Ukraine’s electricity market will be redesigned in line with European practices

On 8 June 2017, President of Ukraine signed the long-awaited Electricity Market Law (the "New Law"). The New Law became effective from 11 June 2017, save that certain provisions (including those on changing the legal status of network operators and introduction of the new market segments) will be enacted later.

The New Law provides for a new electricity market architecture aimed at establishing a liberalised, open and competitive market in Ukraine in compliance with the requirements of the Third Energy Package.

The electricity market in Ukraine will be gradually redesigned from the traditional centralised, monopolistic model toward a liberal market with multiple segments and trade channels, both through organised (spot) markets and bilateral transactions. The balancing market, day-ahead market and other market sub-segments should become operational from 1 July 2019.

The market redesign is expected to enhance competition and increase investment in the sector, including through privatisation.

The state guarantees and the principal support mechanisms for renewables introduced in 2015 remain in full force and effect, including the feed-in tariff. The responsibility of renewables for imbalances will be gradually introduced for new plants commissioned after the enactment of the new Law, subject to certain tolerance margins.

The New Law is an important landmark on the road to reforming the electricity market in Ukraine. However, to enforce and implement it, substantial secondary legislation and practical implementation efforts will be needed.

Key issues and expected outcomes

  1. Electricity market to be liberalised and restructured in compliance with the Third Energy Package
  2. Free market and competition to be established in production, supply and trade segments of the electricity market, which should be unbundled from network activities, with new entries anticipated to the competitive segments of the market
  3. Regulatory framework for renewables to stabilise, and embrace the responsibility for imbalances
  4. Bankability of renewable projects to be enhanced as PPAs will become possible at the early stages of development projects
  5. Customers will be able to freely choose and switch suppliers, and to receive a better quality of service
  6. Combined heat and power producers to obtain the state support for increasing efficiency through the tariff regulation during modernisation or reconstruction of production facilities
  7. Electricity market to open up for international cross-border trade and exchanges, and to continue synchronisation with neighbouring markets and integration into the European regional power system
  8. Investments to be more readily raised for network upgrades and development, including through the privatisation of energy assets

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If you would like to receive further information in connection with the above, please contact Dmytro Fedoruk and Svitlana Teush.