On 13 April 2017, after a very long gestation period, the Ukrainian Parliament adopted the long-awaited Draft Law No. 4493 of 21 April 2016 “On the Electricity Market” (the Electricity Market Law). The law, in its second reading, was finally adopted after review of hundreds of amendments and corrections. As of this writing, we are awaiting publication of the final version that still needs to be sent to the President for signature before becoming law. It will then become effective upon publication.
The Electricity Market Law is a signature reform in the energy market, following on the Law on the Gas Market. As with the Law on the Gas Market, the Electricity Market Law is set to implement the EU’s Third Energy Package requirements in Ukraine’s electricity market unbundling transmission and distribution of electricity. The law envisages transfer from the current single buyer model market, where State Enterprise “Energorynok” purchases all electricity in the country and then sells it to regulated and non-regulated distributors, to a liberalized market.
Implementation of the Electricity Market Law will require numerous changes to existing laws and regulations as well as new regulations to be adopted by the Regulator and is anticipated to take some years. After a transition period, we anticipate full implementation no earlier than 1 July 2019. This being said, the law will fundamentally reboot Ukraine’s electricity landscape.
The liberalized market will consist of the following components:
- Bilateral contracts
- A day ahead market
- An intra-day market
- A balancing market
- A market of auxiliary services
- A retail market
In addition to the structure envisaged by the Law of Ukraine On Foundations of Electricity Market, which has already been adopted but has never fully entered into force or been implemented (primarily because it requires the Electricity Market Law as a natural follow-up), the Electricity Market Law will allow day trades with the operator. It also introduces new private players in the market - traders who will trade in and resell electricity without selling to end users.
Similar to the Law of Ukraine On Natural Gas Market, certain market players will be vested with special public sector obligations by the Cabinet of Ministers of Ukraine or National Energy and Utility Regulatory Commission (the Regulator). Such public sector obligations:
- Purchase of electricity at feed-in (Green) tariff rates
- Rendering universal services
- Acting as the supplier of last resort
- Payment of compensatory payments
- Provision of auxiliary services.
Bearing in mind the interplay between the various players in a liberalized market, the Electricity Market Law also contemplates a new and fairly complicated structure of contractual relations in the form of at least 18 different types of agreements to be concluded by market players. All of these, of course, will require implementation through secondary legislation.
Ukraine has already adopted the Law of Ukraine on the [Electricity Market] Regulator in anticipation of the new liberalized market. The Electricity Market Law further details the Regulator’s significant powers in the new electricity market, in particular, licensing, approval of different market rules and related regulations, as well as the methodologies for tariff formation and tariffs. As expected, the Electricity Market Law will create conditions for the full implementation of RAB tariff methodology, and we hope it will be a trigger for the privatization of grid distributors.
Once the law is published and signed by the President, please anticipate further updates from us on its intricacies.