Ukraine establishes new renewables generation support scheme

Ukraine

On 25 April 2019, the Ukrainian parliament approved the draft law On Introduction of Certain Changes to Laws of Ukraine regarding Ensuring Competitive Conditions for Generation of Electricity from Alternative Energy Sources No. 8449-д (the “Law”), which is expected to have huge implications on the renewable energy market in Ukraine. The Law calls for the implementation of a quota auction system – instead of a green tariff – starting from 2020.

The Law is not yet effective, as it shall enter into force the next day after its signature by the President of Ukraine (unless vetoed) and official publishing.

The following are the main provisions of the Law:

Issue

Provisions of the Law

New Auction Scheme

1. Date for introduction of the auctions[1]

1 July 2019

2. Model of support

State support will be provided under the auction support scheme through the guaranteed purchase of all electricity produced by the renewable energy source (the “RES”) project within the limits of the quota purchased at auction at the established fixed tariff.

3. Duration of fixed tariff support for the auction winner

20 years after commissioning

4. Size of the quota

The size of the yearly quota is adopted by the Cabinet of Ministers (the “CMU”) decision with the approval of the State Agency on Energy Efficiency and Energy Saving. The draft of this decision is prepared by the Ministry of Energy and Coal Industry of Ukraine based on proposals from the Transmission system operator and the State Agency on Energy Efficiency and Energy Saving.

5. Principles for yearly quota formation

For 2020-2022, the yearly quota will be split into three categories:

  • Wind (not less than 30%).
  • Solar (not less than 30%).
  • Other types of renewable energy technologies (the “RES technologies”) (not less than 15%).

     

    After this period, the yearly quota will be split into three categories:

  • Wind (not less than 15%).
  • Solar (not less than 15%).
  • Other types of RES technologies (not less than 15%).

The CMU can make a decision on having RES technology neutral quota.

The CMU can also propose land plots with grid connection conditions within the yearly quota for certain RES technologies.

Share of the quota of a category that was not allocated during auction can be (by a decision of the CMU transferred to another category for allocation during the next auction.

6. Quota forward planning

The quotas will be established yearly for the next five years. By 1 December 2019, the CMU will approve annual support quotas for the next five years.

7. Auction model (design)

The model will be a single stage static sealed bid auction. Bidders will submit sealed bids containing a technical proposal (size of the capacity sought for certain power facilities) and a price proposal (price the bidder is ready to accept for 1 kWh of the generated electricity). The sealed bids will be opened simultaneously with winning bids based on the lowest price.

8. Criteria for auction winner

Price for 1 kWh of the generated capacity

9. Auctions will be mandatory for

Auctions will be mandatory for wind above 5 MW (except for power facilities with one wind turbine) and for solar above 1 MW.

Participation in the auctions for all other RES technology projects will be voluntary.

10. Eligible renewable energy technologies that can opt-in for auctions support scheme voluntarily

All types of RES technologies

11. Pilot auctions

The CMU will conduct pilot auctions within six months from the date the Law becomes effective, but no later than 31 December 2019.

12. Platform for auctions

Ukraine’s public procurement platform Prozorro

13. Auction price

Auction price is fixed in EUR as of the date of the Power Purchase Agreement (the “PPA”) in accordance with the official exchange rate of the national bank of Ukraine.

14. Ensuring competition at the auction:

Competition is mandatory requirement for the auction. The total capacity to be awarded to the winners as of the result of the auction cannot exceed 80% of the total capacity that all the bidders have requested in their bids for the auction in relation to the respective RES technology.

15. Restrictions to prevent monopolisation of the market

The maximum share of the yearly quota awarded to a single bidder (including related parties) cannot exceed 25% of the yearly quota (i.e., in total as per two yearly auctions).

16. Ceiling price for the auction:

For wind and solar: the rate of the feed-in-tariff (the “FIT”) for the respective technology at the auction date.

For other RES technologies: the FIT rate for biomass as of 1 January 2020.

17. Bank guarantee to participate in the auction:

EUR 20 per 1 kWh of capacity, which includes:

  • EUR 5 per 1 kWh as a bid bond to participate in the auction.
  • EUR 15 per 1 kWh to be provided on top as the performance bond (to ensure construction of the project) in case the bidder wins the auction.

18. Pre-qualification requirements to the bidders in the auction

  • proof of land ownership or use rights;
  • grid connection agreement.

