Co-authored by Kuzma Pozychaniuk, Associate, Sayenko Kharenko Law Firm
ІІ. CHANGES IN LEGISLATION
2.1. SUMMARY OF RECENT LEGISLATIVE CHANGES
LAW OF UKRAINE "ON THE ELECTRICITY MARKET"
On 13 April 2017, the Verkhovna Rada of Ukraine passed the Law of Ukraine "On the electricity market" (the "Electricity law") , which was published on 10 June 2017.
The Electricity Law implements provisions of the EU Third Energy Package in Ukraine and establishes a transition period for implementing the market segments that are new for the Ukrainian energy industry, in particular: bilateral agreements, day-ahead, intraday, balancing, and support service markets.
Considering its final and transition period provisions, the Electricity Law is expected to take effect by stages, in particular as follows:
11 June 2017 – the Electricity Law took effect, save for some provisions.
10 December 2017 (6 months after the date of publication) – provisions addressing the selection of a transmission system operator, its certification, and eligibility criteria for an independent transmission system operator, took effect. An eligible transmission system operator is a legal entity that owns a transmission system, is not a participant of a vertically integrated business entity, and is active in the business that does not depend on the electricity generation, distribution and supply or electricity trading.
The transmission system operator certification procedure was approved by Resolution No 1016 of the National Energy and Utilities Regulatory Commission dated 10 August 2017 and provides that the NEURC is competent to make a decision on certification or denial in certification of the transmission system operator, subject to the opinion of the Energy Community Secretariat. Until the certified transmission system operator takes up its duties, they are performed by State Enterprise "NEC "Ukrenergo" in accordance with the Electricity Law.
10 March 2018 (9 months after the date of publication) – provisions of the Electricity Law that regulate connection of the energy facilities to electric networks will take effect. The Electricity Law provides that a distribution system operator will offer both standard and non-standard 'turn-key' connection services under the respective network-connection service agreements.
10 June 2018 (12 months after the date of publi-cation) – provisions of the Electricity Law with regard to a universal service provider will take effect. Universal service means supplying electricity to households and small private businesses and is a guarantee of providing any consumer with a proper-quality energy across Ukraine. Within a definite territory only one universal service provider may operate. A universal service provider is determined by the decision of the Cabinet of Ministers of Ukraine based on the results of competition.
A universal service provider is under an obligation, inter alia, to buy solar-generated electricity and/ or wind energy generated by the households' energy facilities (power generating facilities) with the installed capacity of 30kW or less at a green tariff in the volume that does not exceed such households' monthly energy consumption. In addition, the universal service provider will offer a service enabling the transmission operator to increase the percentage of electricity generated from alternative sources.
Also, provisions of the Electricity Law addressing the last-resort provider will take effect. The last-resort provider's obligation is to provide energy to consumers where energy supplier is not in position to supply energy to them for whatever reasons. The last-resort provider is determined by the decision of the Cabinet of Ministers of Ukraine based on the results of competition for up to three years.
10 December 2018 (18 months after the date of publication) – provisions of the Electricity Law will take effect with regard to the selection and autonomy of a distribution system operator. A distribution system operator is prohibited from conducting the electricity generation and/or transmission and/ or supply business. The Electricity Law establishes the conditions allowing the distribution system operator as a part of a vertically integrated business entity to be autonomous. Where the number of the connected consumers of the distribution system operator is 100 thousand or less and the monthly average energy distribution is 20 million kW per hour or less, the NEURC may by its decision release such operator from the above-mentioned requirements. A distribution system operator participating in a vertically integrated business entity is obligated to draft and implement the conformity/compliance program.
1 July 2019 – a new electricity market will start its operations. This market will consist of the following segments: balancing, auxiliary service, dayahead, intraday, and bilateral agreements-based. It is understood that the balancing, day-ahead, intraday, and bilateral agreement markets will be implemented concurrently.
Bilateral agreement market allows the generating companies, energy suppliers, transmission operators, distribution system operators, traders, guaranteed buyers and households sell and purchase electricity. The electricity market participants are free to choose the counterparties for the bilateral agreements, make such agreements in any form and on the terms and conditions agreed by the parties, subject to the limitations established by the Electricity Law.
To operate on the day-ahead market or the intraday market, a market participant is required to have a standard-form participation agreement with a market operator. The market operator has no right to refuse to enter into a day-ahead or an intraday market participation agreement, where the market participant duly complies with all market-access requirements. The prices on the day-ahead or intraday market are free (market) prices.
