“A source of concern” – experts on the proposed changes to the Law “On the Electricity Market”

What do market participants think about the proposed expanding the powers of the, changes in imports rules and restrictions on renewables.


Last week, six documents were submitted for consideration by the Verkhovna Rada with proposed amendments to the Law “On the Electricity Market”. It is proposed to impose restrictions on the electricity imports from the Russian Federation and Belarus, restrictions for “green” generation, but to expand the powers of the National Energy and Utilities Regulatory Commission. One of the draft laws was initiated and introduced personally by Andriy Gerus, Chairman of the Verkhovna Rada Committee on Energy and Housing and Public Utilities Services. Read more about the proposed changes to the law by clicking.

Kosatka.Media discussed new draft laws with experts and participants of the electricity market.

Volodymyr Omelchenko, Director, Energy Programmes, Razumkov Centre

About imports

“The energy systems of the Customs Union and the European Union are incompatible by standards. Therefore, if Ukraine has decided on its strategy, and has certain obligations to the Energy Community to integrate into ENTSO-E, then there is no logic for us to buy electricity either from Russia, or from Belarus, or other countries of the Customs Union. This is not logical, and it can damage our own energy. Now a nuclear power plant is being built in Belarus and, if we get electricity from it, also in the base schedule, this could negatively affect the economy of our own generation”.

About restrictions for renewables

“There really is a big problem, because today clean energy is developing at a very fast pace. It is greater than the system can operate in a stable mode and greater than the available maneuvering capacities. Therefore, from a technical point of view, this may be an understandable solution, but from a legal point of view, there are certain doubts, as the law has no retroactive effect, and investors may file lawsuits”.

About the powers of the National Energy and Utilities Regulatory Commission

“I adhere to the ideology that prices should be determined between producers and consumers. The role of the Regulator is only to ensure the interests of the consumer without unnecessary monopoly  and violation of market rules. This is its main role, not the setting of tariffs or price caps. I think that the transition period should not last more than a year. To date this issue has dragged on, and tariffs, as we know, are determined not by the market, but by the interests of large players and politics. This is much worse than when prices are determined by the market”.

The Energy Community Secretariat

About the powers of the National Energy and Utilities Regulatory Commission

“The Secretariat is concerned that the proposed tools are disproportionate and violate the basic principles of the European law”, the Secretariat said in an official statement.   

First of all, attention in the message is drawn to the fact that the National Energy and Utilities Regulatory Commission is given excessive freedoms in regulating the price caps in the markets:

“The introduction of price restrictions on an ongoing basis exceeds the right to regulate wholesale prices permitted in the Third Energy Package... Accepting fixed prices at the legislative level will also lead to the fact that the Ukrainian energy market will be regulated, and the deviation from the European target model will be fixed forever. Constant price caps distort market and investment signals, and lead to significant losses in the economic well-being of Ukraine”.

About restrictions for renewables

As for restrictions for “green” generation, the Energy Community is concerned about discrimination and retroactive legislative changes.

It is noted that the abolition of the right of “priority dispatching” might be acceptable, but “in more mature markets” (Ukrainian one is not mature – ed.), if there is a good reason:

"Anyway, the exclusion of individual producers may be justified only the reasons for the reliability and safety of the energy system, and not in a general, arbitrary and discriminatory manner, such as the introduction of a common power threshold of 150 MW. The same applies to the exclusion of these producers from the list of those who are entitled to compensation, in case of production limitation”.

“To the extent that the proposed changes to the law affect compliance with (standard) agreements on the purchase of electricity between interested renewable energy producers and a guaranteed buyer, this raises concerns about retroactive changes in legislation”, the report said.

The European Business Association

About imports, restrictions for renewables, the powers of the National Energy and Utilities Regulatory Commission

The Association published an official report containing an assessment of how the draft amendments to the law were presented as a whole. It is noted that the meeting of the relevant Verkhovna Rada Committee on Energy and Housing and Public Utilities Services took place with a number of serious violations. In particular, a number of draft laws were introduced: which were not actually registered in the Verkhovna Rada on the date prior to the meeting; which are still under consideration by the Chairman of the Verkhovna Rada (in accordance with the Rules); and which have not yet been referred to the Committee. It is also emphasized that there were no obligatory conclusions on the proposed draft laws, and that the draft laws were passed even before the deadlines for submitting alternative draft laws.

“Therefore, the business community expresses its deep concern about the significant violations in terms of familiarizing MPs and business representatives with legislative initiatives, as well as the lack of the ability to provide comments and suggestions on legislative initiatives. Despite the fact that the course on openness and transparency of procedures was declared earlier”, the Association said in a statement.

Yaroslav Mudriy, Managing Partner at Energy Resources of Ukraine (the company bought 250 MW of imported interchange)

About imports

The ban on the electricity imports is a non-market regulatory mechanism. The whole idea of ​​launching a new market was to create competition, and it is possible to ensure it, including import.

The question raised (restriction of imports from the Russian Federation, Belarus or Europe – ed.) is the problem of determining the trade relations in principle: not only electricity, but trade in coal, diesel, and other products. In our opinion, to allocate electricity from all products is not entirely correct.

Today, the issue of the lack of relatively inexpensive coal is becoming relevant. Yes, theoretically it can be bought in other countries, but the price, logistics and restrictions + terms of its delivery to Ukraine significantly complicate the situation, which means that the issue of passing the heating season 2019-2020 is critical. Under these conditions, it is incorrect to support the imports ban.

Imports are the only source that promotes competition in the market of bilateral contracts with thermal generation. The latter here have a monopoly, at least, on the cost of transaction costs associated with the purchase and sale of electricity in the “day-ahead” market (commission of the market operator).

Sergey Yevtushenko, UDP Renewables Managing Partner

About restrictions for renewables

“We are anxiously watching any attempts at retroactive changes in legislation. Indeed, the proposed adjustments, in fact, suggest the absence of compensation for investors who have introduced capacities of more than 150 MW in case of technical complications”, Mr. Yevtushenko said in an exclusive comment for Kosatka.Media.

The companies that planned and made the investments calculated their economic models based on the current legislation. Therefore, at the moment, we consider it incorrect to introduce any changes from the Ukrainian side. They are acceptable for those projects that will be commissioned in subsequent periods. Then the business will be able to assess the risks that await it along the way.

All contracts must be fulfilled – this is a basic principle of international law. This is the principle of conducting transparent business in the world, and we would like Ukraine to adhere steadily to the words given to the investor as enshrined in the relevant legislation.

 

 

Kosatka.Media

Tags: legislation, electricity, electricity market

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