Energy update: first long-term auctions for ancillary services, development of distributed generation

On 26 June 2024, the National Energy and Utilities Regulatory Commission (the NEURC) adopted Resolution "On Approval of Amendments to Certain Resolutions of the NEURC" No. 1172, which introduced specialised auctions for ancillary services. NPC Ukrenergo plans to hold two of these auctions in August 2024 to procure various types of reserves.

Scheduled for 15 August, the first auction will focus on procuring 99 MW of the Frequency Containment Reserve (FCR) services. Companies that use energy storage systems with rapid response capabilities are eligible to participate. The maximum service cost capped at 33 euros per MW.

The second auction, scheduled for 22 August, aims to procure 1,000 MW of automated Frequency Restoration Reserves (FRR) — 579 MW dedicated to loading and 421 MW for both loading and unloading. Eligible participants include operators of gas reciprocating, gas turbine, and biomass power plants. The maximum allowable service cost will range from 24 to 33 euros per MW.

Ancillary services are typically procured at prices that must not exceed the capped prices calculated by the transmission system operator, based on a formula approved by the NEURC. For 2024, the cap prices are set as follows:

• FCR: EUR 32 per MW
• FRR: EUR 32 per MW

For comparison, European tariffs for such services for now are:

• FCR: EUR 1.5 to EUR 3 per MW
• FRR: EUR 1.5 to EUR 3 per MW

Thus, the auction prices in Ukraine are significantly higher than the tariffs in European countries. The contractor tender is five years. Projects to be built until September 2025 are also eligible. To participate in these specialised auctions, bidders must have an agreement for providing services related to frequency regulation and active power, along with the future services agreement. They must also provide a guaranteed deposit of EUR 5,000 per potential unit of ancillary service no later than seven business days before the auction date.

In addition, on 13 August 2024, the Cabinet of Ministers of Ukraine passed three important resolutions targeting the development of distributed generation, in particular:

The National Renewable Energy Action Plan for the period up to 2030 and the action plan for its implementation were approved.

It is planned that the percentage of renewable energy sources in gross final energy consumption in 2030 will be 27%, namely:

• in heating and cooling systems – 33 %
• in electricity production – 29 %
• in the transport sector – 17 %

An additional annual quota of support for business entities that produce electricity from alternative energy sources for 2024 has been established in the amount of 110 MW – 11 MW for solar power plants, 88 MW dedicated to wind power stations and 11 MW for other types of alternative energy sources. The initial auctions are expected in October-November 2024.

A special resolution approved the terms and conditions for conducting tenders for the construction of generating facilities, which will apply to the construction of facilities with the capacity of 5 MW to 80 MW each, with the total capacity of tender being 700 MW and the expected price ceiling of EUR 855 thousands per 1 MW. The relevant facilities are expected to be commissioned by the end of 2027, which makes them also eligible for the ancillary services (see above).