Implementation of Regulation (EU) ? 1227/2011 of 25 October 2011 on wholesale energy market integrity and transparency, adapted within the Energy Community, by adopting legislation to prevent abuse in wholesale energy markets (the "WEM") is a fulfilment of Ukraine's European integration commitments.
On 10 June 2023, Parliament adopted the Law of Ukraine "On Amendments to Certain Laws of Ukraine on Prevention of Abuse in Wholesale Energy Markets" ?3141-?? (the "Law on REMIT"). The Law was passed to the President for signature.
- The key term is wholesale energy products,
which are contracts (agreements) regardless of the place and time
of their conclusion, in particular, the following contracts:
- on purchase and sale of electricity or natural gas and derivative contracts with electricity or natural gas as the underlying asset;
- on electricity transmission or natural gas transportation, access to capacity allocation and related derivative contracts;
- on supply or distribution of electricity and/or natural gas to end consumers with electricity or gas consumption facilities of 600 GWh per year and above.
Abuse in the wholesale energy market includes:
- violation of established restrictions on the use of inside information,
- manipulation and attempts to manipulate the electricity and/or natural gas market,
- failure to disclose or disclosure of inside information in violation of requirements established for its disclosure,
- conducting transactions with wholesale energy products without registration as a participant in the WEM.
A wholesale energy market participant is any person who enters into purchase and sale transactions or submits offers (bids) for purchase and sale in accordance with a wholesale energy product on the WEM.
Registration and notification
- In order to conduct transactions with wholesale energy products, it is necessary to register as a participant in the wholesale energy market in accordance with the procedure to be approved by the Regulator – the National Energy and Utilities Regulatory Commission (the Regulator, NEURC). The consumer must inform if the technical capacity of his/her equipment/installations can ensure consumption of electricity/gas in the amount of 600 GWh per year and above.
- Participants of WEM, persons professionally arranging transactions with wholesale energy products and trade repositories shall provide the Regulator with information on economic and trade operations in the WEM. In addition, participants of the WEM shall provide the Regulator with information on the capacity and use of power plants, including their unavailability (inability to use).
- Inside information includes, in particular:
- information that is required to be made public in accordance with the law or contract as such information may affect market prices before it is made public;
- information on the capacity of energy facilities and their use;
- other information that can be used to make decisions on transactions or proposals related to wholesale energy products.
Persons who possess inside information are:
- members of governing bodies and holders of shares/stakes in the authorised capital of the WEM participant;
- persons who have access to such information in accordance with their professional or employment duties;
- persons who have access to such information as a result of illegal actions;
- persons who know or should have known that the information is inside information;
- persons who participate in decision-making on economic and commercial transactions on behalf of a legal entity that has inside information.
Persons who possess inside information shall be prohibited from:
- making or trying to make transactions that are wholesale energy products to which inside information relates, using the inside information, for his/her own benefit or for the benefit of other persons;
- disclosing inside information;
- providing recommendations on transactions based on inside information.
To ensure proper disclosure, an insider information platforms shall be established. Within twelve months from the date of entry into force of the Law on REMIT, these platforms must be operational and this must be ensured by:
- Transmission System Operator and Market Operator – in the electricity market;
- Operator of the Gas Transmission System – in the gas market.
Manipulation or attempt to manipulate
- Manipulation means:
- conducting transactions, issuing orders/instructions for the conducting of wholesale energy products that: create misleading signals for supply/demand or prices at WEM; or set prices for wholesale energy products at an artificial level; involve the use or attempt to use false means or any other form of misleading or abuse of trust that creates or may create misleading signals for supply/demand or prices for wholesale energy products;
- disclosing or disseminating false information that gives false or misleading signals for supply/demand or for setting prices in relation to wholesale energy products.
An attempt to manipulate, i.e. actions taken with the intent to manipulate, is also prohibited.
Market surveillance system
- A person who professionally arranges transactions with wholesale energy products on organised trading platforms, commodity exchanges, electronic auctions, and trading platforms shall establish and maintain surveillance systems and procedures to detect violations and shall notify the Regulator if there are reasonable grounds to believe that operations at WEM were carried out in violation of the established restrictions on the use of inside information or have signs of manipulation or attempts to manipulate.
In particular, such surveillance systems should be established by the GTS Operator – in the gas market, the Transmission System Operator (the "TSO") and the Market Operator – in the electricity market
Key powers of the Regulator:
- to register participants of the WEM;
- to monitor the WER and, in case of detection of signs of abuse in the actions of its participants, initiate and conduct investigations of abuse at the WER, consider relevant cases and impose sanctions;
- to approve the non-exhaustive list of practices that may constitute manipulation or attempts to manipulate WEM;
- to define requirements and provide recommendations for ensuring integrity and transparency at the WEM;
- to define the procedure, content, scope and frequency of submission and disclosure of information related to the functioning of the WEM, approve reporting forms for WEM participants, etc.
