Ukraine: New Auction Procedure for the Allocation of Cross-Border Electricity Capacity

On 28 March 2017, the Regulator adopted a new auction procedure for the allocation of cross-border capacity for electricity export/import operations (the “2017 Procedure”). The 2017 Procedure came in to effect on 12 May 2017 and repeals the previous auction procedure adopted on 13 May 2015 (the “2015 Procedure”).

The first successful electronic monthly auction for the new procedure was held on 23 May 2017. The TSO is expected to launch daily auctions from 30 May 2017.

Analysis of two documents suggests that changes introduced by the 2017 Procedure are not significant. In particular, the 2017 Procedure provides for the following:

• electronic auctions for the allocation of cross-border transmission capacity shall be held by TSO (currently – National JSC “National Energy Company Ukrenergo”) on the online auction platform, with the use of an electronic document management system and electronic signature. The relevant auction platform will start functioning on 18 May 2017.

• in the event of any technical problems, TSO may also apply the reserve auction mechanism (which means a regular, non-electronic auction, to be conducted by TSO in line with the requirements established by the 2017 Procedure). Prior to the adoption of the 2017 Procedure and the launch of the auction platform, TSO applied the reserve auction rules (provided by the 2015 Procedure) on a permanent basis.

• electronic auctions shall be conducted for yearly, monthly and daily capacity, as calculated by TSO, taking into account capacity which has already been auctioned and allocated, capacity with priority access, and the balance of the country’s power system etc.;

• capacity shall be allocated to the bidders who offer the highest price until the relevant available cross-border capacity is allocated between the winners in full. The lowest price for which the capacity of the relevant interconnector was won at the auction, is the “marginal price for the access” which must be paid by the relevant auction winners to TSO. In the event that the volume of cross-border capacity requested by the participants does not exceed the volume of the available capacity, TSO shall grant access to such capacity free of charge;

• the time schedule for yearly and monthly auctions shall be published by TSO on its official web-site no later than 1 November of each year ;

• details of the auction shall be published by TSO:

• for yearly auctions – between 10th and 5th days before the auction date (previously – between 20th and 10th days);
• for monthly auctions – between 5th and 3rd days before the auction date (previously between 10th and 7th days); and
• for daily auctions – until 10:00 (Kyiv time) 2 days before the auction date (previously until 09:45 1 day before the auction date).

• in order to participate in the auctions, potential bidders must be granted “participant for allocation” status on the basis of the following documents submitted to TSO:

• an application (according to the standard form) containing the applicant’s written consent for accession to the agreement on access to cross-border capacity published by TSO;
• a completed questionnaire (in the standard form);
• a power of attorney;
• previously, the applicants were also required to submit a notice of assignment of the Energy Information Code (EIC); however, this requirement was removed by the 2017 Procedure.

• in addition, the participants are required to provide financial security to TSO at least one day before the auction commences;

• financial security may be provided either as a “contribution” (i.e.; an irrevocable unconditional bank guarantee) or as a “money obligation” (i.e.; deposit amount paid by the participant) in the amount equal to or exceeding the amount of 100 minimal official salaries (i.e. currently - 100 X 3200UAH = 320,000UAH [approx. USD 12,186]). Previously the amount of the financial security was calculated by the participant on the basis of the maximum price of the bid and the export capacity, which the applicant intended to buy at the auction;

• the relevant funds obtained as financial security may be used by TSO as a fine, in the event that the participant fails to perform its financial obligations under the access agreement;

• the financial security may be returned at the participant’s request, subject to full performance of the payment for the obtained capacity;

• participants may be allowed to participate in the auction only if:

• the participant has no debt to TSO under the access agreement(s);
• the participant has no debt to the Wholesale Electricity Market of Ukraine for the purchased electricity; and
• the participant is a valid member of the Wholesale Electricity Market of Ukraine;

• the allocated capacity (except for daily capacity) may be transferred from one participant to another subject to the performance of the financial obligations with respect to such capacity by its original holder. The transfer shall be carried out in compliance with the detailed rules provided by the 2017 Procedure, subject to notification of and registration of such transfer with TSO;

• the auction winner can lose its right to use the allocated yearly capacity in the event that the relevant capacity is utilised by the winner by less than 70 percent per month (the similar requirement was also provided by the 2015 Procedure);

It is important that the 2017 Procedure is only applicable to export and import operations and does not contain any rules and regulations directly applicable to the allocation of electricity transit capacity.

This has already resulted in a new proceeding initiated against Ukraine’s Government by the Energy Community Secretariat (ECS). The latter announced that the procedure for the allocation of cross-border capacity and its application in Ukraine is not compliant with the Energy Community Treaty (case ECS 08/15: UE / ELECTRICITY). The country has no clear and transparent rules for the allocation of transit cross-border capacity. Ukraine is now required either to adjust the existing procedure to EU standards or to provide ECS with the relevant explanations until 24 July 2017.

Law: the Regulator’s Resolution No 426 "On Approval of the Procedure for Holding Auctions for Allocation of Transmission Capacity of the Interstate Power Networks" dated 28 March 2017