State of compliance

  • Unbundling


    The Electricity Market Law transposes the requirements for ownership unbundling of the transmission system operator in line with the acquis. To meet requirements of ownership unbundling, the Cabinet of Ministers of Ukraine on 4 February 2019 transferred Ukrenergo to the Ministry of Finance of Ukraine, separating it from the Ministry of Energy and Coal Industry which controls state-owned generation companies Energoatom (NPPs), Ukrhydroenergo (HPPs), Centrenergo (TPPs). Ukrenergo applied for certification on 14 August 2019. A preliminary certification decision was approved by the regulator, NEURC, on 7 October 2019.

    According to the amendments to the Electricity Market Law of 23 November 2018, distribution system operators should be unbundled no later than 1 January 2019, and an annual report on the implementation of the compliance programme should be regularly prepared by the appointed compliance officer and published on the distribution system operator’s website. The regulator should ensure monitoring of the compliance programme and take appropriate enforcement action in line with the Electricity Market Law. On 1 January 2019, the regulator issued licenses for distribution of electricity to all 33 distribution system operators. By now, the regulator approved compliance programmes of nineteen distribution system operators and approved their compliance officers, for the remaining four distribution system operators, which are part of the vertical integrated companies, compliance programmes are under consideration by the regulator. The Electricity Market Law requires distribution system operators to be unbundled from production, supply and transmission also in terms of ownership by 11 June 2020.

  • Access to the system

    Access to the system

    The requirement to grant third party access based on published, objective and non-discriminatory tariffs has been transposed in line with the acquis. In July 2017, NEURC adopted new transmission and distribution tariff methodologies for implementation of the incentive regulation. However, the decision on the implementation of the incentive regulation has not been taken by NEURC yet. The current  transmission and distribution tariff methodologies are thus still based on the cost plus approach.

    Following disputes with big private industrial consumers regarding the inclusion of compensation for renewables producers under the feed-in-tariff in the transmission tariff, as required by the Electricity Market Law, the transmission tariff has been reviewed several times since 1 July 2019, resulting in its decrease.

    The Electricity Market Law defines that authorization for the construction of direct lines shall be approved by NEURC in accordance with the Transmission and the Distribution Network Codes.

    The Electricity Market Law foresees that yearly auctions for 2019 shall be organised as coordinated auctions, however, this has not been implemented. Cross-border capacities, on the borders with all neighbours (Belarus, Hungary, Moldova, Poland, Romania, Russian Federation and Slovak Republic), continue to be allocated through yearly, monthly and daily auctions, in accordance with the non-compliant auction rules adopted in March 2017. The Electricity Market Law allows only market participants registered in Ukraine to participate in the auctions.

    The lack of compliance with Regulation (EU) 714/2009 is subject to Case ECS-01/12  concerning Ukraine’s failure to comply with the Treaty’s obligations related to electricity interconnector capacity allocation. The joint working group (coordinated by the Energy Community Secretariat and consisting of representatives of transmission system operators and national regulators) is in the process of drafting common auction rules and other agreements necessary for the successful allocation of yearly, monthly and daily capacities. Joint allocations of yearly capacities for 2020 on the electricity interconnections between Hungary, Romania, Slovak Republic and Ukraine were expected by the end of 2019, a process that is still pending. Connection Codes have been transposed.


  • Wholesale market

    Wholesale market

    Since 1 July 2019, the single buyer model of the wholesale electricity market was replaced with a market model based on bilateral, day-ahead and intraday markets, as well as a balancing market and a market of ancillary services where participants can trade electricity freely.

    Energorynok (single buyer), was restructured into three companies - a Guaranteed Buyer (state-owned trader who shall buy electricity from producers under feed-in tariffs and sell these amounts of electricity on the organised day-ahead and intraday markets), a Market Operator (responsible for organising trading on the day-ahead and intraday markets) and Energorynok (tasked to deal with outstanding debts). The transmission system operator, Ukrenergo, was assigned the roles of a commercial metering administrator and settlements administrator.

    The Electricity Market Law makes bilateral auctions through an electronic platform mandatory for state-owned generation companies (i.e. for Energoatom, Ukrhydroenergo, Centrenergo etc.), but not for privately-owned ones (mostly thermal power plants). However, the freedom of the state-owned companies (Energoatom and Ukrhydroenergo) to conclude bilateral contracts is strictly limited by the public service obligations, approved by the Cabinet of Ministers of Ukraine in June 2019. The bilateral auctions (monthly and daily) are performed by the private Ukrainian Energy Exchange.

    For the public service obligations purposes 90% of the electricity produced by Energoatom and 35% of the electricity produced by Ukrhydroenergo must be sold in bilateral auctions to the Guaranteed Buyer, the Guaranteed Buyer shall sell electricity to the universal service suppliers and to the transmission system operator and distribution system operators (to cover up to 80% of their network losses). This brings back the single buyer model and has a negative impact on state-owned generation.

