17-12-2019

Opportunities for Energy Storages in Ukraine and Draft Law on Energy Storages

Overview of the current developments of the energy storage legislation and regulatory base in Ukraine by Maksym Sysoiev, Counsel at Dentons Europe.

On 12 December 2019 Mr. Vsevolod Kovalchuk, the CEO of PrJSC “NPC “Ukrenergo” (the “TSO”) made a presentation on perspectives of battery energy storages systems (the “BESS”) in Ukraine. The slides of the presentation in Ukrainian are available at 

https://www.slideshare.net/Ukrenergo/energy-storage-bess.

In accordance with the presentation, given the expected growth of RES Producers’ capacity in the Ukrainian power system, it will be required to commission within 2021-2023 1,5 GW of the BESS of such types:

primary reserve – 100 MW;

secondary reserve – 500 MW;

replacement reserve – 800 MW.

As of today, the TSO needs up to 200 MW of the BESS to manage the power system. The TSO considers to acquire either 1 BESS or 5 separate BESS within the state capacity. The TSO considers implementing the project for itself and then potentially transfer it to an operator, most likely a state-owned producer of electricity.

Until 2030 the total amount of the needed BESS in the Ukrainian system will be EUR 2.2 GW.

Please also note that the TSO earlier informed during the discussion of the draft report on assessment (adequacy) of generating facilities that in order to integrate RES facilities into the Ukrainian system there should be 2 GW of highly flexible, fast-start capacity, and up to 1 GW of the BESS for maintaining and adjusting frequency (information available in English at https://ua.energy/main-events/to-ensure-the-integration-of-significant-amount-of-res-the-power-system-needs-2-gw-of-highly-flexible-capacity-by-2023/). It appears that the TSO has already reviewed its view on the size of the needed capacity of the BESS and increased it.

At the moment, there is no definition and comprehensive regulation for the BESS in Ukraine. Thus, Mr. Kovalchuk presented the concept of the draft law which is aimed at filing the relevant gaps in the primary legislation and introducing basic mechanisms to support the BESS implementation in Ukraine.

On the date of Mr. Kovalchuk’s presentation the respective draft law No. 2582 dated 12 December 2019 On Introduction of the Amendments to Law of Ukraine On the Electricity Market (the “EM Law”) (as to energy security, balancing of power system and energy storage systems) (the “Draft Law”) was registered by the member of the parliament Mr. Yuriy Kamelchuk.

The Draft Law in Ukrainian is available at http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=67624.

The key points of the Draft Law are the following:

1.    The new term “energy storage technologies” (for the purpose of this note I will further use the term “BESS”) is introduced to the EM Law and defined as technological complex connected to the transmission or distribution systems in order to withdraw, accumulate, in particular via transformation (physical, inertial, chemical, hydrogen or other technologies) of earlier produced electricity, and its further storage and dispatch. The definition of storage or energy storage is missing in the Draft Law and it is important to introduce it to differentiate such type of activity from other types of activities in the electricity market. 

2.     The new term “the BESS operator” is introduced to the EM Law and defined as a business entity that uses the BESS to purchase and sell electricity at the electricity market, and provides ancillary services as well as responsible for safe exploitation and technical services of such BESS.

3.    The storage by the BESS is subject to licensing if the BESS capacity exceeds 5 MW. However, the transmission system operator (the “TSO”), distribution system operator (the “DSO”) or producers of electricity are not required to have such license if they have a license for the respective type of activities.

4.    As a general rule, the TSO and DSO may not combine their activities with activities of the BESS operator. Nonetheless, the following exceptions are provided to this rule:

4.1.  the TSO may exploit the BESS up to 250 MW if a proposal for BESS or similar services is absent in the market and only in order to provide transmission services, in particular, to ensure operational safety, balancing and other measures aimed at the fulfillment of the requirements of the transmission system integrity;

4.2.  the DSO may exploit the BESS up to 20 MW only in order to provide distribution services, in particular to ensure operational safety, balancing and other measures aimed at the fulfilment of the requirements of the distribution system integrity. The capacity of the BESS owned by the DSO may exceed 20 MW provided that the Regulator passes the respective decision approving such project.

5.    The Draft Law allows RES producers under “green” tariff to combine storage and production. In this case, only net output of electricity will be purchased at “green” tariff and it will be allowed to sell electricity of own production stored in such BESS. The latter is a very important suggestion given potential curtailments of RES producers and upcoming liability for imbalances. Of course, at the level of the secondary legislation, it will be necessary to regulate in detail how the relevant mechanism will work (special metering systems installed etc.).

6.    The Draft Law envisages the possibility of special obligations to be imposed on the TSO to ensure development of the generating facilities and BESS if the decision of the Cabinet of Ministers of Ukraine (the “CMU”) is passed in accordance with Article 29 of the EM Law (envisages the procedure for contest procedures to build generating facilities and demand side response). Thus, apparently funding of new BESS projects and payments to its developers is envisaged via inclusion of relevant payments to one of the TSO’s tariffs.

7.    The Draft Law introduces changes to Article 29 of the EM Law (envisages the procedure for contest procedures to build generating facilities and demand side response) and expressly allows to use the mechanism of the contest procedures for the purpose of the BESS. Please note that during preparation of the contest documentation the Ministry of Energy and Environmental Protection of Ukraine (the “Ministry”) shall request from National Commission On State Regulation in the Sphere of Energy and Utilities (the “Regulator”) to establish price caps for the purchase price of the service to ensure the development of the development of the generating facilities and BESS which is used for the purpose of the relevant contest.