The Electricity Law introduced a unified balancing market, on which any transmission system operator will purchase and sell electricity to balance a daily electricity demand/offer, and/or sell and purchase electricity to adjust the imbalances (if any) of the electricity balance responsible parties.
According to the Electricity Law, the cost of electricity that a company/household selling energy at a green tariff failed to supply because of acting in accordance with the distribution system operator's instructions to reduce the load will be reimbursed to such company/household, save when the distribution system operator gave such instructions because of the limitations imposed within the entire system due to force majeure.
The Electricity Law introduces the support service market enabling the purchase/delivery of support services to regulate the frequency and active capacity within the Ukrainian UES, to maintain the energy reliability and quality parameters within the Ukrainian UES, and other services set out by the market rules; for example to provide for the frequency and active capacity management, to maintain capacity and energy balance within the Ukrainian UES, and to maintain energy reliability and quality parameters within the Ukrainian UES.
The Electricity Law allows for trading on the electricity market, which means that the respective business entities (traders) may resell electricity. Traders will purchase and sell electricity under bilateral agreements and in the formal electricity market segments, save as under power supply agreements with households.
All market players other than consumers, where they purchase electricity under power supply agreements with households, will be liable for their electricity imbalances. The balance responsible parties will be financially liable for electricity imbalances towards the transmission system operator.
To mitigate electricity imbalances, the market participant is required either to become a balance responsible party or to delegate his obligations to another balance responsible party by joining a balancing group. Electricity suppliers are the parties responsible for their consumers' balances.
To mitigate electricity imbalance means that a balance responsible party enters into a power purchase and sale agreement with a transmission system operator for the volume of electricity imbalances and at the imbalance prices established in accordance with the market rules.
Any electricity generation licence issued prior to the effective date of the Electricity Law, will be valid until the date when the new electricity market starts its operations.
With effect from 10 June 2020 (36 months after the date of publication) – a distribution system operator will be prohibited from beneficiary holding or managing the shares (interests in the charter capital) in any business entity active in the electricity generation and/or supply (including to households) or transmission, while a business entity active in the electricity generation and/or supply (including to households) or transmission will be prohibited from beneficiary holding or managing shares (interests in the charter capital) in a distribution system operator.
The Electricity Law establishes the following framework for operations of the business entities producing energy from renewable energy sources (the "RES Producers").
- RES Producers may sell energy (1) under bilateral agreements on the day-ahead market, intraday market or balancing market at the prices created on such markets or (2) at a green tariff, including a mark-up (if applicable). A green tariff for purchase of electricity from RES Producers is offered to the guaranteed purchaser during the entire life such green tariff.
- RES Producers may enter into power
purchase and sale agreements with guaranteed purchasers any time
prior to the commencement and/or commissioning of the respective
In case of non-commissioning of an energy facility or a stage of a power plant project (startup facility) within three years from the date of registration of the respective construction-work commencement declaration or obtaining of a construction work permit, the agreement becomes invalid.
A green tariff power purchase and sale agreement will be in effect during the entire life of the green tariff.
- RES Producers may form a balancing
group of green tariff electricity producers, in which a guaranteed
purchaser is a balance responsible party.
Where the RES Producer's actual hourly electricity supplies differ from the scheduled hourly electricity supplies to the producers that are members of a balancing green-tariff producers group, the costs of mitigation of the guaranteed purchaser's electricity imbalance will be reimbursed in accordance with the regulations of the balancing green-tariff producers group and in the respective percentage. The costs of mitigation of imbalances to the guaranteed producer will be reimbursable by RES Producers that are authorised to use green tariff and are members of the balancing green-tariff producers group with effect from 1 January 2021.
Until 31 December 2029, RES Producers (wind energy producers) will reimburse the guaranteed purchasers for energy imbalances where the actual hourly energy supplies differ from the scheduled hourly supplies by 20 per cent of more. If the share of energy generated from all RESs in the total of energy balance of Ukraine is 5 per cent or more, the reimbursable percentage will reduce to 10 per cent. RES Producers whose facilities were commissioned before 11 June 2017 will not reimburse the imbalance costs until 2030.
- In the same manner as before, the amended Law of Ukraine "On renewable energy sources" fixes the green tariff rates subject to the time of commissioning of the electricity facilities or electricity project phases/start-up facilities, energy sources and installed capacity and establishes a 5% or a 10% mark-up for the use of equipment of Ukrainian manufacturers.
The regulator establishes the legislative requirements that will apply during the entire life of the green tariff to purchases of electricity from RES Producers at an established green tariff, including the mark-up, and provisions prescribing to pay for the purchases of such electricity in full, during the established period and in the monetary form.
