The adoption of the law for prevention of abuse in wholesale energy markets (REMIT)

The law No. 3141-IX “On making amendments to certain laws of Ukraine for prevention of abuse in wholesale energy markets” (“Law No. 3141-IX”)[1] was adopted on 10 June 2023 and entered into force on 2 July 2023, except for certain provisions that will come into force later[2]. The Law No. 3141-IX is aimed at implementation of the Regulation (EU) № 1227/2011 on wholesale energy market integrity and transparency (“REMIT”[3]).

The implementation of REMIT by adopting the Law No. 3141-IX is an essential step for compliance of Ukraine with its obligations as a contracting party to the Energy Community.  

Scope of the Law No. 3141-IX

The Law No. 3141-IX provides regulation for the wholesale energy (gas and electricity) market, as well as specifies trade operations on wholesale energy products that are performed on such market. According to the Law No.3141-IX, the wholesale energy products are agreements that include:

• sale-purchase agreements of electricity or natural gas;
• derivative contracts with electricity and natural gas as underlying assets;
• electricity/ natural gas transportation agreements, on access to capacity/ capacity allocation;
• derivative contracts on electricity/ natural gas transportation, on capacity access/ capacity allocation;
• agreements on the supply or distribution of electricity and/ or natural gas to end consumers with a consumption capacity of 600 GWh or more per year;

In the Law No. 3141-IX in order to prevent abuse in wholesale energy markets the following provisions and practices from REMIT were provided:

• market monitoring and reporting obligations;
• disclosure of inside information;
• restrictions on inside information usage;
• prohibition of manipulation or attempted manipulation;
• investigations and sanctions.

To fulfil the purposes of the Law No. 3141-IX the obligations of the Regulator were amended by adding the following duties:

• to register market participants;
• to approve reporting forms of market entities;
• to determine requirements and provide recommendations for integrity and transparency on the wholesale energy market;
• to monitor activities on the wholesale energy market to detect and prevent abuse;
• to define requirements for protection, provision and disclosure of information by market entities.

Registration and monitoring

Under the Law No. 3141-IX only persons registered as a wholesale energy products market participant[4] can perform operations with wholesale energy products. A register with participants of the wholesale energy market is maintained by the Regulator[5].

The Law No.3141-IX amended the Law of Ukraine “On the National Energy and Utilities Regulatory Commission” by including a number of provisions, namely: on registration of the wholesale energy market participants, monitoring and detecting violations on the wholesale energy market and on conducting investigations on the wholesale energy market.

Thus, according to Article 20¹ of the amended Law of Ukraine “On the National Energy and Utilities Regulatory Commission” the Regulator performs monitoring of the operations on the wholesale energy market to prevent abuse in the wholesale energy market. This duty is accompanied in Article 20¹ by obligation for the wholesale energy market participants, persons that professionally organize transactions with wholesale energy products[6] and trade repositories to provide the Regulator information on trade operations on wholesale energy market through a data transfer administrator. The Regulator shall determine the procedure, content, volume and periodicity of such disclosure of information.

Inside information

One of the main prohibitions under REMIT is prohibition of insider trading. In line with REMIT, the Law No. 3141-IX provides the following definition of inside information: “unpublished information of a precise nature directly or indirectly related to one or more wholesale energy products in the electricity or natural gas market, the disclosure or publication of which could significantly affect the market price of one or more wholesale energy products on the electricity or natural gas market”. The inside information includes the following categories of information:

• information that must be made public in accordance with the applicable legislation considering that such information may influence market prices before its publication;
• information on capacities and capacity utilization of installations, intended for production, storage, transportation or consumption of energy sources, or about the capacity and use of LNG installations, including planned or unplanned unavailability of these facilities;
• such other information which may be used by market participants for decision- or proposition-making regarding wholesale energy products.

At the same time information about own trade strategies or plans does not fall under category of inside information.

The following persons are defined as those possessing inside information:

• members of the management bodies of the wholesale participant energy market;
• owners of shares in the authorized capital of a wholesale energy market participant;
• persons with access to such information due to performance of professional duties;
• persons who gained access to insider information as a result committing illegal actions;
• persons with knowledge that the information is insider; and
• persons who make decisions on trade operations on behalf of the legal entity that owns inside information.

Under Article 57¹ of the amended Law of Ukraine “On the natural gas market” and Article 11¹ of the amended Law of Ukraine “On electricity market” persons that possess inside information shall be prohibited from the following actions:

• to execute or attempt to execute transactions for own benefit (or of other persons) that are wholesale energy products to which inside information relates;
• to disclose inside information except for disclosure due to professional duties;
• to give recommendations on wholesale energy products transactions based on inside information.

