Electricity Market in Ukraine: New Legislation To Be Adopted. Risks and Profit.
On September 22 the Parliament made the first step to the new rules on electricity market and adopted in the first reading the bill "On Electricity Market of Ukraine".
The manufacturers, investors and customers have been waiting for the Parliament to set up new regulation for years, but does the current bill is what they waited for? Gutovska & Partners law firm has analyzed everything. Overview
First, the main purpose of the bill is to regulate relations between the parties to the electricity market in Ukraine, who carry out production, transmission, distribution and supply of electricity to consumers. The bill intends to harmonize Ukrainian legislation with the norms and standards of European law in the electricity energy sector. The bill provides for the creation of independent structures for transmission and distribution of energy, determines the rules of functioning of electricity markets, rules of compulsory licensing of participants in the electricity market in the National Commission for state regulation in the energy and utilities sectors (Commission).
Legal regulation of the market
The bill stipulates that the electricity market will operate according to the principles of free market economy, prevention of monopolization, freedom of contract and freedom to choose contractors.
Relations between participants and their activity in the market will be governed by "internal rules", rules and standards developed by market participants and are subject to review and approval by the public authorities, including the Commission. The bill established a list of five regulations, "Codes" and "market rules" which govern the rules of transmission, distribution and supply of electricity and its own rules of the electricity market. Each of these codes has its own procedure of development and approval. For example, the rules of the "a day ahead" market and "one day" market are developed and administered by the market operator and are subject to approval by the Commission in consultation with the Antimonopoly Committee.
The main purpose of codes and rules is to regulate various aspects of relationships between market participants. For example, a code of transmission and distribution systems determines the conditions and procedure for access and connection to the transmission/ distribution system.
State control and licensing of market participants
The bill stipulates that any economic activity in the electricity market is subject to licensing. In particular, market participants engaged in the production, transmission and distribution of energy to the consumer and those participants engaged in purchase and sale of energy - traders, suppliers and market operators - are subject to mandatory licensing. License terms are established by the Commission, which is also responsible for licensing of participants, monitoring compliance with licensing conditions and the approval of the rules governing the functioning of the electricity market (code of system transmission / distribution, rules of supply to consumers, the rules of the market, etc.).
Tariffs are also subject to state regulation, including tariffs for transmission and distribution of electricity, "green" tariff, rates for accession, the price of universal service etc.
The structure of the electricity market
Under the bill, all purchase transactions of participants must be conducted within organized market segments as defined in the bill. In addition, it is expected that Ukraine will operate a balancing market, ancillary services market and the retail market. Within these markets, participants will be free to choose contractors, enter into these contracts freely and under conditions determined by agreement of the parties, subject to the limitations prescribed by law. Besides, the participants must follow the rules of the market in which they conduct their business activities.
The rights and obligations of participants in the electricity market
The bill also provides a comprehensive list of market participants who are entitled to carry out activities related to various aspects of the market - from electricity production to its supply to end users. The main market participants are:
Manufacturer - an entity that generates electricity:
Transmission system operator - a legal entity responsible for operation and functioning of domestic and international transmission lines of energy.
Distribution system operator - a legal entity responsible for the operation and maintenance of energy distribution systems;
Energy supplier - an entity that sells electricity under a contract of supply to the consumers:
Trader - an entity or person that purchases electricity solely for the purpose of resale;
Market operator - a legal entity that ensures operation of the "day ahead" market and "one day market" and sale of electricity within these markets;
All manufacturers must be licensed by the Commission. They have the right to enter into bilateral contracts for electricity sales in the relevant markets. Among other rights, the producers have the right to choose contractors under the contract, as well as the right to timely and full payment for the electricity sold.
Transmission System Operator
Only a public company, in which one hundred percent of the capital is owned by the state, can be qualified as a transmission system operator. Public operator company is not subject to privatization or any other form of alienation. Operator must provide equal access to the transmission system, provide services in accordance with the law and the code of the transmission system, as well as provide adequate technical maintenance and operation of such systems.
Distribution system operator
Distribution system operator provides services of energy distribution only under appropriate license, issued by the Commission. Distribution activities must be carried out on non-discriminatory basis, in accordance with the law and the code of distribution.
Electricity Market Operator
Electricity market operator provides market operation of "a day ahead" and "one day" market and organizes transactions of sale of electricity under the license. The operator of the market creates organizational, technological, informational, legal and other conditions to support trading activities carried out by other participants of the market.
A trader can resale electricity only after obtaining appropriate license from the Commission. Resale is carried out under the terms of bilateral sale agreements within the segments of the electricity market. Traders do not have the right to buy / sell electricity under the supply contracts to consumers.
Energy suppliers who hold a license, have the right to sell electricity to consumers under a contract of supply. Supply of electricity can be made at unregulated market prices.
To conclude, it is assumed that the law will promote fair playing field by providing equal rights to all participants and create a clear organizational structure of the market, which must, in theory, minimize the cost of supply of electricity. The Article is prepared by Managing Partner Olga Gutovska and Associate Victor Marchan.