Ukraine’s energy regulator adopts regulation for special auctions for ancillary services to boost investment in energy generation and storage

July 2, 2024

On June 26, 2024, Ukraine's National Energy and Utilities Regulatory Commission (NEURC) adopted the Resolution "On Approval of Amendments to Certain Resolutions of the NEURC", which introduces special auctions for ancillary services. The Resolution aims to facilitate much-needed investment into energy generating capacity and energy storage units in Ukraine, and will ultimately contribute to better grid balancing in the country.

The official text of the Resolution has not yet been published, so this alert is based on the version that was prepared for voting by the commissioners of NEURC.

The Resolution takes effect on the date following its official publication on NEURC's website.

Types of ancillary services to be procured

Ukrenergo, as the transmission system operator, is authorized to administer special auctions for ancillary services to acquire frequency and active power control reserves, specifically Frequency Containment Reserve (FCR) and Automatic Frequency Restoration Reserve (aFRR).

Term of service provision

The term for the provision of these services is between one and five years.

Possibility to postpone service start date

The start of service provision can be postponed by up to three years, allowing sufficient time for the construction of facilities.

Requirements to participate in the auctions

In order for an energy generation or storage facility to participate in the auctions, the candidate must:

• Enter into agreement with Ukrenergo on provision of ancillary services in the future (executed if the construction of the respective facility is anticipated),
• Enter into agreement with Ukrenergo on ancillary service on regulation of frequency and active power, and
• Provide a guarantee of €5000 for each facility in UAH equivalent at the exchange rate of the National Bank of Ukraine on the date of payment of the guarantee into a special escrow account.

The guarantee will be returned to the participants after the completion of the auction and to the winner after the payment of financial security, if required.

Financial security for future ancillary services

According to the Resolution, when a company is selected in an auction to provide the ancillary services in the future, it must make a financial security deposit of €30,000 multiplied by the maximum capacity (in MWs) that the facility should provide according to the auction.

The financial security must be paid in UAH equivalent at the exchange rate of the National Bank of Ukraine on the date of payment of the financial security. The financial security is placed in a special escrow account and must be returned within 30 days after the start of the services unless the winner fails to deliver the services.

Keep in mind that the winner of the auction bears the cost of all exchange rate fluctuations, as Ukrenergo is obliged to return only the exact amount in UAH received. Nevertheless, ongoing debates among market players, Ukrenergo, and NEURC may lead to future changes in the Resolution regarding the amount of financial security and forex risk-sharing.

Auction result currency and payment terms

The price for the ancillary services is determined based on the result of the special auction in UAH, then converted to EUR at the official exchange rate of the National Bank of Ukraine, averaged for the auction month.

When the service is rendered, the EUR equivalent of the price is converted into UAH at the official exchange rate of the National Bank of Ukraine against the average EUR/UAH exchange rate for the month when the service is rendered. This aims to protect payments to investors against currency exchange risks.

Requirements for investors to commission facilities

Investors must, at least 45 days before the commencement of ancillary services by a potential facility:

• Ensure the technical characteristics of the equipment align with the volume and type of services sold at the auction, confirmed by a certificate of conformity issued by Ukrenergo.
• Register with Ukrenergo as a provider of ancillary services, which includes submitting the conformity certificate and becoming a participant in the electricity market.

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