee to the TSO at least three business days before the auction commences. (The 2017 Procedure specified at least one day).

The auction terms

  • In accordance with the 2020 Procedure, the following auction terms have been applied:
  • the results of long-term auctions (annual and monthly) are determined in two stages: preliminary results and final results. There is a time slot between stages for appeal.
  • affiliated participants are given no more than 50% of the cross-border capacity for one cross border point or one PRT.
  • the owner who received the PRT at the daily auction is obliged to nominate the corresponding PRT in volumes equal to 80% or more of capacity, receiving the right to use at the daily auction.

Transfer of capacity

The allocated capacity (except for daily capacity) may be transferred fully or partially from one participant to another (the capacity may be transferred only to the auction participant who: (i) itself possess allocated capacity, (ii) is a party to the effective access agreement) subject to the performance of the financial obligations regarding the capacity of the original holder. The transfer will be carried out in compliance with the detailed rules provided by the 2020 Procedure, subject to notification with the TSO.

Return of the rights

According to the 2020 Procedure, the auction winner can only return annual capacity for re-allocation during the following monthly auctions through non-nomination (i.e. no execution of nomination). Note that monthly capacity can only be returned through non-nomination; daily capacity could not be returned.

Refund for the return of the PRT and non-nomination

The 2020 Procedure provides refunds for the return of the PRT at the resale price if the reduction procedure was not applied during the delivery period. If a reduction procedure was applied during the delivery period, the refund is made at the price of the initial auction.

Refund for restrictions

In case of restrictions, the funds are returned for unused capacity from the TSO to the auction winners for any reason, including balance issues. For more information on how these changes could affect your business, contact your regular CMS advisor or local CMS experts: Vitaliy Radchenko, Maryna Ilchuk, Anna Pogrebna.

Authors:

Vitaliy Radchenko, Partner, vitaliy.radchenko@cms-cmno.com

Maryna Ilchuk, Senior Associate, maryna.ilchuk@cms-cmno.com

Kateryna Korneliuk, Associate, kateryna.korneliuk@cms-cmno.com

Anna Pogrebna, Partner, anna.pogrebna@cms-rrh.com

Sergiy Datsiv, Associate, sergiy.datsiv@cms-rrh.com

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