19. Contract set-up

PPA with the guaranteed buyer (offtaker) who is obliged to buy electricity from the winner at the auction price.

20. Dispute resolution under PPA

A company with foreign investments (foreign shareholding in charter capital of such company are equal or above 10%) may choose to subject all disputes to the ICC international court of arbitration in Paris.

In this case, such the company will be required to pay fees to the special fund that will cover arbitration expenses of the guaranteed buyer during the whole duration of the PPA.

The fees are established by the Regulator in the amount up to 1% of the net profit of such company from electricity generation activities.

Effects on FIT

21. FIT support for already commissioned projects should continue until

1 January 2030

22. FIT support system can be still used by

  • Projects of any capacity and type of RES technology that have been commissioned by 31 December 2019.
  • Projects of any capacity and any type of RES technology that have executed a pre-PPA by 31 December 2019, provided the project company has:
    • A land lease or land purchase agreement;
    • An agreement for grid connection;
    • A permit for construction of the power plant for CC2-CC3 projects, or a declaration for CC1 projects.

    Conditions for obtaining the FIT in such case: commissioning of the power plant within two years from the date of a pre-PPA for solar power plants, and three years for other types of RES technologies.

    The FIT rate should be determined per the date of commissioning.

  • Any projects where auctions are not mandatory.

23. FIT decreases for new solar and wind projects

  • Solar tariff to be decreased for projects commissioned in 2020 by 25% with further yearly decreases of approximately 3.5% for projects commissioned each subsequent year for the next three years (by 2023 inclusively).
  • Wind tariff:
    • for wind turbines with capacity exceeding 2 MW - to be decreased by 10% for projects commissioned in 2020 (as planned in the current law);
    • for wind turbines with capacity below 2 MW - to be decreased by 10% for projects commissioned in 2020 (as planned in the current law) with a further decrease of approximately 1.8% for projects commissioned each year for the following three years (by 2023 inclusively).

24. FIT for other new RES technology projects (biomass, biogas, HPP, geothermal)

  • For biomass and biogas: the Law cancels a reduction and the FIT remains the same.
  • For other RES technologies as planned in the current law: for projects commissioned after 2020 a decrease by 10% and another decrease of 10% for projects commissioned after 2025.

25. Simplified FIT granting procedure (without generation licence)

Applies in the following cases:

  • For households with small wind and solar installations of up to 50 kWh (currently 30 kWh). PPA of those projects will be with the supplier of Universal Services (currently a special company that was created during unbundling of the regional distribution system operator).
  • For other consumers of electricity that have power facilities of all types of RES technologies up to 150 kWh. PPA for this projects will be with the guaranteed buyer.

26. FIT bonus for local content

Allow local content bonus to apply to the auction price for power plants commissioned before 2025. The bonus rate will be 5-10% as stated in the current version of the law.

Other Changes

27. Responsibility for imbalances

Full balancing responsibility will apply to RES projects that:

  • Obtained support through auctions and have been commissioned the year following the year in which the intraday market is considered liquid (or after 1 January 2024, if the intraday market is not recognised as liquid); and
  • RES projects that have FIT support and will be commissioned the year following the year in which the intraday market is considered liquid (or after 1 January 2024, if the intraday market is not recognised as liquid).

28. Technical conditions for grid connection

The technical conditions (the “TCs”) for grid connection will now have expiry terms:

  • TCs held by auction winners are valid for the period these winners are required to build their projects. By default, these periods are two years (for solar) and three years (for all other types of RES technologies), with the potential right to extend them (and the commissioning deadline) for up to one year, provided that a bank guarantee of EUR 30 per 1kWh is provided by the winner.
  • TCs issued before this Law becomes effective will remain valid:
    • for solar – two years from the effective date of the Law;
    • for all other types of RES technologies – three years from the effective date of the Law.

The renewable energy support scheme proposed by the Law will significantly change the regulatory framework of the Ukrainian renewables sector. These changes will affect all market players and could reshape the industry.

For more information on this Law and the changing face of Ukrainian renewable energy, please contact authors of this publication.



[1] The Cabinet of Ministers of Ukraine within three months from the date of entry into force of this Law, shall ensure the development and adoption of a procedure for conducting auctions for the distribution of support quotas. Thus, it is our understanding that in practice the auction may not be introduced until the procedure is adopted.