Prime Opportunity for Investors: Ukraine’s Energy Market Opens with Special Auctions for Ancillary Services in Generation and Storage

Contents

  1. Ancillary services auctions 
  2. Flexible ancillary service terms 
  3. Participation requirements for the special auctions
  4. FX risks mitigation
  5. Certification and registration

On June 26, 2024, Ukraine’s National Energy and Utilities Regulatory Commission (NEURC) adopted a pivotal Resolution No. 1172 “On Approval of Amendments to Certain Resolutions of the NEURC” (hereinafter the “Resolution”) which introduces special auctions for ancillary services. This Resolution enables the signing of five-year bankable contracts, and provides significant business opportunities, particularly in energy storage, as it aims to attract essential investment for enhancing Ukraine’s energy infrastructure and grid stability.

Here are the key 5 facts about special ancillary services auctions:

Ancillary services auctions 

The ancillary services market is a distinct segment of the electricity market where Ukrenergo (Ukraine’s transmission system operator) procures services to ensure the reliability of the energy system. Ukrenergo will conduct special auctions to procure essential frequency and active power control reserves, such as Frequency Containment Reserve (FCR) and Automatic Frequency Restoration Reserve (aFRR). This opens lucrative prospects for companies having or planning to develop energy storage facilities.

Flexible ancillary service terms 

The Resolution allows for service contracts ranging from one to five years, with the possibility to delay the service start date by up to three years. This flexibility enables businesses to secure contracts while having adequate time to involve financing and construct necessary facilities, thereby reducing initial investment risks.

Participation requirements for the special auctions

Companies looking to participate in auctions must complete several steps: 

  1. enter into future ancillary services agreements with Ukrenergo; 
  2. secure agreements for frequency and active power regulation services; 
  3. provide a guarantee of €5000 per facility, which is refundable post-auction or after securing financial guarantees.

Winning bidders must also deposit financial security of €30,000 per MW of the facility’s capacity, payable in UAH equivalent. This ensures committed participants and secures funds for infrastructure development. The guarantee is returned 30 days after service commencement, provided the services are delivered as agreed.

FX risks mitigation

The Resolution includes provisions to protect investors from currency exchange risks. Payments for services will be calculated in EUR and converted to UAH, using official exchange rates averaged for the auction month and service month, providing a degree of financial stability for businesses.

Certification and registration

To commence services, companies must ensure their equipment meets the required technical standards. This includes obtaining a conformity certificate from Ukrenergo and registering as a provider of ancillary services, becoming active participants in Ukraine’s electricity market.

The Resolution will have a great positive impact on business. It is a strategic and necessary move to modernize Ukraine’s energy sector, presenting extensive opportunities for investors and energy companies to contribute to and benefit from the country’s energy transformation. The introduction of long-term contracts with deferred service provision allows businesses to secure financing from banks for constructing new energy facilities, backed by guaranteed future demand. Given the current state of Ukraine’s energy system, these measures are essential for attracting investments in energy storage and improving grid reliability, which is vital at this time.

If you need legal advice, please fill out the form below to request it.

Oleksandr Melnyk

Oleksandr Melnyk

Partner, Head of Corporate Law and M&A practice, Attorney at law

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