More effective and attractive framework for renewable energy development with new draft law
The draft law titled "On Improving the Competitive Model for Supporting the Production of Electricity from Renewable Energy Sources" (the "Draft Law") marks a significant development for investors, developers, and stakeholders in the renewable energy sector. While renewable energy auctions were designated as the primary method for competitively attracting investment back in 2019, they remained largely unrealized for years. In 2024, the support mechanism transitioned to a Contract for Difference (sliding premium) model for auction winners. However, despite these modifications, actual auctions did not commence until 2024.
(For further details about effective auction procedures, please see our publication).
Auctions held last year were largely considered unsuccessful. Industry experts and market participants have pointed out several contributing factors, including limited quotas, low investor confidence due to overall economic challenges and wartime uncertainties, regulatory complexities, inadequacies in the support mechanism, and persistent payment issues tied to the state offtaker "Guaranteed Buyer."
In response to these challenges and with the goal of addressing existing barriers, the Draft Law has been proposed. It aims to introduce a comprehensive overhaul of the support system, creating a more effective and appealing framework for renewable energy development. Below is an analysis of the key proposed changes and their market implications.
Changes on renewables auctions
| Effective Auction Rules | Draft Law |
| Incentive duration | |
| Until December 31, 2029 | The auction period is extended until December 31, 2034 |
| Support mechanism | |
| The feed-in premium mechanism allows producers to sell electricity on the market and receive an additional payment (the "premium") if the market price falls below the auction price. Conversely, producers must reimburse the Guaranteed Buyer if the market price surpasses the support price. | The Draft Law redefines the feed-in premium mechanism, limiting its application to electricity generated between 04:00 and 23:00 from April 1 to October 31, and between 06:00 and 21:00 from November 1 to March 31. Auction winners before December 31, 2029, are exempt from compensating the Guaranteed Buyer for any feed-in premium service when the market price exceeds the auction price, as outlined in the Law of Ukraine on "Alternative Energy Sources." |
| Bidding price caps | |
| Bidding prices are capped at €0.09 per 1 kWh for solar and wind energy and €0.12 per 1 kWh for other renewable sources. | The Draft Law extends the €0.12 price cap to include solar power plants equipped with energy storage systems, provided they meet specific criteria. |
| Minimum support quota shares for renewable energy | |
| 10% | The minimum quota is reduced to 5% |
| Auction security | |
| Participants are required to submit an unconditional and irrevocable bank guarantee amounting to €5 per kW of the declared capacity, valid for at least 50 business days after the auction. Guarantees can be issued by Ukrainian or qualifying foreign banks. | Participants may provide either a bank guarantee or a security deposit, calculated at €5 per kW of capacity. This amount is converted into Ukrainian hryvnia based on the National Bank of Ukraine's exchange rate on the transfer date. The deposit may be held in a dedicated account of the Guaranteed Buyer or an escrow account designated by the participant. |
| Performance security | |
| A bank guarantee of €15 per 1 kW is required. | The Draft Law permits bank guarantees or financial securities of €10 per 1 kW to ensure timely development and commissioning of renewable energy facilities. |
| Documentary confirmation | |
| Winning bidders must submit required documentation within 6 months. | The deadline for submitting land title documents and grid connection agreements is extended to 12 months. Alternatively, a capacity reservation agreement may be provided. |
| Installed capacity flexibility | |
| N/A | A deviation of up to ±10% from the declared auction value is allowed. |
| Construction period extension | |
| 12 months with a bank guarantee of €30 per 1 kW | 12 months with a bank guarantee or financial security of €10 per 1 kW |
| Construction period during martial law (apart from solar power plants) | |
| 36 months | 42 months |
The proposed changes under the Draft Law are aimed at addressing the shortcomings of previous auction frameworks while incorporating more flexible, investor-friendly mechanisms. By extending timelines for documentation and construction, reducing security costs, and refining incentive structures to better align with market realities, the Draft Law seeks to instill greater confidence among stakeholders. These measures, alongside enhanced clarity on grid connection procedures and capacity adjustments, aim to position Ukraine as a more attractive destination for renewable energy investment, especially given the evolving challenges of a wartime economy.
Changes on GOs
The Draft Law provides detailed explanations regarding the circulation, transfer, and recognition of guarantees of origin. It specifies their validity period, outlines the process for transferring guarantees to the Guaranteed Buyer, and introduces the principle of reciprocity for recognizing foreign guarantees. Key updates introduced by the Draft Law include:
Validity period for guarantees
Defined as 12 calendar months from the production month, after which they expire.
Cancellation period
Previously allowed 18-month period has been eliminated, ensuring uniformity with a 12-month timeframe for both trading and cancellation.
Support agreement guarantees
Must be fully transferred to the Guaranteed Buyer (for the projects under support schemes) and hold no monetary value.
Household guarantees
Applicable to capacities up to 50 kW, are transferred to the universal service supplier and are non-tradable.
Recognition of foreign guarantees
Based on reciprocity rather than relying solely on international agreements.
Authenticity of foreign guarantees
The National Energy and Utilities Regulatory Commission may refuse to recognize guarantees of origin for electricity from renewable sources issued in a state that is a Contracting Party to the Energy Community or in another country, if there are reasonable doubts about their authenticity, reliability, or accuracy. In such cases, the Commission must notify the European Commission and/or the Energy Community Secretariat and provide justification. If the refusal concerns a guarantee issued by an Energy Community Contracting Party, the Secretariat must be informed.
Consumer energy source information
Guarantees of origin for renewable electricity are used to inform consumers about the energy sources in the electricity balance of suppliers and/or their own generation, as regulated by the Regulator. Disclosure is based on the residual energy mix, excluding the share covered by redeemed guarantees, calculated annually by the Regulator using an approved methodology and published on its official website.
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