Main Amendments And Clarifications To The Principles And Mechanisms Of Operation Of The Law Of Ukraine No. 3220-Ix

On July 27, 2023, the Law of Ukraine No. 3220-IX “On Amendments to Certain Laws of Ukraine on the Restoration and Green Transformation of the Energy System of Ukraine” (hereinafter — the Law), came into effect. The updates and amendments to the Law are essential for the renewable energy sector, as they lead to the transformation of Ukraine’s energy system and significantly liberalize the operation of renewable energy sources in general and distributed generation in particular.

Our expert Serhii Kravchuk, Director of KNESS Energy, outlined the main changes implemented by the Law and explained the principles and mechanisms of their operation.

Among other things, the Law defines:

• the operation of producers from alternative energy sources under the market premium mechanism, which lies in creating an opportunity for a producer that has been set a feed-in tariff to sell electricity in organized market segments, as well as in the market of bilateral agreements, but at the same time receive the difference between the amount of the feed-in tariff or auction price, taking into account the mark-up to them, and the settlement price determined in accordance with the procedure established by the Law of Ukraine “On the Electricity Market”. In the meanwhile, if the amount of the estimated market price in a certain period exceeds the amount of the auction price, taking into account the mark-up to it, the electricity generating entity shall pay the Guaranteed Buyer the cost of the service under the market premium mechanism for the electricity supplied. The amendments to Article 66 of the Law of Ukraine “On the Electricity Market”, which establishes a voluntary principle of participation in electricity auctions for all renewable energy producers, are a reinforcing factor for the conclusion of such agreements;

• conditions for creating the financial balance sheet of the Guaranteed Buyer, which provides for additional income from the sale of “guarantees of origin” and the possibility of attracting financing to cover the service to ensure an increase in the share of electricity production from alternative energy sources from the state budget. Thus, for the first time at the legislative level, the Guaranteed Buyer and the Producer are entitled to set off mutual homogeneous claims in the event of mutual homogeneous debts. It also stipulates that in the case of a producer with a feed-in tariff, a prerequisite for becoming part of the Guaranteed Buyer’s balancing group is having a load reduction agreement in place with the transmission system operator.

• the operation of an active consumer, including through the mechanism of self-generation. The Law creates the possibility of selling generation facilities, including those from alternative energy sources, with their connection to the consumer’s internal grids. The Law sets out the main classification conditions for obtaining the status of an active consumer and defines the conditions that an active consumer shall meet to maintain it. The requirements for the electrical installations to be connected are determined by the current transmission and distribution system codes. Another feature defined by the Law is the possibility of selling surplus electricity to the electricity supplier at contractual prices. The capacity of an active consumer’s generating facility is determined by the rated capacity of the inverter equipment of such a generating facility, which ensures parallel operation of the generating facility with the power system. In turn, the readiness for operation of the generating facility shall be confirmed by the authorized body in the field of construction;

• the operation of a new market participant, the licensee — the Aggregator. The new type of activity in the electricity market — aggregation — will allow for the management of distributed generation facilities and/or energy storage facilities connected to the consumer’s internal grids or to the system operators’ grids with a capacity of up to 20 MW. It is envisaged that the Aggregator will dispatch the facilities of the aggregated unit to provide balancing services and ancillary services for the transmission system operator. Also, the Aggregator will be the balance responsible party for the aggregated facilities;

• the operation mechanism of the system for electricity origin guarantees. An origin guarantee of the electricity produced from renewable energy sources is an electronic document that confirms that a certain amount of electricity is produced from renewable energy sources, confirms its environmental value, and certifies the rights associated with the positive effect of electricity production from renewable energy sources. This refers to the environmental value of electricity produced from renewable energy sources — the amount of greenhouse gas emissions that were avoided by producing 1 MWh of clean electricity. The law also defines the procedure for issuing guarantees of origin and operation of the electronic platform and its operator;

• the operation of a new market participant, a licensee — a small distribution system operator, which will create power grids and provide connection and distribution services for industrial park participants. The law provides for the possibility of implementing a joint small distribution system for several industrial parks located on adjacent land plots. The possibility of connecting renewable energy facilities and energy storage facilities to the grids of the small distribution system has been determined.

The newly adopted Law has created favorable conditions for the implementation of new projects in the renewable energy sector and balancing capacities, including those connected to consumer grids. The Law also outlines changes to the operating conditions of already implemented renewable energy facilities regarding the possibility of selling electricity on market terms. For the models envisaged by the Law to function properly, it is necessary to develop a significant number of bylaws, including license conditions, amendments to market rules, and to the existing codes of transmission and distribution systems which are currently being implemented step by step.