Alex Golas: USAID ESP enhances the transparency of energy markets in Ukraine

August 29, 2023

The USAID Energy Security Project (ESP) welcomes adopting the Law on Prevention of Abuse in Wholesale Energy Markets (No. 3141).

Adopted by Rada on June 10, 2023, the law will provide a legal basis for the improvement of market transparency and enable the National Energy & Utilities Regulatory Commission (NEURC) to put in place an effective market monitoring, impartial and prompt investigation of law infringements, and enforcement of regulatory decisions against market abusers. The President of Ukraine signed the law on June 30, and it came into force on July 2.

Alex Golas, USAID ESP Energy Markets Institutional and Regulatory Sector Lead. Photo by USAID ESP.

USAID ESP Energy Markets Institutional and Regulatory Sector Lead Alex Golas highlights key REMIT-related questions for a broader audience.

The REMIT bill is about preventing abuse in the wholesale energy markets. Will it influence “the retail” average household consumers, and if so, how?

When put in force in Ukraine, the Regulation on Energy Markets Integrity and Transparency (REMIT) will indirectly influence average energy consumers — households and businesses using electricity or gas for daily needs.

Ukrainian electricity and gas producers, traders, and suppliers operating on the wholesale markets will be required to act in many different ways than they were used to before REMIT. Timely and regularly, they will have to inform about all their operations and activities, which will work for market transparency, future development, and integrity. Intended to be introduced with REMIT market oversight systems will allow quick identification and elimination of fraudulent behavior.

Increased wholesale electricity and gas markets integrity and transparency in the competitive markets will result in comparatively lower wholesale prices, not leaving a place for non-transparent and manipulative behaviors of big market players. All these REMIT-related changes will enable setting relatively lower prices for the end customers.

How will REMIT work? Who will have to report about what?

Under REMIT, all major producers, traders, suppliers, and even consumers of electricity and gas exceeding an annual volume of 600 GWh will have to report on conducted transactions and orders to trade and publish the insider information tied to their operations. In the European Union, this reporting goes to the pan-European authority called the Agency for the Cooperation of the European Regulators (ACER). In Ukraine, until the time it enters the European Union (EU), this reporting will go to the National Energy and Utilities Regulatory Commission (NEURC).

Will the reporting become a challenge for the market participants? 

Reporting shouldn’t be a problem for most market operators, traders, suppliers, and consumers since they have all the information required to be reported under REMIT and already report to several institutions, though on different subjects. There may be a need for some adaptation and further development of existing IT-based reporting systems to meet new reporting obligations. Those market players for whom such an adaptation would be too costly or impossible are free to utilize other market players’ reporting systems, considerably limiting the burden on small market players.

Trade deals seem easy to monitor. How can insider information use be tracked and reported? 

The obligation to report on insider information directly relates to the commitment to publish such information. Publicizing insider information about events and occurrences in a business environment can immediately influence other market participants’ behavior, businesses, and transactions.

For example, the information on planned or unscheduled repairs of the producing facilities, pipelines, wires, and other crucial energy supply chains must be made public (published) in time. It allows other market players to amend their price proposals, orders to sell and purchase, transact with alternative suppliers, and look for alternative energy supply solutions or delivery routes. Making insider information public enables prediction and smooth market-based adaptation instead of being exposed to an unexpected and, therefore, often costly and manipulated environment, benefiting only “those who know better” at the expense of others.

In a REMIT-compliant market, the Regulator will investigate whether the energy market participants inform the market appropriately in advance about events crucial for the market players or whether they indulge in market manipulation. The Regulator will have to sanction those involved in manipulating the market.

What is your estimate for the REMIT implementation timeline? Are we talking a couple of years or more?

On the one hand, establishing the necessary secondary legislation and systems supporting market monitoring under REMIT is relatively simple and should not take more than a few years. There is already a vast experience of ACER and other regulators in neighboring countries and comparable markets (for example, Poland) for the Ukrainian Regulator to learn from. There’s no need to reinvent the wheel but to benefit others’ vast experience and best practices.

On the other hand, the manipulations evolve (as is visible in then EU energy markets, too), and the regulators and their systems will need to develop, too. For example, in the EU, there is already a well-advanced process aimed at adopting the so-called “REMIT-2”, which means also the Regulator in Ukraine (in cooperation with other institutions, such as the National Securities and Stock Market Commission) will have to follow to avoid being “overtaken” by the ever-inventive manipulators.

What is USAID ESP’s role in developing REMIT? Does European Commission and/or Energy Community Secretariat find Ukrainian REMIT as EU compliant?

The USAID Energy Security Project (ESP) actively participated in the developing draft law on Prevention of Abuse in Wholesale Energy Markets, which was submitted more than two years ago. The law provides a legal basis for the improvement of market transparency and enables the National Energy & Utilities Regulatory Commission (Regulator/NEURC) to put in place effective market monitoring, impartial and prompt investigation of law infringements, and enforcement of regulatory decisions against market abusers.

In USAID ESP experts’ opinion, the recently adopted law will still require further improvement. It includes enhancing the powers of the Regulator, determining roles, obligations, and responsibilities of market participants, persons professionally arranging transactions, and other persons affecting the market, tailoring the system of penalties, and enabling preventive measures against market abuse.

USAID ESP has already presented its detailed recommendations to the Energy and Utilities Committee of the Verkhovna Rada of Ukraine, the NEURC, and the Energy Community Secretariat and shared them with the European Commission. USAID ESP is ready to further assist its Ukrainian counterparts with effectively implementing REMIT in Ukraine.

You worked for the Polish Regulator when Poland aimed at legislative compatibility with the EU. What were the challenges, and are there any similarities to the Ukrainian situation in terms of REMIT? 

When Poland entered the EU in May 2004, no REMIT existed. REMIT started being implemented throughout the EU countries and was adopted by the European Parliament and the Council only in 2011. And quite similar to the Ukrainian market now, the Polish energy markets of those days suffered from a non-transparent and manipulative environment. So, Polish Energy Regulatory Office (URE) significantly contributed to developing REMIT provisions and adopting REMIT in the EU.

Nowadays, Polish energy markets, despite some flaws, operate in full compliance with REMIT, while URE performs its functions under currently effective REMIT and works on REMIT-2- related transformations.