LAW FIRM DIRECTORY

Practice Areas |

Andriy OLENYUK ,
Partner, EVERLEGAL

Light at the end of the future tunnel

The renewable energy sector is one of the most dynamic and attractive ones from the point of view of prospects for development and attracting investment. Implementation of the Third Energy Package and other innovations in the electricity market regulation gives foreign investors the “green light”

In 2009 people began to speak seriously about the renewable energy sector in Ukraine, when the Ukrainian Parliament amended legislation so as to encourage harnessing of renewable resources in the country’s energy sector.

Since then, the legislative regulation of renewable energy has been rapidly improved, and today this energy sub-sector is one of the most dynamic and attractive ones from the point of view of prospects for development and attracting investment.

The Law of Ukraine On the Electricity Market (Electricity Market Law) came into force on 11 June, 2017, and approved a new model for the electricity market and established new rules for the operation of electricity producers from renewable sources. It is expected that the new market will begin operating from 1 July, 2019.

What innovations does the electricity market law contain, and what trends in legal regulation of renewable energy are reviewed in terms of the new market?

 

SYNCHRONICITY WITH THE EU

The Electricity Market Law was adopted as part of Ukraine’s obligations under the Energy Community Treaty and the Association Agreement between Ukraine and the European Union. The Electricity Market Law implements the basic directives and regulations of the European Union that make up the so-called Third Energy Package.

The key provisions of the Third Energy Package provide the structural reform of the electricity market by making a distinction between  the functions of “network operators”, on the one hand, and those of electricity producers and traders, on the other hand. The purpose of this distinction is to promote the market competition and create the conditions for non-discriminatory access of electricity producers to networks through which electricity is distributed to consumers.

This basically means that the legal regulation of the electricity market in Ukraine will be more understandable for foreign investors who have experience of the European Union’s markets. In its turn, this creates the conditions for opening up the flow of foreign investment into the electricity sector, including the development of electricity production using renewable energy sources.

It is expected that foreign investors will be most interested in the implementation of projects on modernization of existing facilities and commissioning new facilities for electricity production using renewable sources.

An important, positive aspect of the Electricity Market Law is the assignment of obligations to the state authorities of Ukraine, including the courts. When applying the new law, they shall take into account the law-enforcement practice of the Energy Community and the European Union, particularly the Court of the European Union, practice of the European Commission and Energy Community Secretariat.

The relevant provisions actually provide a non-regulatory nature to the decisions of the authorities of the European Union and the management bodies of the Energy Community. This implies compulsory study of relevant law-enforcement practice and justification by the state authorities of Ukraine in making decisions as to why a certain law-enforcement practice was, or was not, taken into account.

Undoubtedly, this requirement of the Electricity Market Law will increase the competence of the state authorities of Ukraine, which are high-powered in the energy sector, and improve the quality of their decisions too.

 

“PROSPECTIVE” PURCHASE AND SALE

Electricity Market Law enables electricity producers that use renewable sources to conclude an agreement on the sale and purchase of electricity with a guaranteed buyer prior to construction and commissioning of the relevant electricity production facility and for such a producer to obtain a “green” tariff. But in fact, such agreement would not come into force until a number of conditions are fulfilled. The conditions include having to obtain a license for electricity production, establish a “green” tariff, acquire membership of the wholesale electricity market and register automated systems of commercial electricity metering.

Such changes in the standard form of the agreement on the sale and purchase of electricity are a positive step in compliance of the agreement with the requirements of banks for financing electricity producers that use renewable sources. It is expected that in the future the regulator will ensure amendments to the standard form of the agreement on the sale and purchase of electricity, which will take into account the wishes of investors and best international practices.

 

NEW SALES PLATFORMS

The Electricity Market Law creates the possibility for electricity producers using renewable sources to sell electricity both on the basis of direct bilateral agreements with consumers (this possibility was previously provided by this law, but remained unimplemented due to the absence of a relevant subordinate regulation), and on organized markets, namely the day-ahead market, intra-day and balancing markets.

Creation of new electricity sales platforms by electricity producers using renewable sources will, in the medium term, provide alternative points of sale, increase market competition and promote market pricing for electricity.

 

RESPONSIBLE FOR DISBALANCE

One of the key innovations of legal regulation of renewable energy is establishing the responsibility of electricity producers using renewable sources for disbalances (i.e., deviation from actual indicators of electricity supply by the producer from the stated hourly volumes) taking into account permissible deviation. It is important that responsibility for disbalances will not be applied to the producers who commissioned their production facilities prior to the Electricity Market Law coming into force. This corresponds to the legislative guarantees for electricity producers using renewable sources. Such a situation for these producers will be valid until 31 December, 2029, i.e., until expiry of the “green” tariff. They will be covered by general rules from 2030.

For those producers who commissioned their production facilities after the Electricity Market Law came into force, responsibility for disbalances will be introduced from 2021 with gradual increase in the share of compensation by 10% per annum  until the share of compensation reaches 100% by 1 January, 2030. The permissible deviation share of stated and actual volumes of electricity supply is 20% for wind power plants, 10% for solar power plants and 5% for small hydro-electric power plants.

The application of responsibility to electricity producers using renewable sources can be called a positive factor facilitating the transition of such producers to a competitive electricity market on expiry of the period of promoting the use of renewable energy sources in 2030. It is also expected that such producers will invest in the development and introduction of new technologies in terms of forecasting electricity production and its storage for subsequent balancing of the electricity supply to the network and avoiding responsibility for disbalances.

In summary we can note that with the introduction of the new electricity market, electricity producers using renewable sources have the following positive consequences: improvements in the regulatory component taking into account the experience of developed markets in the European Union, increased market competition, non-discriminatory access to networks and the responsible behavior of other market participants.