State of compliance
The Law transposes the requirements for ownership unbundling of the transmission system operator in line with the acquis. Currently, the Ministry of Energy and Coal Industry controls state-owned generation companies Energoatom (NPPs), Ukrhydroenergo (HPPs), Centrenergo (TPPs) and the transmission system operator (Ukrenergo). In addition, a big state-owned gas trader (Naftogaz) and gas transmission system operator (Ukrtransgaz) are under the control of the same Ministry. In August 2017, the regulator, NEURC, adopted a certification procedure for the transmission system operator in electricity. According to the Electricity Market Law, the Government should ensure submission of the request for certification by Ukrenergo until 11 March 2018. At the same time, unbundling requirements have still not been ensured and, therefore, the certification application has not been submitted yet.
According to the Law, distribution system operators should be unbundled no later than 18 months after the Law entered into force, i.e. until 11 December 2018, 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 Law. In practice, distribution system operators are still not unbundled from the (regulated) supply of electricity and considerable delays are envisaged in the process, which led the Secretariat to send an opening letter as Ukraine failed to fulfil its obligations on legal and functional unbundling of electricity distribution system.
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.
The 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 rules for the cross-border allocation of capacity, adopted in March 2017, apply on the border with Moldova. These rules do not foresee coordinated auctions and are not in full compliance with the Third Energy Package. Electronic auctioning started in May 2017 (for both imports and exports), allocating capacity on all borders separately on a yearly, monthly and daily basis. The first annual electronic auction was performed at the end of 2017 for 2018.
The lack of compliance with Regulation (EU) 714/2009 is subject to case ECS-1/12 concerning Ukraine’s failure to comply with the Treaty’s obligations related to electricity interconnector capacity allocation.
The single buyer model currently applied in the country effectively forecloses the electricity market of Ukraine. Only generation units with an installed capacity lower than 20 MW can sell electricity directly to final consumers. Price formation based on a bidding mechanism is available to coal-fired thermal power plants only. State-owned nuclear and large hydro production is regulated below the market price, allowing for a margin, which is used to subsidize electricity production from renewable and CHP units and regulated supply of electricity to captive customers. The new Electricity Market Law envisages the abolishment of the non-compliant single buyer model implemented by Energorynok and the introduction of bilateral trading, market-based balancing, a day-ahead and an intraday market by mid-2019.
The currently applied system is not in compliance with balancing requirements of Directive 2009/72/EC. It fails to ensure adequate treatment of the costs of balancing and imbalances, as no separate balancing market or mechanism is in place to reveal the relevant costs. The current system is based on a centrally dispatched model where costs of balancing services (including network losses) are implicitly included in the market price. The imbalances of suppliers and generators are netted out. The suppliers (utilities) are responsible for imbalances above 5% of their nominations in the course of a month. This arrangement does not provide price signals for balancing services, true balance responsibility or incentives for accurate load nominations.
Under the new Electricity Market Law's provisions and the corresponding provisions of the Electricity Market Rules approved by NEURC on 14 March 2018, a market-based balancing market shall be organised, accompanied by a web-based auctioning system for reserves procurement. Moreover, imbalances shall be settled by the transmission system operator with balance responsible parties on an hourly basis. The new Electricity Market Law defines that the above arrangements shall be in place no later than July 2019.
Regulation (EU) 543/2013 on submission and publication of data in electricity markets is transposed by NEURC’s resolution of 19 June 2018. According to this Resolution, Ukrenergo should ensure submission of all required data as per Regulation (EU) 543/2013 within six months after the Resolution’s official publication.
Currently, only non-household customers can change the regulated supplier. Due to the single buyer model still in force, customers are not exercising their eligibility rights.
In March 2018, NEURC approved the retail electricity market rules which contain procedures for switching of supplier as well as provisions stipulating that all customers (except households and small non-household) will become eligible to choose a supplier no later than December 2018.
The 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 Law as well. The provisions of Directive 2009/72/EC on vulnerable customer protection were transposed by the Law.
Vulnerable customers are also defined by the Law as those household customers that, in compliance with the social protection legislation, are considered as vulnerable. According to the Law’s provisions, a governmental act is needed to define the customers meeting the vulnerability criteria.
According to the Law, the concept of the universal supplier and supplier of last resort should be implemented, and suppliers, created as a result of the unbundling of distribution system operators, should perform the role of the universal supplier and provide such services under a tariff established by the regulator. By 1 July 2020, the Government has to initiate a tender procedure for the selection of a universal supplier.
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. According to the Law, 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 2017 for the purpose of public consultation. However, the rules were not adopted due to concerns over its compliance with the Third Energy Package.
The possibility of ITC mechanism implementation was also discussed with ENTSO-E and the Secretariat. According to a preliminary decision of the ENTSO-E Market Committee, Ukrenergo can start participating in the ITC Mechanism from January 2019.
The Law does not allow electricity trading licenses issued in another Energy Community Contracting Party to be recognised in Ukraine based on the reciprocity principle.
Regarding network synchronisation, the UA TSO is in the process of developing activities in accordance with the timetable foreseen under the Agreement with ENTSO-E signed on 28 June 2017, on the conditions for interconnection of the power system of Ukraine with the power system of Continental Europe.