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Ukraine: Next Steps On Electricity Market Transformation

14/ 03/ 2018
  On 14 March 2018 the National Commission for State Regulation of the Energy and Public Utilities Sector (the “Regulator”) adopted a number of important secondary legislative acts (the “Secondary Legislation”) to enable implementation of the new electricity market model set out by the Law of Ukraine No 2019-VIII On the Electricity Market dated 13 April 2017 (the “Electricity Market Law”). The Electricity Market Law transposes Ukraine’s commitments to the liberalisation of the Ukrainian electricity market in compliance with the Energy Community Treaty and the so-called “Third Energy Package” of the European Union. From 1 July 2019 the current “single-buyer” model of the electricity market of Ukraine will be transformed into six new markets: (1) the market of bilateral contracts; (2) the day-ahead market (“DAM”); (3) the intraday market (“IDM”); (4) the balancing market; (5) the market for ancillary services; and (6) the retail market. Please follow this link to our earlier Law-Now to read more information about the concept of the new Ukrainian electricity market. Below we describe the areas of regulation covered by the adopted Secondary Legislation, which consists of: (a) Market Rules (Resolution No. 307); (b) Rules for the Day-Ahead Market and Intraday Market (Resolution No. 308); (c) Retail Market Rules (Resolution No. 312); (d) Power Transmission System Code (Resolution No. 309); (e) Power Distribution System Code (Resolution No. 310); and (f) Code for Commercial Accounting (Resolution No. 311). MARKET RULES The Market Rules regulate the following markets: (a) the market of bilateral contracts – a market for “over the counter” bilateral electricity trading between power generators on the one hand and other market players (mostly power suppliers) on the other; (b) the balancing market – a market for the sale and purchase of electricity, for balancing daily supply and demand and for handling any imbalances; and (c) the market for ancillary services – a market for various types of energy and capacity products to meet the reliability requirements of the market players. The Market Rules define the general rules for participation, work and settlement of payments between the respective submarkets’ participants, namely in relation to: (i) market management system and its audit; (ii) bilateral contracts and their registration; (iii) accounting entries and registers; (iv) work of the balancing market; (v) creation, registration and termination of the balancing groups; (vi) settlement of imbalances; (vii) ancillary services and their acquisition; (viii) settlement of payments and issuance of invoices; (ix) requirements for financial guarantees; and (x) functioning of the market in case of an emergency situation with the Unified Power System of Ukraine. The Market Rules also contain standard agreements for the provision of ancillary services, participation in the balancing market and the settlement of imbalances. Market participants may initiate amendments to the Market Rules by submitting them to the transmission system operator, which must review the proposal and either forward it to the Regulator for consideration or return it to the market participant. DAM AND IDM MARKET RULES The sale of electricity on the DAM and IDM is carried out in accordance with the Rules for the Day-Ahead Market and Intraday Market (the “DAM and IDM Market Rules”). DAM is based on a competitive pricing mechanism and is basically a bidding auction, which is held one day before the actual delivery of electricity. IDM allows market participants to update their trading positions, taking into account the existing supply and demand and current system conditions, as they approach real time. Both DAM and IDM are managed by the market operator, which accepts bids to sell or buy electricity and holds the auctions. In particular, the DAM and IDM Market Rules define procedures for: (a) functioning of DAM and IDM; (b) DAM and IDM audit; (c) participation in DAM and IDM; (d) securing the obligations under bilateral agreements; (e) organisation and performance of auctions; (f) establishing prices; (g) settlement of payments and payment to the market operator; (h) disclosure of information; (i) dispute resolution; (j) functioning of DAM and IDM in case of an emergency situation with the Unified Power System of Ukraine. The DAM and IDM Market Rules also provide templates of agreements for participation in DAM and IDM, agreements for the sale and purchase of electricity on DAM and IDM and applications for the sale and purchase of electricity. These documents serve as a basis for participation in the relevant submarkets. Market participants may initiate amendments to the DAM and IDM Market Rules by submitting them to the market operator. The market operator reviews the submissions and forwards them, with its recommendations, to the Regulator for consideration. RETAIL MARKET RULES The Retail Market Rules regulate the respective submarket on which electricity is traded between the power suppliers and the consumers. Thus, these rules are the baseline for the supply of electricity to the end consumers. The Retail Market Rules establish the following: (a) general conditions for the supply of electricity to the consumers; (b) principles of contractual relations between the participants; (c) rights and obligations of the participants; (d) procedure for changing supplier; (e) procedures for termination and resumption of electricity supply to the consumers; (f) special conditions that apply to the suppliers of generic (“universal”) services (i.e. the guaranteed supply of electricity to households and small non-household consumers) and the “last resort” suppliers; (g) settlement of payments; (h) disclosure of information; (i) rules for identification of distribution points; and (j) accounting of the supplied electricity. The Retail Market Rules, among others, also introduce standard template agreements for the supply of electricity to the consumers, the supply of electricity by the suppliers of generic services and “last resort” suppliers and for the provision of electricity transmission (distribution) services to the suppliers and the consumers. CODE FOR COMMERCIAL ACCOUNTING The functioning of the new electricity market would not be possible without regulation of basic technical matters and commercial accounting principles. Commercial accounting (collection, and processing, of information regarding generated, transmitted, distributed, imported/exported and consumed electricity) is organised and managed by the administrator of commercial accounting and is performed by the suppliers of the respective services in accordance with the Code for Commercial Accounting. The Code for Commercial Accounting defines the following: (a) requirements for the organisation of commercial accounting, including technical aspects; (b) rights and obligations of the participants of the electricity market, administrator and suppliers of commercial accounting services, as well as their liability; (c) procedure for obtaining and gathering reliable and precise data; (d) procedures for the registration and functioning of commercial accounting service suppliers, points of commercial accounting and automatic systems for the commercial accounting of electricity; and (e) dispute resolution. Amendments to the Code for Commercial Accounting may be initiated by any interested party submitting them to the administrator of commercial accounting. The administrator reviews the submissions and forwards them, with its recommendations, to the Regulator for consideration. POWER TRANSMISSION SYSTEM AND POWER DISTRIBUTION SYSTEM CODES The Power Transmission System Code and the Power Distribution System Code regulate relations between power transmission and distribution system operators (“TSOs” and “DSOs” respectively) and users of the respective systems. The codes are based on the principle of unbundling of electricity production, transmission and distribution activities. These codes regulate operation and development of the respective transmission (main high-voltage power grid, including transit power lines) and distribution (local, lower voltage power networks) systems, in particular: (a) functioning of power transmission and distribution systems; (b) conditions and procedures for access and connection to the power transmission and distribution systems; (c) provision of ancillary services (various services for the stable and reliable operation of the unified energy system of Ukraine and ensuring electricity quality in accordance with established standards); (d) procedures for management and usage of the power transmission and distribution systems in normal and emergency situations; (e) standards of operational safety; (f) criterion for operational control of generating and cross-border capacities; (g) conditions for providing priority for objects generating electricity from alternative energy sources; and (h) dispute resolution procedures. Electricity market participants may initiate amendments to the Power Distribution System Code by submitting their proposals directly to the Regulator. As for the Power Transmission System Code, proposals may be submitted either to the Regulator or the TSO. The codes also include various templates, including applications, agreements and technical conditions for connection with the power transmission and distribution systems. Authors: Vitaliy Radchenko, Partner, vitaliy.radchenko@cms-cmno.com Volodymyr Kolvakh, Senior Associate, volodymyr.kolvakh@cms-cmno.com Anatolii Doludenko, Associate, anatolii.doludenko@cms-cmno.com

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