Ukraine’s international obligations regarding reform of the country’s electricity market are determined by the Treaty establishing the Energy Community and the Association Agreement between Ukraine and the European Union, the European Atomic Energy Community, and their member states.
Ukraine launched a new electricity market on July 1, 2019, following the April 13, 2017 adoption of the Electricity Market Law. It is expected that the implementation of reforms defined by the Electricity Market Law will lead to the liberalization of the Ukrainian electricity market and its functioning on a competitive basis.
The main objective of electricity market reform is to create a competitive market at the wholesale and retail levels. Reform of the electricity market should open the market to new participants, provide consumers with the right to choose electricity suppliers, and pave the way for affordable electricity prices.
Electricity Market Liberalization: Initial Results
Ukraine only had two years to prepare for a new electricity market. During this period, it was necessary to develop and adopt more than 100 legal acts, carry out the unbundling of all distribution system operators and SE NPC Ukrenergo, establish a guaranteed buyer for producers using renewable sources, and create a market operator for the day-ahead and intraday markets.
The first step on the path towards implementing the new electricity market was reforming the retail market. Implementation of a retail electricity market began on January 1, 2019, with the following results: (a) a new regulatory framework for the retail electricity market has been developed and implemented; (b) there are 302 independent electricity suppliers from which consumers may choose; (c) distribution system operators were unbundled and new entities on the retail electricity market – a distribution system operator, commercial accounting service provider, and electricity supplier – were created.
Main Challenges Facing the Launch of a New Electricity Market
The final steps towards energy reform took place in a challenging environment. In March-April 2019, Ukraine held presidential elections. After the inauguration of President Volodymyr Zelenskyy, the Verkhovna Rada (the unicameral parliament of Ukraine) was dissolved and preterm elections were set for July 21, 2019. This created uncertainty over the launch of a new electricity market.
For this reason, most participants of the electricity market and key stakeholders raised the issue of postponing the implementation of the new electricity market. Representatives of the EU and European Investment Bank backed this initiative due to the lack of a proper regulatory basis and suitable IT systems.
Parliament registered two drafts relating to the Electricity Market Law, initiated separately by MPs and President Volodymyr Zelenskyy, calling for postponing the launch of the new electricity market for a period of from three months up to one year. However, parliament did not consider either draft.
On June 13, 2019, the Constitutional Court of Ukraine issued ruling No. 5-p/2019, recognizing some conditions of the Law on NEURC as unconstitutional, and these unconstitutional conditions will expire on December 31, 2019. This decision raised issues regarding the authority of the regulator before the implementation of the new electricity market, but did not stop the launch of the market.
Electricity Market Launch: Key Results
Notwithstanding a variety of difficulties, in June 2019 the Cabinet of Ministers of Ukraine and the National Energy and Utilities Regulatory Commission of Ukraine (NEURC) adopted an unprecedented number of resolutions regarding the launch of the new market. The Cabinet of Ministers adopted both the procedure for imposing special obligations on the participants of the electricity market to protect the public interest and the procedure for conducting electronic auctions for the sale of electric energy under bilateral agreements.
The NEURC revised market rules and day-ahead and intraday market rules. Additionally, the NEURC provided licenses to the guaranteed buyer and the market operator less than one week before the launch of the market, making it possible to conclude the amendments to the power purchase agreements of the producers of energy from renewable sources and launch the electricity market with all participants.
By Maryna Hritsyshyna, Head of Energy, Sayenko Kharenko
This Article was originally published in Issue 6.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.