RENEWABLE ENERGY: INTEGRITES INDUSTRY UPDATE

26.04.2019

On April 25, 2019, the Parliament of Ukraine adopted in the second reading Draft Law No. 8449-д “On the Introduction of Certain Changes to Laws of Ukraine On the Insuring of Competitive Conditions for the Generation of Electricity from Alternative Energy Sources” (the “Law“). The law is still to be signed by the President of Ukraine and will enter into the force on the date following its official publication.

The text of the Law is not available yet, but based on the publicly available information, the Law provides the following regulations on the production of electric power from renewable energy sources (“RES”):

✓ Currently, the production of electric power from a RES is supported by means of a feed-in tariff (“FiT”). However, the Law provides for a new additional procedure. Starting from 1 July 2019, producers of electric power from RES (“Producer”) will be able to participate in auctions (“Auctions”) for the purchase of so-called quotas to support the production of electric power from RES (“Quotas”). The auctions must be launched starting from 1 July 2019 (although, according to the transition provisions, pilot auctions must be launched not later than 31 December 2019, which means that there is a chance that Auctions will be launched only at the end of 2019) and will be conducted two times a year with deadlines on or before April 1 and October 1.

✓Auctions will be mandatory for (i) wind power plants (“WPP”) with an installed capacity exceeding 5 MW, and (ii) solar power plants (“SPP”) with an installed capacity exceeding 1 MW. However, based on the publicly available information (and without reviewing the official text), it seems that Producers who have executed power purchase agreements (“PPA”) or so-called preliminary PPAs (for the purpose of this newsletter, further the preliminary PPA and PPA are jointly the “PPA”) before 31 December 2019, are not obliged to participate in Auctions.

Producers who have already obtained FiT will not be able to participate in Auctions. All other producers may participate in Auctions voluntarily.

✓ Annual Quotas for each type of RES will be approved by the Cabinet of Ministers of Ukraine. However, during the transition period in 2020-2022 the quotas will be allocated as follows:

no less than 30% for SPPs;
no less than 30% for WPPs; and
no less than 15 % for other RES.

Afterwards, annual Quotas will be allocated as follows:

no less than 15% for SPPs;
no less than 15% for WPPs; and
no less than 15% for other RES.

✓Each Auction participant must submit a bank guarantee in the amount of EUR 5.00 per kW, which will be refunded after the completion of the Auction. Afterwards, the successful bidder will have to provide a new bank guarantee in the amount of EUR 15.00 per kW.

✓ The successful bidder is obliged to sign a PPA.

✓ Duration of Quotas: 20 years.

✓ The National Regulatory Commission of Ukraine on Energy and Utilities (“Commission”) will continue to issue FiT only to those Producers who will execute PPAs. The deadline for the execution of such PPAs is December 31, 2019.

✓ Provided that the Producer has executed the PPA prior to December 31, 2019, the FiT will be issued upon the commissioning of the relevant RES. However, this rule is not mandatory in order to obtain a FiT. The SPP must be commissioned within 2 years following execution of the PPA and other RES – within 3 years.

✓ The rate of the FiT will be determined on the RES commissioning date and not on the date of the PPA.

✓ The FiT will be valid until 2030.

✓ The FiT will be reduced gradually as follows:

FiT for SPP will be reduced by 25% in 2020 and will be further reduced by 2,5% each year within the following 3 years;
FiT for WPP will be reduced by 10% in 2020. For turbines of up to 2 MW, FiT will be further reduced by 1,5% each year within the following 3 years;
FiT for micro-, mini- and small hydro power plants and geothermal facilities will be reduced by 10% in 2020; and
FiT for other RES will remain unchanged.
The bonus for local equipment will remain the same (up to 10% for 50% of certain local equipment).

✓ Technical specifications (“TS”) to grid connection shall be valid:

for SPP – 2 years from the date of issuance; and
for other RES – 3 years from the date of issuance.

However:

the TS of the Auction’s successful bidder will be valid during the period of construction (i.e.; up to 2 years for SPP and up to 3 years for other RES);
a TS, issued before the entry into force of the Law, shall be valid:

>> for SPP – 2 years from the Law’s date of entry into force; and

**>>**for other RES – 3 years from the Law’s date of entry into force.

Notwithstanding the above, please note that the President of Ukraine still may veto the Law.