Transparent electricity: why implement REMIT in Ukraine
And why a case was opened against our state
On 26 March 2021, the Secretariat of the Energy Community initiated a dispute settlement procedure against Montenegro and Ukraine due to the non-implementation of Regulation (EU) № 1227/2011 on Wholesale Energy Market Integrity and Transparency (REMIT). After the case against Ukraine was opened, two legislative drafts on REMIT implementation (No. – №5322 and No. №5322-1 dated as of April) were registered in the Ukrainian Parliament. Two other legislative drafts had been previously proposed in December 2020 №4503 and №4503-1), which are currently under consideration by the Parliament. There is no information regarding a specific date when the law will be adopted. Especially for Mind, Sayenko Kharenko’s expert on energy projects and UWEA board member Maryna Hritsyshyna and independent electricity market expert Kristián Takáč explain what REMIT is and why it is important to adopt it.
The need for REMIT implementation has been repeatedly noted not only by the Energy Community, but also by the Antimonopoly Committee of Ukraine (AMCU). According to the annual AMCU report for 2020, since 2019, the Committee has been repeatedly stressing the importance of REMIT implementation in its letters to the Ministry of Energy and the NEURC as a means to promote best European practices in monitoring and ensuring maximum transparency of the Ukrainian electricity market. Therefore, to understand the goals of REMIT implementation, it is important to know what it’s all about.
What is REMIT?
The abbreviation comes from the designation of Regulation (EU) № 1227/2011 “Regulation on Wholesale Energy Market Integrity and Transparency”. The aim of the Regulation, which was drafted in the immediate wake of the 2008 financial crisis and adopted in 2011, is to detect and prevent corrupt practices affecting wholesale energy markets (insider trading and market manipulation).
In general, REMIT includes the following key elements: obligation to disclose insider information, prohibition of market manipulation, and obligatory reporting on data. The Regulation also strengthens the Agency for the Cooperation of Energy Regulators’ (ACER) and National Regulatory Authorities’ (NRAs) investigatory and enforcement powers.
On the technical level, REMIT requires all EU electricity and gas market participants that perform transactions and/or the electronic platforms through which transactions are carried out to register in the "Registered Reporting Mechanism" (RRM). RRM provides for secure communication channel for market participants’ reporting obligations and enables a streamlined and standardised reporting process.
Transaction data submitted by market participants via the RRM is recorded and further transferred to ACER and its IT system ARIS (ACER REMIT Information System). This monitoring system collects, stores, processes, and analyses the submitted data while automatically detecting anomalies, issuing alerts, and supporting investigations. In order to make the “picture” and the reporting system more complex, Commission Implementing Regulation (No 1348/2014) was adopted in 2014, requiring market participants to submit “fundamental data”.
Typically, this information is related to the capacity and use of facilities for production, storage, and consumption or transmission of electricity or natural gas, or related to the capacity and use of LNG facilities, including planned or unplanned unavailability of these facilities. Normally, the “fundamental data” is reported by TSOs on behalf of market participants.
The REMIT system has created a relatively robust cooperation platform between ACER and NRAs, and has significantly improved fraud detection and investigation capacities. It is evident from the comparison of ACER’s Annual Reports and Quarterly Reports that the number of cases has been continually rising. As of 2019, more than 15,000 registered participants of energy markets in the EU were subject to REMIT. European energy markets participants submit reports on approximately 2.5 bln agreements annually.
Why was a case against Ukraine opened?
Within the framework of its obligations towards the Energy Community, Ukraine was required to transpose REMIT until 29 November 2019 and implement it until 29 May 2020. The Secretariat of the Energy Community had provided support to the Ukrainian authorities during the preparation of legislation to fulfil such requirements. But despite this, the relevant legislation was never adopted, and the Secretariat was forced to initiate a dispute settlement procedure and transmit a request to the Ministerial Council of the Energy Community in connection with Ukraine's failure to fulfil its obligations. The request to the Ministerial Council of the Energy Community in detail the facts of non-fulfilment of obligations by Ukraine, specifically:
- in 2020, the Secretariat of the Energy Community provided technical assistance to NEURC, to the Ukrainian Parliament, and to the Ministry of Energy of Ukraine under the EU4 Energy program to bring Ukrainian legislation in line with REMIT requirements and prepare the relevant draft legislation;
- after the draft law on REMIT implementation was prepared, the NEURC published it for public discussion in September 2020, but it received a negative conclusion from the Ministry of Justice of Ukraine;
- in addition, two pieces of legislation (No. 4503 and No. 4503-1) on REMIT implementation were registered in the Ukrainian Parliament, but neither was adopted.
