Ukraine develops draft legislation regulating energy storage

Ukraine

On 17 September 2021, the Ukrainian parliament registered the Draft Law “On Amendment of Certain Laws of Ukraine Regarding Energy Storage Systems” No. 5436-д dated 17 September 2021 (ESS Draft Law), which, if adopted, will establish the regulations for energy storage systems (ESSs) in Ukraine.

It should be mentioned that the ESS Draft Law is supported by the Committee of Energy and Utilities of the Ukrainian Parliament, as well as various market players and NGOs. To enter into force, however, the draft law must be firstly voted in two readings, signed by the President of Ukraine and officially published, a process that can take at least four to six months.

The ESS Draft Law regulates the same subject matter (ESSs) and has a number of similarities with the draft laws that were previously registered in the Ukrainian Parliament and were aimed at regulation of ESSs activities in Ukraine (such as Draft Law 2582 dated 12 December 2019* and Draft Law No. 5436-2 dated 19 May 2021**) in relation to:

(a) definitions of an ESS operator and energy storage;

(b) the requirement that ESS operators obtain licences for performance of energy storage activities and exempt power producers from this requirement;

(c) definitions of the rights and obligations of the ESS operators;

(d) the conditions for the operation of ESSs by a transmission system operator (TSO) or a distribution system operators (DSOs); and

(e) provisions establishing that power producers with installed ESSs benefiting from the feed-in-tariff or tariff for electricity obtained through auctions for distribution of support quotas will not be compensated for the amount of electricity collected by the ESS as a result of the TSO dispatching commands that resulted in curtailment.

It also should be noted that the recent ESS Draft Law brings regulation of ESS closer to the EU Acquis than these previous draft laws.

Regulation of ESS activities

Although the definition of ESSs was introduced previously into the Law of Ukraine No. 2019-VIII dated 13 April 2017 (Electricity Market Law) by the Law of Ukraine No. 1396-IX dated 15 April 2021, the ESS Draft Law subsequently extends significantly the regulatory framework of ESSs by:

  • Aligning other definitions of the Electricity Market Law with the concept of ESSs (e.g. power production, power enterprise, power facility and power market participant);
  • Defining the status of “ESS operator” as an individual, including private entrepreneur, or legal entity that performs energy storage with the aim of selling electric energy that is being dispatched from the ESS and/or with the aim of providing ancillary or balancing services by means of ESS; and
  • Defining “Energy storage” in its turn as an activity of withdrawing electricity, transforming it into other types of energy that can be stored, storaging and subsequently transforming such energy in electric energy with the aim of dispatching this power through transmission, distribution grids or into the grids of power station or consumer.

Under the ESS Draft Law, ESS operators will be required to obtain a licence for performance of energy storage activities if the capacity of the respective ESS exceeds the one established in the licencing conditions for performance of energy storage activities. However, the respective licencing conditions have not been adopted yet. The ESS Draft Law establishes the following exemptions from the above licensing rules:

  • Power producers are exempted from the requirement to obtain the aforementioned licence, as long as capacity from which the dispatch of electric energy is made does not at any moment exceed the total installed capacity stated in the power generation licence of the respective power producer;
  • Consumers are allowed to use ESSs without a licence, as long as they do not dispatch electricity into the Unified Energy System of Ukraine or into the grids of other enterprises; and
  • Activities of electric vehicle charging stations, which are defined as consuming energy and thus do not require a licence for performance of energy storage or supply activities.

The ESS Draft Law also establishes the following requirements for performance of ESS activities:

  • ESS operators are allowed to perform the purchase and sale of electricity on the electricity market and/or provide balancing or ancillary services subject to their compliance with the legal acts that regulate functioning of the electricity market;
  • ESS operators are entitled to fair, non-discriminatory and transparent access to transmission and distribution systems. The transmission system operator, is obliged to determine the optimal connection points of ESS when developing the transmission system development plan;
  • At the same time, ESS operators are obliged to comply with the relevant licencing conditions, provide the TSO with daily forecasts of power withdrawal and generation, be responsible for imbalances, and perform separate metering of electricity withdrawn into or dispatched from ESSs; and
  • Payment for transmission service to the TSO, distribution service to distribution system operators (DSOs) and for dispatching services to the TSO by ESS operators is calculated as the difference between monthly consumption and dispatch of electricity by the ESS operator.