    On the day-ahead market the prices are formed using the marginal principle of the balance of aggregated demand and supply. The IDM is organised in the form of the comparison of bids on the sale and purchase of electricity and acceptance in case the requirements regarding prices and volumes are met. Via amendments to the day-ahead and intraday rules of 24 June 2019, NEURC approved price caps that are valid for the first nine months following the wholesale market opening, i.e. until March 2020. The price caps are calculated at hours of minimum load (from 00:00 to 08:00, from 23:00 to 24:00) and at hours of maximum load (from 08:00 to 23:00) based on the wholesale market price for the last three calendar months before the date of commencement of the day-ahead and intraday markets. NEURC has right to impose an obligation on producers (except small hydro and other renewables) to sell up to 15% of their monthly volumes of electricity on the day-ahead market (during the first year of the day-ahead market operation it may not be less than 10%), as well as additional amounts to be bought by the transmission system operator, distribution system operator and producers at pumped storage plants.

    According to the Market Rules, generation units (except renewables) are obliged to be balancing service providers and propose bids for balancing energy (despite sold reserves) in volumes of available capacity. The market participants have to submit price bids of not less than 85% (for down regulation) and not more than 115% (upward regulation) of the established price limit for the day-ahead market. The currently applied system is not in full compliance with balancing requirements of Directive 2009/72/EC. Ancillary services were not procured at all during July - October 2019 due to no qualified ancillary service providers being registered by Ukrenergo.

    Regulation (EU) 543/2013 on submission and publication of data in electricity markets was transposed by NEURC’s resolution of 19 June 2018, but implementation of Regulation (EU) 543/2013 is delayed (Ukrenergo has not started data publication on the ENTSO-E Transparency Platform yet). The REMIT regulation is still to be transposed by 29 November 2019.

  • Retail market

    Retail market

    Ukraine’s retail electricity market opened on 1 January 2019. Prices of services for universal service suppliers and suppliers of last resort are regulated based on the methodologies adopted by the regulator in October 2018.

    According to the Electricity Market Law, NEURC was required to phase out cross-subsidization between different categories of consumers before market opening on 1 July 2019. However, the prices for households remain the same and at a level which does not allow for the universal service suppliers to cover their costs. The difference is covered by the Guaranteed Buyer through the public service obligations.

    Until 1 January 2021, the incumbent suppliers would perform the functions of universal service suppliers. According to the provisions of the Electricity Market Law, the Government shall organise a tender procedure for the universal service suppliers before 1 July 2020. On 12 December 2018, the Government appointed the state-owned company Ukrinterenergo as supplier of last resort for the period from 1 January 2019 till 1 January 2021.

    The provisions of Directive 2009/72/EC on vulnerable customer protection were transposed by the Electricity Market Law. Vulnerable customers are also defined by the Electricity Market Law as those household customers that, in compliance with the social protection legislation, are considered as vulnerable. According to the Electricity Market Law’s provisions, a governmental act is needed to define the customers meeting the vulnerability criteria. The adoption such an act is yet to be initiated.

    Requirements related to smart metering were transposed, and, according to the Commercial Metering Code, the roll-out of smart meters shall be done till 19 April 2020.

    The Electricity Market Law transposed the concept of small distribution systems in line with Directive 2009/72/EC, however, the non-complaint provisions related to the “sub customer” category, which existed under the previous Electricity Law, were transferred to the new Electricity Market Law as well.

    Requirements related to smart metering were transposed and the roll-out of smart meters shall be done till 19 April 2020.

  • Regional integration

    Regional integration

    Ukrenergo should implement coordinated auctions for cross-border capacity allocation not later than for the 2019 annual auctions, a process that is still pending. A new draft of the rules for cross-border capacity allocation was published by NEURC in May 2019 for the purpose of public consultation. However, to implement coordinated auctions and adopt new cross-border capacity allocation rules, amendments to the Electricity Market Law are needed – to allow participate in the capacity allocation process not only Ukrainian market participants.

    Discussions between Ukraine and Moldova were initiated in 2017 with a view to provide services to the latter for the electronic auction for cross-border capacity allocation, which could potentially lead to market coupling with Moldova. The adoption of the new rules on allocation of cross-border capacities on the border with Moldova is expected by April 2020.

    The possibility of an inter-transmission system operator compensation mechanism implementation was discussed with ENTSO-E and the Secretariat. According to a preliminary decision of the ENTSO-E Market Committee, it was expected that Ukrenergo can start participating in the inter-transmission system operator compensation mechanism from January 2019. In March 2019, ENTSO-E informed Ukrenergo that the ENTSO-E Assembly approved a decision by which it was noted that as Ukrenergo is not fulfilling the internal electricity market requirements, ENTSO-E cannot proceed with Ukrenergo’s request to have part of its network, namely Burstyn Island, included into the inter-transmission system operator compensation mechanism. Ukrenergo, with the support of the Secretariat, continues cooperation with ENTSO-E on fulfilling the requirements for the inclusion into inter-transmission system operator compensation mechanism.

    The Electricity Market Law does not allow electricity trading licenses issued in another Energy Community Contracting Party to be recognised in Ukraine based on the reciprocity principle.