L&M Finance Group


The draft Law “On Amending the Law of Ukraine“ On the Electric Energy Market ”No. 2233 dated November 12, 2019, adopted as the basis, has already received the unofficial status of the draft law that levels the independent status of the electricity market in Ukraine, and has succumbed to fervent criticism from many domestic media. It is noted that draft Law No. 2233 violates the format for creating a free electricity market in Ukraine and will impede the country's European integration. However, if we consider the draft Law in the context of international norms, especially the Association Agreement, the conclusion will not be so clear. Bill No. 2233 of November 12, 2019 proposes to introduce the following amendments to the Law of Ukraine “On the Eclectic Energy Market”:
  1. Grant the right to the Regulator for the period up to July 1, 2023 to set boundary prices on the electricity market, as well as make decisions on the obligation for manufacturers to submit proposals (applications) for the sale of electric energy on the market “one day in advance”. Such offers (declare) should not exceed the marginal prices not on the day-ahead market. This is primarily due to the prevention of uncontrolled growth in the price of electric energy. According to information from open sources, it is assumed that the obligation of electricity producers to submit bids for sale on the market “one day in advance” at prices that do not exceed maximum prices should ensure the impossibility of creating artificial shortages in the market.
  2. By decision of the Cabinet of Ministers, and in the amount approved by the Regulator, to oblige the Guaranteed Buyer to send the difference between income and expenses to cover expenses related to the performance of other special duties. Considering the purpose of the bill, we assume that the legislator specifically meant the mechanism for fulfilling special duties related to the purchase of electric energy at the “green” tariff, since even today there is a debt on payments for electricity, which is generated and sold on the basis of the “green tariff”.
  3. Grant the right to the Regulator to set the tariff by April 1, 2020 at the level of the cost of supplying electric energy to producers who carry out combined production of electric and thermal energy at cogeneration plants, in cases provided for by the decision of the Cabinet of Ministers of Ukraine on assigning special duties. The above will help ensure uninterrupted heat supply to consumers during the heating period, since the electric energy that is needed for the operation of the thermal power plant will be supplied to manufacturers who operate the thermal power plant at tariffs at the cost level.
It is worth noting that this project belongs to the energy sector, which is one of the priority areas in the context of adapting Ukrainian legislation to European Union law. Based on this, the Committee on Integration of Ukraine with the European Union, having analyzed the norms of the draft law, did not recommend its adoption. According to the conclusion of the Committee, the bill does not comply, in particular, with art. 269 of the Association Agreement, which expressly states that prices for the supply of electricity to industrial consumers are determined solely by demand and supply, and therefore should not be set by the Regulator. At the same time, the same Agreement provides for an exception in cases where the right to set a regulated price is stipulated by common economic interests. This applies not only to boundary prices in the electricity market, but also to the right to buy electricity at cost for producers who operate thermal power plants, since it can be about ensuring the welfare of all residents of the country.
It should be noted that such steps by the legislator are quite risky, since even the sale of electricity at the cost level for a thermal power plant can lead to damage to the electricity producer. On the other hand, with the introduction of a new electric energy market, CHP plants are becoming less competitive, and such an initiative may provide temporary support to producers who produce combined production of electric and thermal energy. In both cases, it is too early to give an unambiguous assessment - it remains to reap a final decision and consider it in its entirety.