The ESS Draft Law has the following impact on renewable power producers that benefit from the feed-in tariff or from the tariff for electricity obtained during auctions for distribution of support quotas (RPPs):

  • The ESS Draft Law establishes that RPPs are exempted from the requirement to obtain the licence for performance of energy storage activities, as long as the capacity of the dispatched electricity does not exceed the total installed capacity stated in the power generation licence of the respective RPPs and the separate commercial accounting system that registers electric energy stored and dispatched from ESSs (without clarification on whether these RPPs can dispatch electric energy stored in their ESSs under the respective feed-in-tariff or under the tariff for electricity obtained during auctions for distribution of support quotas);
  • The ESS Draft Law further establishes that reimbursement for curtailment of RPPs will be decreased by the amount of electric energy that was stored in the ESS of the RPP during the curtailment in question; and
  • Installation of ESSs by RPPs does not result in a change to the feed-in-tariff.

Rights of the TSO and DSOs to operate ESSs

The ESS Draft Law allows the TSO and DSOs to operate ESSs if the following conditions are met:

  • Provided ESSs are fully integrated elements of the grid and Regulator approved their usage; or
  • In case all of the following is met:
    • There is not enough of ESSs on the Ukrainian electricity market that are necessary for balancing of Unified Energy System of Ukraine (in case of TSO) or which are needed by the relevant DSO (in case of DSOs);
    • Such ESSs are needed by the TSO or DSO for the performance of its obligations with regard to effective, reliable and safe operation of the transmission system or distribution systems, and they are not used for the purpose of buying and/or selling of electric energy on the electricity market, provision of balancing and/or ancillary services;
    • Acquisition of ESSs is performed in accordance with public tendering regulations; and
    • The Regulator has confirmed the necessity for provision of such a right, performed preliminary examination of tender documentation and provided its approval regarding it; and
  • the TSO is allowed to use its own ESSs only in case of pre-emergency, emergency or system emergency or recovery modes of the transmission system.

Furthermore, the ESS Draft Law clarifies that any decision of the Regulator allowing usage of ESSs by the TSO must be reported to the Secretariat of Energy Community.

Public discussions regarding another draft law on ESSs

Despite the support of the aforementioned ESS Draft Law, the Ministry of Energy of Ukraine has also developed and published on its web-site the Draft Law “On Amendment of Certain Laws of Ukraine Regarding Energy Storage Systems” (ESS Draft Law 2) for public discussion that was held until 3 October 2021. The ESS Draft Law 2 is also aimed at regulating ESSs in Ukraine (available by the link). Please also note that the Cabinet of Ministers of Ukraine must approve the ESS Draft Law 2 before it can be registered in the Ukrainian Parliament for voting.
The ESS Draft Law 2 regulates the same subject matter (ESSs) and moreover has a number of contradictions with the ESS Draft Law in the following ways:

  • it fully prohibits the operation of ESSs by the TSO and DSOs;
  • it allows the state to tender new storage capacities for “ensuring necessary reserve”; and
  • it implements corresponding service on the ancillary market – “service of ensuring accessibility of the reserve of the generating capacity for keeping balance of the capacity and energy of the Unified Energy System of Ukraine”.

CMS will continue to monitor energy reform news and will keep you updated on any developments.

For more information on this Draft Law and Ukrainian energy reform, contact your local CMS advisor or local CMS experts: Vitaliy Radchenko, Maria Orlyk.

Legislation: Draft Law “On Amendment of Certain Laws of Ukraine Regarding Energy Storage Systems” No. 5436-d dated 17 September 2021 (in Ukrainian).

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* For more information on the Draft Law 2582 dated 12 December 2019 please read the article (in Ukrainian)

** http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=71977