Review of the Law of Ukraine No. 3220-IX: Small Distribution System

We continue to shed light on some of the innovations implemented by the Law of Ukraine No. 3230-IX in the framework of an expert review by Serhii Kravchuk, Director of Electricity Trading and Supply in KNESS.

In this article, we will address the topic of small distribution systems.  For example, in Europe, the analog of such systems is the Closed Distribution System.

Keynotes

First, let’s look at the basic concepts: “small distribution system” (SDS) and “small distribution system operator” (SDSO).

SDS is a system of lines, auxiliary equipment, transformation and switching equipment from the connection point to the distribution system operator’s (DSO) or transmission system operator’s (TSO) grids to the points of connection of users’ electrical installations located on a limited territory of facilities and/or land plots owned by the SDSO and used to distribute electricity to users who meet the requirements set out in this Law.

SDSO is a business entity responsible for the safe, reliable and efficient operation, maintenance of the SDS and ensuring the capacity of this system to meet the reasonable demand for electricity distribution to its users, taking into account environmental protection and energy efficiency requirements.

The main thing to note is that SDSO can provide electricity distribution services to their users on the basis of contracts. The Regulator may classify electricity grids as a small distribution system if the following conditions are met:

• distribution by such grids is carried out for users whose electrical installations are located on the territory of facilities and/or land plots; 
• electricity is not distributed by such grids to household consumers; 
• no electricity transmission outside the SDS is carried out; 
• SDS’s electricity grids are owned by the SDSO and are located on the territory of the facilities and/or land plots where the SDS users’ electrical installations are located, except for the SDS connection lines to the DSO or TSO grids, which may be located outside such territory; 
• connected capacity of the SDS is not less than 1000 kW, which is acquired as a result of the connection service completed after the entry into force of the Law; 
• power grids of industrial parks (IPs) implemented by the initiator, the management company or other IP entity may also qualify as the SDS, subject to the relevant provisions.

SDS within the framework of industrial park operation

Small distribution system of the industrial park can be created by the initiator, the management company or other entities of the industrial park, if it is provided for by the agreement on the creation and operation of the industrial park. Such an agreement shall be published on the official website of the IP management company and SDSO.

Users of the small distribution system of an industrial park may include the initiator, management company, participants, other entities of such an IP, producers of electricity from renewable energy sources, operators of energy storage systems whose electrical installations are located on the territory of the IP or outside it. 

At the same time, it is prohibited to transit electricity through such connected electrical installations of RES producers and/or ESS operators located outside the IP.

Operators of small distribution systems shall apply similar conditions for the provision of electricity connection and distribution services to RES producers and/or operators of energy storage systems located outside the IPs as to users of the small distribution system of the industrial park, as defined by this Law.

Electricity consumption and output by such generating units and energy storage systems connected to the power grids of the small distribution system located outside the industrial parks, as well as electricity supply to the system operator’s grid at the connection point of such small distribution system to the system operator’s grid shall not be considered as electricity transit. 

The technical requirements for ensuring the electricity supply by a small distribution system at the connection point to the system operator’s grids shall be determined by such system operator within the framework of the connection procedure.

For several industrial parks located on land plots that have common boundaries or are separated by land plots on which only engineering and transport infrastructure facilities are located or are expected to be located in accordance with urban planning documentation, one small distribution system may be created, the operator of which shall be simultaneously an entity (initiator, management company or other entity) of each such industrial park. The territory of distribution activities of such a small distribution system is the territory of these adjacent industrial parks, and the electricity distribution to users of such industrial parks is not electricity transit.

Connection fee to the SDS

The maximum fee for electricity distribution services by a small distribution system shall not exceed the established tariff for electricity distribution services of the distribution system operator that owns the largest (by the number of conventional units of power equipment) electricity distribution system in the region (cities of Kyiv and Sevastopol, the Autonomous Republic of Crimea), the list of which is posted on the official website of the Regulator, taking into account the voltage class at the balance affiliation boundary between the user of the small distribution system and the small distribution system specified in the distribution service agreement.

The provision of connection services and electricity distribution services by the small distribution system operator is carried out on the basis of relevant agreements, which are public connection agreements and are concluded in accordance with Articles 633, 634, 641, 642 of the Civil Code of Ukraine.

The procedure for providing the small distribution system operator with the service for connection of electrical installations of persons intending to become users of the small distribution system, the list and procedure for publishing information by the small distribution system operator on its official website, including the power reserve within which the connection service of electrical installations to users can be provided, shall be established by the Distribution System Code. 

The maximum fee for the provision of the service for connecting users’ electrical installations to a small distribution system shall not exceed the amount of the connection fee calculated in accordance with the Methodology (procedure) for the formation of the connection fee to the transmission system and distribution system using the payment rates for non-standard power connection and the payment rates for the creation of power grids of the linear part.

The operator of the small distribution system of the industrial park has the right to connect the electrical installations of users on a free-of-charge basis with the inclusion of the user’s investment obligations in the connection agreement, in particular, in terms of obligations to receive certain volumes of electricity distribution at the connection point. The procedure for ensuring commercial metering of electricity by the operator and users of a small distribution system is established by the Code of Commercial Metering of Electricity.

Obtaining a license of an SDS operator

In early October, the NEURC approved the Licensing Conditions for the Conduct of Business Activities for Electricity Distribution by Small Distribution Systems. The document was developed in accordance with the provisions of the Law of Ukraine “On the Electricity Market” (as amended by the Law of Ukraine No. 3220-IX). It is about creating conditions for the business model of building relationships between the main consumers and the SDSO. It is also about simplifying and accelerating the possibility of launching new production facilities by placing them on a limited territory of facilities and/or land plots with ready-made infrastructure.

Background

There are more than 60 registered industrial parks in Ukraine, and many of them are facing the issue of connecting to the grid infrastructure, including the electricity grid.  The creation of small distribution systems to supply electricity to industrial parks will attract private investment in the creation of power grids and provide potential users of the small distribution system with access to electricity.