On 26 April 2019 the National Commission for State Regulation of Energy and Public Utilities of Ukraine (Regulator) adopted resolution No. 641 (Resolution), which calls for the functioning of the new electricity market which is planned to be launched on 1 July 2019. The following documents were approved by the Resolution:
- The Procedure for the power purchase under the feed-in tariff (FIT) (Procedure);
- The Methodology on the budget of the Guaranteed Buyer (Budget Methodology);
- The model (“Typovyi”) Power Purchase Agreement or new PPA between the producers of electricity from renewable energy sources (RES producers) and the Guaranteed Buyer;
- The model (“Typovyi”) agreement on rendering services on securing an increase for the share of the electricity produced from renewable energy sources, which will be executed between the Guaranteed Buyer and Ukrenergo (RES).
Officially published on 14 May 2019, the Resolution will become effective on 1 July 2019, except for a few provisions, which came into force a day after the Resolution's publication. The provisions that became effective on 15 May 2019 include the order that the new PPA be executed by new RES producers (i.e. those producers who had not executed the Power Purchase Agreement before), while RES producers who had already executed the Power Purchase Agreement (approved by Resolution No. 1118 dated 14 September 2017) (September 2017 PPA) with Energorynok were required to execute an additional agreement replacing Energorynok with a Guaranteed Buyer, and to bring the Power Purchase Agreement in line with the new PPA or additional agreement.
As for the procedure that comes into force on July 1, its main provisions include:
- New buyer. The Guaranteed Buyer will replace Energorynok once the new electricity market is launched on 1 July 2019. By this date, any RES producers selling electricity to Energorynok must execute an additional agreement for a replacement of the purchaser, bringing the Power Purchase Agreement in line with the new PPA adopted by the Resolution.
- Register of RES producers. The new Procedure obliges the Guaranteed Buyer to maintain a Register of all RES producers that have executed the PPA. The relevant information pertaining to this Register must be available on the website of the Guaranteed Buyer.
- New payment terms for RES-produced electricity. Payments for the first 10 and 20 days of anticipated electricity production must be made by the Guaranteed Buyer by 15th and 25th day of the delivery month. (This is known as prepayments). The remaining electricity (excluding the prepayments) will be paid after the act of sale when both parties have signed the purchase. (According to the current regulation, effective until 1 July 2019, payments for electricity produced by RES producers for a given month must be made by Energorynok by the 15th day of the following month).
- Balancing group of producers. The Electricity Market Law No. 2019-VIII dated 9 November 2017 and its Procedure state that all RES producers must be members of a balancing group of producers under the FIT. The balancing group will be formed on a contractual basis between all RES producers and the Guaranteed Buyer, who will be responsible for balancing the electrical power of the group members and will be compensated by RES producers for this balancing. The Guaranteed Buyer will be responsible to the Transmission System Operator (TSO) for any unbalances caused by RES producers.
- Documents required for execution of the new preliminary power purchase agreement (Pre-PPA). According to the Procedure, in order to execute the Pre-PPA, RES producers will need to submit a set of updated documents, including:
- An application;
- A certified copy of the charter;
- A certified copy of the director employment order and the minutes of the general participants meeting for the re-appointment of the director;
- A specimen signature of the director or authorised person, who has a right to sign a Pre-PPA on behalf of the company;
- A certified copy of the land-title documents;
- Evidence of registration for declaration on the commencement of the construction works and a certified copy of the relevant construction permit;
- A certified copy of the grid-connection agreement.
The following is the specific timeline for execution of the new Pre-PPA and PPA:
- The Guaranteed buyer must sign and provide two hard copies of the new PPA within 15 business days from obtaining the above documents.
- The RES producer should sign and deliver one hard copy of the new PPA to the Guaranteed Buyer within three business days from the date of receiving the two signed PPA hard copies.
As mentioned above, until 1 July 2019 all RES producers, who have already executed the September 2017 PPA, should conclude an additional agreement. According to the Regulation, however, it is unclear whether the Pre-PPAs can be amended by the additional agreement. On 3 June 2019, CMS and the Ukrainian Wind Energy Association sent an official request concerning this issue to the Regulator, but no reply has yet been received. CMS and Law-Now will update you on any feedback from the Regulator on this matter.
In addition, it is apparent that the Guaranteed Buyer is currently not fully functioning, making the conclusion of the additional agreement impossible for the present.
As a result, the Regulator has announced that Energorynok will perform the obligations instead of the Guaranteed Buyer from 1 July 2019 until the Guaranteed Buyer is registered, in possession of a license and is ready to operate. A draft regulation outlining these changes were published on the Regulator`s website on 10 June 2019.
In addition to these changes, the Regulator also approved the new PPA, which will be used by both the RES producers and Guaranteed Buyer. As opposed to the September 2017 PPA, the new PPA includes the following updates:
- Up-to-date PPA. In case of any changes to the PPA or the relevant legislation, the Guaranteed Buyer must publish all changes on its own website and send an additional agreement to RES producers with all PPA amendments. Each RES producer should sign an additional agreement within 15 business days from the date it obtains the additional agreement from the Guaranteed Buyer. If a RES producer does not provide a signed additional agreement to the Guaranteed Buyer within one month from the date it obtained the additional agreement from the Guaranteed Buyer, this will initiate the procedure for the termination of the PPA.
- Pre-PPA validity. The executed Pre-PPA will become invalid if the power plant or the construction phase is not commissioned within three years from the date the declaration on commencement of the construction works are registered or the relevant construction permit has been issued.
- Liability. In case of any delay in payment under the agreement, the party will pay 0.1% interest for each day of the delay. (This penalty is capped at the double discount rate of the National Bank of Ukraine valid as of the date of calculation.) There will be an additional fine of 7% of the outstanding payment if the delay exceeds 30 days. Note that the amount of interest was reduced from 0.2% in the September 2017 PPA to 0.1% in new PPA. Also, accrual of interest will continue after 30 days of delay unlike the September 2017 PPA, which limited interest accrual to one calendar month. However, Article 232 of the Commercial Code of Ukraine limits the period of interest accrual to six months from the date when a delay occurred.
- Assignment. Unlike the September 2017 PPA and the PPA approved by Resolution No. 1 dated 9 January 2018, the new PPA does not provide RES producers the right to assign or pledge monetary funds to any third party, except under written approval by the Guaranteed Buyer. However, this assignment clause is crucial for attracting financing from international financial institutions. As a result, we can only assume that similar amendments are to be introduced in the PPA in the future.
- The term of the new PPA. The term of the new PPA will be equal to the period that the FIT is valid (i.e. until 1 January 2030).
The Resolution also includes information on how the Regulator will approve the annual budget for the Guaranteed Buyer, which will mainly be made up of the amount of the difference between the price of the electricity purchased from the RES Producers and the selling price to the TSO (i.e. currently National Power Company “Ukrenergo”). The price of selling electricity to the TSO will be based on the day-ahead market.
For more information on this eAlert and the changes occurring in Ukraine's energy market, feel free to contact authors of this publication.