Dissemination of inside information is allowed for the purpose of carrying out professional journalistic or creative activities, provided that a person does not gain advantage or material benefit, or such activity is not carried out in order to mislead the participants of the wholesale energy market regarding supply and demand or prices.

Inside information shall be disclosed by participants of wholesale energy markets effectively and on time and the requirements to such disclosure shall be defined by the Regulator. The wholesale energy market participant, however, may postpone the disclosure of inside information on the protection of critical energy infrastructure, as well as the assessment of the need to strengthen its protection, if it is classified as sensitive information on the protection of critical energy infrastructure. In such a case, the wholesale energy market participant shall immediately provide the Regulator with such information along with the justification for postponing the disclosure. Under the Law No. 3141-IX the Regulator has nine months from the date of entry into force of the Law No. 3141-IX to bring its legal acts into compliance with the Law No. 3141-IX. Therefore, the Regulator has to define requirements for disclosure of inside information till 2 April 2024.

According to the Law No. 3141-IX, the gas transmission system operator is also obliged to ensure the functioning of the inside information platform for the disclosure of inside information about natural gas till 2 July 2024. Besides that, the gas transmission system operator (LLC Gas TSO of Ukraine) is an inside information platform administrator.

For electricity market the market operator and the transmission system operator are required to ensure the functioning of inside information platform for disclosure of inside information relating to electricity market within till 2 July 2024 as well. In addition, the market operator (JSC Market Operator) and the electricity transmission system operator (NPC Ukrenergo) are an inside information platform administrators.

Prohibition of manipulation

Manipulation or attempt of manipulation is prohibited on natural gas market under Article 57² of the Law of Ukraine “On the natural gas market” and on electricity market under Article 11² of the Law of Ukraine “On electricity market”.

The Law No.3141-IX defines “Manipulation” as taking actions that create misleading signals for demand and/or for supply, or regarding prices on the wholesale energy market, form prices for wholesale energy products at an artificial level or any other form of misrepresentation or breach of trust (i); spreading false information through the media or in any other way that gives false or misleading signals for demand and/or for supply or for formation of prices for wholesale energy products (ii).

The Law No 3141-IX also provides that the Regulator approves a non-exhaustive list of practices that can be regarded as manipulation or attempt of manipulation of wholesale energy market.

Prevention of abuse in the energy market

To sum up, abuse in the wholesale energy market according to the Law No 3141-IX is:

• carrying out transactions with wholesale energy products without registration;
• failure to disclose or disclosure of insider information with violations of requirements;
• violation of established restrictions on the use of insider information;
• manipulation and attempt of manipulation on wholesale energy market.

A person that professionally arranges transactions with wholesale energy products is obliged to notify the Regulator immediately in case of reasonable grounds to consider that operations were carried out in violation of restrictions regarding the use of insider information or there are signs of manipulation or attempted manipulation in the wholesale energy market. To that end the person that professionally arranges transactions with wholesale energy markets should create mechanisms for detecting violations on an organized trading platform.

Investigations and sanctions

If in the process of monitoring of trade activities the Regulator identifies or suspects violations of established restrictions on use of inside information, manipulation and attempts to manipulate the market, it initiates the investigation of the detected violations and informs about it the Council of the regulatory bodies of the Energy Community and the Secretariat of the Energy Community.

During investigation the Regulator has the right to take the following actions:

• to demand the wholesale energy market participants and persons that professionally organize transactions with wholesale energy products to provide information, copies of document related to investigation;
• to exchange information with other state authorities and the Energy Community bodies;
• to carry out audio and video recording of the evidence investigation process;
• to involve experts;
• to resort to law enforcement bodies in order to ensure that the Regulator fulfills its powers to investigate abuses in the wholesale energy market;
• to demand to stop hindering the investigation;

to file a lawsuit.

As a result of investigation of abuse in the wholesale energy market the Regulator makes decision on elimination of the identified violations, imposes penalties on market participants and takes other actions required by the law (see Table 1. Penalties for abuse in the wholesale energy market).

 According to the Article 59 of the Law of Ukraine “On the natural gas market” it is specified that penalties must be effective, restraining, and proportional, and their amount should correspond to the type and duration and the severity of the violation, the harm caused to consumers and the potential benefit from such violation.

In addition, the amount of the fine shall not exceed 10% of the annual income from the sales irrespective of the maximum fine.

