Ukraine Introduces Special Auctions for the Ancillary Services Market, Introducing Special Auctions for Providing the Power System with Frequency and Active Power Control Reserves

Details about the special auctions and their requirements are provided below.

Ancillary Services Market

The ancillary services market is a distinct segment of the electricity market where NPC Ukrenergo, as the transmission system operator, purchases services to ensure the reliable operation of the power system. There are two types of ancillary services:

1. Frequency and Active Power Control Services in the UES of Ukraine, which include:

• Frequency Maintenance Reserve (FMR)
• Frequency Restoration Reserve (FRR)
• Replacement Reserve (RR)

2. Services to Maintain the Reliability and Quality of Electricity in the UES of Ukraine, including:

• Voltage and Reactive Power Regulation Services
• Services to Ensure the Restoration of Power System Functioning After System Failures

Procurement is conducted through an auction system, and participants shall be certified to take part. The costs associated with ancillary services are included in NPC Ukrenergo's dispatching tariff.

Special Auctions for Ancillary Services

On 26 June, the NEURC adopted amendments to the regulation of the ancillary services market, introducing special auctions for providing the power system with frequency and active power control reserves for a period of one to five years, with the possibility of a three-year extension.

Eligibility for Special Auctions

Special auctions are open to two types of entities:

1. Ancillary Service Providers (ASPs) – business entities that have acquired the status of an ancillary service provider and possess the technical capabilities to provide ancillary services through a unit of selection, release, storage, or aggregation of electric energy.
2. Potential Ancillary Service Providers (PASPs) – business entities that have entered into an agreement to provide ancillary services for frequency and active power control in the future, as published on the NPC Ukrenergo website. Each potential unit, i.e., each power supply or storage facility with a total capacity of at least 1 MW, shall be represented in the ancillary services market.

The ASP can enter into an ancillary services agreement in the future only if it intends to introduce a potential ancillary services unit to the market.

Financial Requirements for Participation

To participate in the special ancillary services auction, both ASPs and PASPs shall meet certain financial requirements:

1. Guarantee Fee – EUR 5,000 per potential unit, to be transferred to NPC Ukrenergo or an escrow account no later than seven business days before the auction.
2. Financial Security – EUR 30,000/MW, to be placed in an escrow account within 30 calendar days from the publication of the auction results or completion of the appeal procedure.

Refund Policies

NPC Ukrenergo will refund the Guarantee Fee within five business days if:

1. The ASP or PASP does not win the auction
2. The PASP wins the auction and transfers the financial security

NPC Ukrenergo will return the Financial Security within 30 calendar days from the commencement of the ancillary services period if the ASP or PASP:

1. Ensures that the technical characteristics of the equipment of the potential unit correspond to the volume and type of ancillary services sold at the special auction
2. Obtains the status of an ASP for the potential ancillary services unit

Implications of These Changes for Businesses in Ukraine

The new amendments permitting long-term agreements with deferred service delivery will significantly benefit businesses. Companies can now secure bank loans to build new capacity with the assurance of guaranteed future demand. Given the current state of the energy system, this measure is crucial for encouraging investment in energy storage in Ukraine.

We anticipate that these auctions will be launched soon, further stimulating investment and development in the energy sector.

By Yaroslav Petrov, Partner, and Kateryna Andarak, Associate, Asters