Ukraine creates instruments to repay debts to renewable energy producers

Ukraine

On 17 November 2020, the Ukrainian parliament adopted draft law No. 4119 “On amending of the Law of Ukraine “On the State Budget of Ukraine for 2020” (the “Law”), which now awaits the signatures of the Chairman of the Parliament and the President of Ukraine, and its official publication in order to be entered into force.

The Law addresses the problem of late settlements with renewable energy producers, which had been awarded green-tariff support from the state. In particular, the Law allows the Ukrainian government to issue 2020 state guarantees covering the debt obligations of the state-owned transmission system operation, Ukrenergo JSC.

Analysts and market players have raised the question: how does the Law improve the payment discipline to renewables if it is not Ukrenergo, but rather a state-enterprise “Guaranteed Buyer”, which is responsible for green-tariff payments?

The overall indebtedness of the Guaranteed Buyer to renewable energy producers is about UAH 20 billion. At the same time, Ukrenergo owes about UAH 23 billion (approximately EUR 687 million) to the Guaranteed Buyer for the service of increasing the electricity share from renewable energy sources. Under the law, Ukrenergo must compensate the Guaranteed Buyer with the difference between the price of electricity the latter purchases at green-tariff rates from renewable producers and the price the Guaranteed Buyer then sells it at the day-ahead market.

Given that the Guaranteed Buyer has limited sources of revenues, the Law should help it collect debt from Ukrenergo after the latter attracts additional financial resources (i.e. loans) secured by sovereign guarantees.

However, even if the proposed mechanism would efficiently help with the current debts, it does not per se solve the problem of settlements in the renewable energy market over the long term and simply postpones its resolution for the future. The Ministry of Energy and parliament are reportedly working on amendments to laws that may introduce a feed-in premium-settlement structure and corporate PPAs that should further ease the financial burden of the Guaranteed Buyer.

For more information on the new regulation, contact your regular CMS advisor or local CMS experts: Anna PogrebnaVitaliy Radchenko, Sergiy Datsiv, Kateryna Korneliuk.

Legislation link is here (in Ukrainian).