Please note that article of the EM Law as of today provides for generation facilities and demand side response (the “DSR”) development if the available (including those which are permitted for development) generation facilities and DSR are insufficient to ensure safe energy supply. This shall be arranged through the procurement procedure regulated by the article 29 and Resolution “On approval of the order of procurement process for generation facilities and DSR measures” No. 677, dated 10 July 2019 (the Article 29 Resolution). If the Draft Law is introduced, it will also cover procedures to procure the BESS.

The decision and terms of procurement commencement shall be initiated by the Ministry and passed by the CMU. The terms of the procurement shall be published on the Ministry’s, TSO’s, and Energy Community Secretariat’s websites no later than 6 months before the applications submission deadline.

The following incentives may be offered for the procurement:

·      payments for the generating facility development;

·      support in land plot allocation, needed for new generating facility development;

·      PPP mechanisms application; and

·      state support from state or local budgets (in contrast to PPP and concession projects if state or local support is provided, the electric energy authority, before applying with a project to CMU, shall apply to Antimonopoly Committee of Ukraine under the State Support Law).

 

Please find below a short description of stages for the contest procurement process under the Article 29 Resolution:

  1. National Commission On State Regulation in the Sphere of Energy and Utilities (the “Regulator”) shall approve report on evaluation of compliance (sufficiency) of generating facilities to cover forecast demand in electrical energy considering conclusions and measures envisaged by approved plan of development of the transmission system for the following 10 years and report on results of monitoring security of electricity supply. Please note that the report on the evaluation of compliance (sufficiency) of generating facilities for 2019 is being now considered/discussed and appears to be the main document necessary for launching relevant contests.
  2. The TSO within 30 calendar days from the date of approval by the Regulator of the mentioned reports shall submit a proposal to the Ministry which shall, inter alia, stipulate the volume of necessary generating capacity and/or measures of demand side response, minimal and maximal size of additional capacity and technical requirements.
  3. The Ministry and Regulator (and other central state or self-governing authorities and the TSO) consider incentives to be applied and prepare agreed proposals. The Ministry shall within 90 calendar days prepare the draft CMU resolution on the contest, agree it with the Regulator and submit to the CMU for its approval.
  4. The CMU resolution on the contest shall, inter alia, contain information about terms of the contest, volume of purchase of necessary generating capacity and/or measures of demand management, incentives to the contest winner and procedure for their application, the deadline for commissioning generating facilities and guaranteed term for its operation.
  5. The CMU resolution on the contest and its conditions shall be published and the European Energy Secretariat shall be informed regarding them within 5 business days.
  6. Within 30 calendar days from the date of the CMU resolution on the contest the Ministry shall form the contest commission which shall approve the contest documentation (the TSO shall elaborate it within 3 months from the date of the CMU resolution). The contest documentation shall cover main data on arranging the contest and determining winners, including information about incentives to be applied to winners and the procedure for their application. If the PPP incentive is to be applied, the further procurement process is regulated by the Law of Ukraine on Public Private Partnership.
  7. Each participant of the contest shall provide a bank guarantee in the amount of EUR 10 000 per MW of proposed capacity and the winner shall provide a bank guarantee in the amount of EUR 30 000 per (in national currency) before entering into the relevant agreement.
  8. The contest is arranged in 2 stages:

·               qualification of participants;

·               determination of winners.

  1. Ranking of qualified participants of the contest shall be determined by the price proposal and only in case of equal price proposals deadline for commissioning facilities shall be also taken into account. Based on the ranking, the contest commission determines the winner(s) of the contest.
  2. If the incentive of payment for service to develop generating facility applies, the TSO shall send to the winner(s) executed counterparts of the agreement to the winner(s) within 10 calendar days and one counterpart shall be signed and returned by the winner(s) within 10 calendar days from the date of its receipt.

 

Notably, that member of the Parliament Maksym Efivmov earlier submitted the Draft Law No. 2496 dated 26 November 2019 On Ensuring Energy Security and Flexibility of the Power System, Real Competition, Decarbonisation of the Economy, Reduction of Prices, Consumption of Electricity (as to the BESS) (the “Draft Law No. 2496”). Unlike the Draft Law which aims to amend EM Law as described above, this Draft Law No. 2496 proposes to enact a separate law, which in many aspects repeats provisions of European regulations on BESS without amending other laws. The Draft Law No. 2496 describes in more detail legal status, role and functions of the BESS and its operators, sets requirements on storage activities for TSOs, DSOs and consumers. The Draft Law No. 2496also describes rights and obligations of qualified operators of the BESS on balancing, intraday, day-ahead and ancillary services markets.

Potentially, provisions of the Draft Law No. 2496 will be used during the adoption of the Draft Law. However, it appears that the Draft Law more specifically addresses the existing legislation and necessary amendments to enable the implementation of the BESS in Ukraine. Thus, most likely the Draft Law will be used as the basis for the adoption of the new regulation for the BESS in Ukraine. 

This information does not constitute legal advice and is merely the opinion of the author.

Before
12-12-2019

Інвестиції в альтернативну енергетику: як в Україні заробляють на біогазі