Legal consequences of recognizing illegal the formula for reimbursement of a share of the cost of settlement of the Guaranteed Buyer's imbalance

17 November 2022 - Energy Alert

On September 8, the resolution of the Supreme Court canceled the formula for calculating the payment of compensation to the Guaranteed Buyer for a share of the cost of settlement of the imbalance. This happened as a result of consideration of case No. 640/4069/21, in which the cassation appeal was upheld and the decision of the District Administrative Court of Kyiv dated July 16, 2021, was left in force.

Following the resolution, the new version of clause 9.3, which established new compensation formula for imbalances, of Chapter 9 of the Procedure for Purchase by a Guaranteed Buyer of electricity from RES producers was recognized as illegal and invalid.

This clause was effective from January 16, 2021, and has implemented an updated formula according to which RES producers reimbursed the Guaranteed Buyer for a share of the cost of settlement of the Guaranteed Buyer’s imbalance. From the outset, the revised formula was criticized by RES producers, as it effectively required them to compensate the Guaranteed Buyer’s foregone income resulting from its trading strategy and electricity market conditions. There was a situation in which RES producers were obliged to compensate for the difference between the price of electricity formed on the day-ahead market and the significantly lower price on the balancing market for the entire amount of electricity not sold by the Guaranteed Buyer to a balancing market.

As a result, the number of payments for the settlement of imbalances for RES producers was disproportionately large. An appeal to the court for a solution to this issue led to the adoption of the already-mentioned Supreme Court resolution and the cancellation of such a formula.

Given the ambiguity of some of the provisions of this resolution, in particular regarding the issues of which formula should be applied now, as well as whether the payments of RES producers for the settlement of imbalances should be recalculated, on October 28, 2022, the Resolution of the District Administrative Court of Kyiv was adopted based on the results of consideration of the application for clarification of the Supreme Court resolution.

As a result, these issues have been clarified and we can now state that:

currently, the previous formula is valid and should be applied, namely, the one valid until January 16, 2021 – that is, in the previous version of Clause 9.3 of Chapter 9 of the Procedure for Purchase by a Guaranteed Buyer of electricity from RES producers,
and also, that the provisions of the legislation that introduced the formula on January 16, 2021, are illegal from the moment of their adoption and that they did not create any consequences for the relevant periods. As a result, the fee of RES producers for imbalances for the period from January 16, 2021, must be recalculated according to the formula applied before January 16, 2021.

Thus, we can conclude that RES producers will currently be able to receive compensation for losses incurred as a result of the application of the recognized illegal formula for reimbursement of a share of the cost of the imbalance settlement for the period from January 16, 2021 – or in other words, to return the overpaid funds due to the application of the illegal formula, effective from January 16, 2021. Detailed explanations and practical algorithms of actions regarding the procedures of recalculation, return of sums, and signing of primary documents are expected shortly.