The request to the Ministerial Council of the Energy Community also states that in February 2021, the Secretariat of the Energy Community sent a letter to the Minister of Energy of Ukraine, reminding of the obligation to implement REMIT, which expired on 29 November 2019. On 2 March 2021, the Ministry of Energy of Ukraine, in response to this letter, confirmed that several pieces of draft legislation were being discussed with central executive authorities but had yet to be accepted.
The lack of information on REMIT implementation resulted in a dispute settlement procedure against Ukraine and the corresponding request being sent to the Ministerial Council.
Moreover, the choice of the most appropriate approach for REMIT implementation has been frequently debated – whether it should be full, partial, or light.
What should be the REMIT implementation approach in Ukraine?
REMIT implementation by the Energy Community Contracting Parties differs from common EU practice.
The main differences stem from the Energy Community’s lack of an ACER-like organisation and ARIS system performing automated and centralised data collection. And ACER, for the time being, is not inclined to provide ARIS-related services to the Contracting Parties. For this reason, the Energy Community has opted for “REMIT light”, relying more on “manual” detection of possible market manipulation by the competent national authorities and on cooperation between the NRAs.
By using standardised reporting forms and establishing cooperation procedures for the Energy Community Regulatory Board (ECRB) to deal with detected and/or reported breaches (Procedural Act No. 01/2020), the Energy Community intends to simulate some ACER roles. Under this framework, NRAs are expected to report detected or suspected breaches to the ECRB that has the autonomy to decide whether to continue with the investigation.
The system can only work if each Contracting Party implements a number of legal requirements. As a minimum, the Contracting Parties must adopt and implement legislative acts that will contain definitions and provisions concerning transparency of energy markets, prohibition of abuse in energy markets, registration of market participants, and powers of regulators to conduct investigations and impose fines.
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Further information ACER – The Agency for the Cooperation of Energy Regulators (ACER) was established in March 2011 under the Third Energy Package as an independent entity. ENTSO-Е – European Network of Transmission System Operators for Electricity |
What is suggested in the Draft Laws?
As of the end of April 2021, the following legislations on REMIT implementation were registered in the Ukrainian Parliament:
§ Legislation No. 4503 dated 16 December 2020
Main Committee of the Ukrainian Parliament – Committee on Economic Development
Initiator: Member of Parliament Buimister L.A.
A summary of the draft legislation was presented by the Committee on Ukraine's Integration into the European Union dated 31 March 2021, by the Main Scientific and Expert Department on 9 April 2021 and the conclusion of the Committee on Budget on 14 April 2021.
§ Legislation No. 4503-1 dated 31 December 2020
Main Committee of the Ukrainian Parliament – Committee on Economic Development
Initiator: Member of Parliament Gerus A.M.
This draft legislation was supported with comments by the National Commission on Securities and Stock Market, the Ministry of Finance of Ukraine and the Ministry of Energy of Ukraine with proposals for the legislation dated 2 April 2021.
§ Legislation No. 5322 dated 1 April 2021
Main Committee of the Ukrainian Parliament – Committee on Energy, Housing and Utilities Services
Initiator: Member of Parliament Gerus A.M.
There is already a conclusion of the Main Scientific and Expert Directorate of 13 April 2021 regarding this legislation.
§ Legislation No. 5322-1 dated 19 April 2021
Main Committee of the Ukrainian Parliament – Committee on Energy, Housing and Utilities Services
Initiator: Member of Parliament Buimister L.A.
It is interesting to note that all draft legislation is under consideration in different committees of the Ukrainian Parliament and the ministries of the Cabinet of Ministers of Ukraine and have yet to receive the conclusions of the relevant state authorities. Yet, the draft legislation №4503 and №5322 are not alternatives and are registered in different committees of the Ukrainian Parliament.
All draft legislation provides for partial implementation of REMIT. They contain provisions on the transparency of energy markets, prohibition of abuse in energy markets, registration of market participants, powers of regulators to conduct investigations and impose fines.
Particularly, all iterations stipulate NEURC cooperation with the Energy Community Regulatory Board and regulatory authorities of other states to fulfil the functions and aims defined by REMIT.
To sum up, four draft pieces of legislation have been registered and now are under consideration in the Ukrainian Parliament for the purpose of REMIT implementation. Despite the violations by Ukraine of its obligations indicated by the Energy Community, none of the draft pieces of legislation has yet been taken as a basis and it is not known when one of the them will be adopted. But the first step towards implementing REMIT is to consult with the parties concerned.
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