In addition, the NEURC:
- within 3 months from the date of entry into force of
the Law on REMIT shall approve:
- procedure for registration of wholesale energy market participants,
- procedure (methodology) for determining the amount of fines imposed by the Regulator (after consultations with the Energy Community Secretariat)
- procedure for investigating abuses in the wholesale energy market;
- within 6 months from the date of entry into force of the Law on REMIT shall ensure the functioning of the Register of Wholesale Energy MarketParticipants;
- within 18 months from the date of entry into force of the Law on REMIT implement an information system that will ensure the performance of functions in the field of prevention of abuse at the WEM.
Violations and penalties
|Violations on the WEM||Date of commencement of penalties||Amount of penalties within the first 12 months of application||Amount of penalties after 12 months from the date of application|
|violation of the established restrictions on the use of inside information||from 01.02.2024, but not earlier than the first day of the month following the month when the Procedure (methodology) for determining the amount of fines enters into force||up to UAH 229.5 mln/approx. EUR 5.8 mln||up to UAH 459 mln/approx. EUR 11.6 mln|
|manipulation and attempts to manipulate the market||from 01.11.2023 ?., but not earlier than the first day of the month following the month when the Procedure (methodology) for determining the amount of fines enters into force||up to UAH 229.5 mln/approx. EUR 5.8 mln||up to UAH 459 mln/approx. EUR 11.6 mln|
|failure to disclose or disclosure of inside information in violation of the requirements established for the disclosure of such information||from 01.02.2024, but not earlier than the first day of the month following the month when the Procedure (methodology) for determining the amount of fines enters into force||up to UAH 22.95 mln/ approx. EUR 580 thsd||up to UAH 45.9 mln/approx. EUR 1.160 mln|
|conducting transactions with wholesale energy products without registering as a participant in the WEM||from the date the Law on REMIT enters into force||UAH 51,000 – 1.7 mln/ approx. EUR 1,300 – 43 thsd1||UAH 51,000 – 1.7 mln/ approx. EUR 1,300 – 43 thsd2|
When determining the amount of the fine, the Regulator should take into account that fines should be effective, deterrent and proportionate, and their amount should correspond to the type, duration and severity of the violation, the damage caused to consumers and the potential benefits of abuse.
The amount of a fine imposed on a wholesale energy market participant may not exceed 10 per cent of its annual income (revenue) from the sale of products (goods, works, services) on the market.
SPECIFICS OF REGULATION IN THE ELECTRICITY MARKET IN THE LAW ON REMIT
For renewable energy sources
- Provisions of the Law of Ukraine "On the Electricity Market" have been specified to allow for the inclusion/exclusion of certain RES generation facilities that sell electricity at a feed-in tariff or auction price from the balancing group of the Guaranteed Buyer.
- The possibility of completion and commissioning of RES facilities (except for solar energy) has been extended (until 31 December 2023), namely, the RES facility in respect of which electricity purchase and sale agreement under the feed-in tariff (the "pre-PPA") has been concluded must be commissioned within four (instead of three, as previously provided) years from the date of conclusion of such an agreement.
The Law on REMIT extends until 31 December 2024 the validity of technical conditions for grid connection of renewable energy facilities (except for solar energy), if such conditions are issued under the pre-PPA concluded before 31 December 2019.
- The feed-in tariff reduction coefficient at the current level of 0.975 remains only for wind energy facilities commissioned from 1 January 2020 to 30 June 2023. For such facilities commissioned from 1 July 2023, a reduction coefficient of 0.825 is set.
Allocation of cross-border capacity
- Regulation of cross-border capacity allocation and public consultations with all stakeholders when TSO develops capacity allocation rules and determines the capacity allocation structure has been adjusted.
The NEURC shall, within 3 months from the date of entry into force of the Law on REMIT, approve the Procedure for conducting public consultations by the transmission system operator when developing rules for allocating cross-border capacity and determining the capacity allocation structure
- Special rules of distribution of funds received by TSO from allocation of cross-border capacity have been extended until 2023, namely, the structure of distribution is 10% for capacity guarantee and maintenance and 45% each for repayment of TSO debts in the balancing market and to the Guaranteed Buyer for further settlements with nuclear generation and RES producers.
Universal service providers and supplier of the "last resort"
- The current universal service providers will perform these functions until the end of 2024. The government must hold a tender for the selection of universal service providers by 1 July 2024.
- State Foreign Trade Company Ukrinterenergo will continue to perform the functions of the supplier of the "last resort" without a tender temporarily until 31 December 2025.
Ukraine has introduced a regulation to prevent abuse in wholesale energy markets, which ensures: the fulfilment of obligations to approximate Ukrainian energy legislation to the European one, increases the level of integration of the energy markets of Ukraine and the EU, and deepens the confidence of foreign participants in Ukrainian energy markets.
1. the Law on REMIT provides for a fine only for natural gas market participants
2. the Law on REMIT provides for a fine only for natural gas market participants
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.