Professional secrecy

In line with REMIT, professional secrecy requirements are introduced by the Law No.3141-IX, under which any confidential information received, transmitted or exchanged in accordance with the Law must be subject to the regime of professional secrecy and may not be divulged to any other persons. The obligation to maintain professional secrecy applies to (i) the chairman, members and personnel of the Regulator, the Antimonopoly Committee of Ukraine (the AMC), the National Securities and Stock Market Commission (the NSSMC) and other bodies that receive the confidential information according to the Law, (2) auditors, experts, specialists appointed and/or engaged in any way by the Regulator, the AMC, the NSSMC and who receive the confidential information according to the Law. Such recipients of the confidential information may use it only in the performance of their duties provided for by law. Other bodies and persons may use such information in the performance of their duties in administrative or court proceedings. Bodies that receive confidential information may use it for other purposes, subject to obtaining the relevant consent of the Regulator, the AMC, the NSSMC, bodies and persons that provided it.

Memorandum of Understanding for REMIT implementation

On 27 July 2023 the Energy Community Secretariat and the National Commission for State Regulation in the Spheres of Energy and Communal Services of Ukraine (NEURC) signed a Memorandum of Understanding aiming to facilitate the implementation of REMIT procedures. The key element of the Memorandum of Understanding is establishing a framework for the consultation on decisions on the imposition of fines for abuses in the wholesale energy market in Ukraine.

Other significant amendments provided by the Law No. 3141-IX

Finally, a number of important provisions were introduced by the Law No.3141-IX for renewable energy projects to facilitate their successful commissioning in war conditions.

The time limit for completion of construction and commissioning of the renewable energy facilities was extended (except for solar energy facilities) and constitutes four years instead of three years after the conclusion of power purchase agreement pursuant to the amendments made by the Law No. 3141-IX. Therefore, the precise deadline for the power plants to be eligible for the feed-in tariff depends on the date of power purchase agreement conclusion.

The Law No. 3141-IX provides lowering coefficients for the feed-in tariff. The lowering coefficient for entities producing electricity from wind energy that were commissioned till 30 June 2023 is 0,975 and for those commissioned from 1 July 2023 is 0,825.  In addition, technical conditions for connection of an electric power facility producing electricity from alternative energy sources to the power grid were extended till 31 December 2024. Such extension of technical conditions for connection will facilitate successful completion of the power plants which are in the process of construction yet.

Furthermore, the Law № 3220-IX was adopted on 30 June 2023 and entered into force on 27 July 2023. The Law № 3220-IX provides the extension of deadline for commissioning of renewable energy facilities till December 31, 2023. The extension provided by the Law № 3220-IX differs from the one provided by the Law No. 3141-IX. As the delay pursuant to the Law № 3220-IX provides time till December 21, 2023, whilst Law No. 3141-IX adds one more year to the timeframe counted from the date of conclusion of power purchase agreement. In addition, under the Law № 3220-IX the technical conditions shall be till December 31, 2024, and with possibility to be given till December 31, 2025.

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The adoption of the law aimed to prevent abuse in the wholesale energy markets is an important step for fulfilling the obligations of Ukraine as a contracting party to the Energy Community, for the integration of the Ukrainian energy market with the EU one and for improvement of image of a partner on energy markets.

[1] The Law of Ukraine 3141-IX “On making amendments to certain laws of Ukraine for prevention of abuse in wholesale energy markets” available as per link:  https://zakon.rada.gov.ua/laws/show/3141-20#Text

[2] There are several provisions that will come into force later, namely:

•              the requirements of the Law of Ukraine "On the natural gas market" and the Law of Ukraine "On the electricity market" regarding the disclosure of insider information by wholesale energy market participants shall come into force after the requirements for the disclosure of insider information approved by the Regulator come into force (i);

•              fines for market manipulation will not be applied before November 1 2023 (ii);

•              fines for violations with regard to use of insider information will not be applied before 1 February 2024 (iii);

Provisions regarding the obligations of the trade repository regarding reporting on derivative contracts come into force on 1 January 2025 (iv).

[3] REMIT defines a framework for identifying and penalising insider trading and market manipulation in wholesale energy markets in the EU.

[4] A wholesale energy market participant is a person that concludes sale-purchase agreements or submits such offers on the wholesale energy market (the Law of Ukraine № 1540-VIII dated 22.09.2016 “On the National Energy and Utilities Regulatory Commission”, Article 2¹).

[5] The NEURC has prepared a draft of Resolution “On approval of procedure for registration for wholesale energy market participants”.

[6] A person that professionally organizes transactions with wholesale energy products is a person that organises conclusion and/ or execution of transactions that are wholesale energy products in the interests of other participants of the wholesale energy market, in particular on organized trading platforms, commodity exchanges, electronic auction and trading platforms (the Law of Ukraine № 1540-VIII dated 22.09.2016 “On the National Energy and Utilities Regulatory Commission”, Article 2¹).