Ukraine: Law on Certification of Electricity Transmission System Operator passes first reading in parliament

Ukraine

On 15 April 2021, the Ukrainian Parliament adopted the Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine Concerning the Certification of the Transmission System Operator No. 1396-IX (Certification Law). This Certification Law was signed by the President of Ukraine and entered into force on 15 May 2021.

The Certification Law is the key element in Ukraine's ongoing electricity market reform. It will ensure the market's liberalisation, efficiency, and transparency and allow further integration with neighbouring European markets.

New unbundling model of TSO introduced by the Certification Law into Ukrainian legislation

The Certification Law provides for the option of unbundling of the Ukrainian electricity transmission system operator (TSO) under the independent system operator (ISO) unbundling model and for its certification in accordance with the EU Third Energy Package by the Regulator (after obtaining a positive conclusion of the Energy Community Secretariat on unbundling of the TSO).

Certification of the TSO is one of the prerequisites for integrating the Ukrainian Unified Energy System with ENTSO-E and implementing the Third Energy Package in the electricity sector. As a result, if adopted, the Certification Law will bring Ukraine a step closer to integration with neighbouring European markets and will also ensure the continuation of reform, liberalisation, increase of efficiency and the transparency of the Ukrainian electricity market.

Initially, the Law of Ukraine On Electricity Market No. 2019-VIII dated 13 April 2017 (Electricity Market Law) envisaged unbundling of the TSO on the basis of the ownership unbundling model (OU Model), which contemplated that the TSO, as a separate legal entity, would own the electricity transmission system assets. However, due to Ukrainian regulatory restrictions, the electricity transmission system assets can be owned only by the Ukrainian state. Thus, the TSO is not allowed to own electricity transmission system assets and can only exercise "economic management right" over such assets (which is neither equal nor compatible with the ownership right). As a result, the Energy Community Secretariat rejected certification of the TSO under the OU Model. 

Therefore, the Certification Law proposes amendments to the Electricity Market Law of Ukraine, which will open the way for the TSO's unbundling and certification under the independent system operator model (ISO Model), which allows the state to maintain ownership over electricity transmission system assets and the TSO to operate independently under a set of rules and limitations. The changes also aim to harmonise both the mandatory unbundling rules stemming from the EU acquis on electricity and Ukraine's national regulatory regime for the management of the state property assets and, in particular, the electricity transmission system.

The key provisions and novelties introduced by the Certification Law include:

1. Special requirements for unbundling and independence of the TSO under the ISO Model, including, among others, the following:

a) the TSO must be fully owned by the state of Ukraine or by a 100% state-owned company;
b) the TSO must have financial, technical, material and human resources necessary for performance of the TSO functions; and
c) development and submission for approval to the Regulator of the electricity transmission system development plan for the next ten years and the report on assessment of sufficiency of generating capacities.

2. Obligations of the TSO and the state owner of the electricity transmission system assets under the ISO unbundling model, including, among others, the following:

a) TSO:

  • management of the access and provision of the access to the electricity transmission system; and
  • operation and maintenance of the electricity transmission system and ensuring the ability of the electricity transmission system to satisfy long-term demand for electricity; and

b) State owner of the electricity transmission system:

  • provision of all necessary cooperation and support to the TSO;
  • financing investments envisaged by the electricity transmission system development plan for the next ten years;
  • performance of financial obligations related to the electricity transmission system assets; and
  • provision of guarantees for financing of the development of the electricity transmission system.

3. Independence of the state owner of the electricity transmission system assets under the ISO unbundling model, including:

a) state owner of the electricity transmission system assets cannot interfere with activities of the management and other bodies of the TSO; and

b) state owner of the electricity transmission system assets must develop and implement a compliance programme aimed at preventing discriminatory actions and impact on the activities of the TSO.

4. Development of the compliance programme and appointment of the compliance officer of the TSO for the purpose of ensuring that discriminatory activities will not be performed by the TSO.

5. The Regulator's supervisory role in unbundling under the ISO model, including supervision over performance of its obligations by the TSO and monitoring relations between the TSO and the state of Ukraine as owner of the electricity transmission assets, as well as the Regulator's right to establish tariffs for electricity transmission and for other services related to access and connection to the transmission system grid.

6. The possibility for state authorities to transfer state-owned electricity transmission assets into so-called 'economic management' of the TSO.

7. Independence of the ministry exercising corporate management over the TSO.

However, there are still minor deficiencies in the Certification Law. For example, the Certification Law does not provide for the Regulator`s power to monitor the use of revenues resulting from the cross-border transmission capacity related to and required for implementation of the ISO unbundling model by the EU Third Energy Package.

Despite the above, on 29 April 2021, the Ukrainian TSO announced its plans to start the certification process under the ISO model with the expectation of finishing and obtaining approval from the Energy Community Secretariat by autumn 2021.

Other changes

The Certification Law has also introduced several other changes into Ukrainian legislation, which are not related to the certification of the Ukrainian TSO:

1. Definition of the energy storage systems was introduced to the Electricity Market Law.

2. Revised congestion management regulation in the Electricity Market Law.

3. Amended procedure for allocation of interconnection points capacities and cooperation between Ukrainian and neighbouring TSOs in the Electricity Market Law.

For more information on the Certification Law, contact your regular CMS advisor or local CMS experts: Vitaliy Radchenko, Maria Orlyk, Maryna Ilchuk.

Source: Text of Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine Concerning the Certification of the Transmission System Operator No. 1396-IX dated 15 May 2021