Law of Ukraine "On amendments to certain Ukrainian laws and regulations with regard to improvement of urban development activities"
On 10 June 2017, the Law of Ukraine "On amendments to certain Ukrainian laws and regulations with regard to improvement of urban development activities" (the "Amendment law") took effect. It amended a number of laws and regulations addressing the urban development. The Amendment Law provides a new approach to the classification of construction objects by their complexity and the classes of consequences (criticality).
The Law classifies all facilities by the classes of consequences (criticality) in the following categories:
- low level consequences –
СС1 (which replaces complexity categories I and
СС1 does not cover the facilities (i) for which the potential consequences of default (condition in which the use of any facility or its part in accordance with the intended purpose is unfeasible) exceed the following numbers: for potential danger to safety and life of individuals permanently staying on the facility – 50 persons; for potential danger to safety and life of individuals staying on the facility from time to time – 100 persons; for material damage or losses suffered by the community because of terminated use of the facility or a loss of integrity – 2.500 minimum wages; (ii) cultural heritage objects of the national or regional significance, as determined in accordance with the Law of Ukraine "On protection of the cultural heritage"; (iii) new facilities that are constructed within protected zones of a cultural heritage object that has national or regional significance (the territory of a protected zone is equal to minimum two horizontal or two vertical dimensions of the cultural object); (iv) high-risk facilities, as identified according to the Law of Ukraine "On high-risk objects"; (v) four floor or higher residential buildings;
- medium level consequences – СС2 (which replaces complexity categories III and IV);
- high level consequences – СС3 (which replaces complexity category V): cultural heritage objects, as determined by the Law of Ukraine "On protection of cultural heritage"; high-risk facilities, as identified according to the Law of Ukraine "On high-risk objects"; residential, public or multiuse buildings of 100 meters or higher and/or that expose 400 or more persons permanently staying in them to the risk of injury or death.
The Amendment Law permits to commence construction work on CC1 projects (low level consequences) where the land owner/user has filed a construction-work commencement notice to a respective architecture and construction authority, and on CC2 (medium level consequences) or CC3 (high level consequences) projects where the land owner/user has obtained a construction work permit.
To obtain the construction work permit the land owner/user files an application and supporting documents, including, inter alia, a copy of the document certifying the land ownership or the land use right; the project-specific design documents properly developed and approved in accordance with the established procedure; copies of documents of appointment of the persons responsible for construction work and persons responsible for architectural and technical supervision; details of the licence authorising to conduct construction work; results of environmental impact assessment (in the instances specified by law), etc.
Also, the Amendment Law increases the liability for conduct of enablement and construction work without a construction-work commencement notice or a construction work permit, and regulates other procedural aspects.
Draft Law "On Amendments to the Law of Ukraine "On regulation of urban development activities" with regard to creating better investment opportunities in the sphere of generation of electricity from alternative energy sources"
On 19 December 2017, the Law of Ukraine "On amendments to the Law of Ukraine "On regulation of urban development activities" with regard to creating better investment opportunities in the sphere of generation of electricity from alternative energy sources" (the "Draft law") was passed in its first reading. It was drafted by the Ukrainian State Agency on Energy Efficiency and Energy Saving with a view to resolve the problem of ineffective reservation of capacities required to connect the electricity facilities of the renewable energy producers to the electric network.
The problem is that as of today many investors, who have received technical specification for connection to electric networks, for various reasons do not complete the projects. "By now 4.2 GW of the total of 4.5 GW of capacities of the renewable energy facilities have been reserved for connection to the electric networks", Sergiy Savchuk, Head of State Agency on Energy Efficiency and Energy Saving of Ukraine wrote on his Facebook page.
In particular, the Draft Law proposes to limit the effective term of technical specification for energy facilities producing renewable energy to three years from the date of issue.
Also, the Draft Law establishes that technical specification issued prior to the effective date of the Draft Law is valid for three years from the effective date of the Draft Law.
It cannot be excluded that the Draft Law provisions establishing the effective term of technical specification may be further adjusted in accordance with a RES-specific characteristics and demand for various RESs. The UWEA will initiate an increase of the effective term of the new technical specification from 3 years – as set out by the current Draft Law – to 5 years, since for the purposes of installing a WPP it is required to allow for the time for measurement of the wind potential power and for ornithological study. It is also proposed that "upon an extension of the effective term of technical specification to 5 years, the technical specification issued 2 years before the effective date of the Law or earlier will be valid for 3 years from the effective date of the Draft Law."
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