Ukraine reshapes the renewable sector regulations to ensure the restoration and green transformation of its energy system
On June 30 the Ukrainian Parliament, Verkhovna Rada, adopted on its second reading the draft law on Amendments to Certain Laws of Ukraine on the Restoration and Green Transformation of the Energy System of Ukraine (the "Green Transformation Law"). The President signed it into Law on July 24, 2023. The Law was published on July 26, 2023, and is effective as of July 27, 2023.
The Green Transformation Law provides for:
I. Introduction of guarantees of origin
The Green Transformation Law stipulates that the National Energy and Utilities Regulatory Commission (the "NEURC"), which is the national energy market regulator, will be the authorized body to issue guarantees of origin (GOs).
NEURC will issue electronic GOs on a free-of-charge basis. GOs will contain information about the type of renewable energy used, the start and end date of the operating period, the location of the energy source, the date of issuing, the origin country and the identification code.
Guarantees of origin of electricity generated from renewable energy sources are freely tradable and may be transferred to the ownership of any electricity market participant.
Guarantees of origin can be exported from and imported to Ukraine, however, there will be no automatic recognition of guarantees of origin. Issues related to recognition of guarantees of origin issued abroad and recognition of Ukrainian guarantees of origin in foreign countries are to be settled through agreements between Ukraine and the respective foreign countries.
The purchase and sale of guarantees of origin of electricity generated from renewable energy sources is carried out on a market basis at freely agreed prices.
Guarantees of origin issued to producers benefitting from the feed-in tariff are sold to the Guaranteed Buyer simultaneously with the respective volume of electricity under the feed-in tariff. The price paid by the Guaranteed Buyer for the electricity generated under the feed-in tariff includes the value of the respective guarantees of origin. The Guaranteed Buyer will be able to sell acquired guarantees of origin separately from the corresponding volumes of electricity.
The holder of the guarantee of origin has the right to cancel the guarantee within 18 months following the date of production of the underlying volume of electricity.
Provisions regarding guarantees of origin become effective starting from the date of official publication of the Green Transformation Law, however the procedure for issuance, transfer, and consummation of guarantees of origin is to be developed by the NEURC and submitted for the Cabinet of Ministers approval within 3 months of the publication of the Law. The register of guarantees of origin will be operative within 6 months following the approval of the procedure.
II. Reload of the green auctions support scheme
State support to renewable projects through the auctions scheme will be granted in the form of feed-in premiums (FiP).
FiP is accrued on the volume of electricity produced at the power generating facilities of an auction winner and sold under direct contracts, on the day-ahead market (DAM), or on the intraday market (IDM) during each hour, at a level that does not exceed the licensed capacity of the respective generating facility.
1. **The FiP payable to renewable energy producer is calculated in the following manner:** The estimated market price is calculated by determining the maximum difference between the average value of the DAM price indices for the base load during the billing period and the preceding month, and the price indices under direct contracts concluded as the result of auctions organized by Guaranteed Buyer SE and auctions organized by energy producers for the base load period.
2. If the average value of the DAM price indices for the base load during the billing and the preceding month is the highest value, the FiP for the settlement month is calculated as the sum of 1) products of hourly volumes of electricity produced and sold at DAM, IDM and under direct contracts, and 2) the difference between the auction price and the average value of the DAM price indices for the base load period for the billing and preceding month.
3. If price indices under direct contracts concluded as the result of auctions organized by the guaranteed buyer and auctions organized by energy producers for the base load period is the highest value, the FiP for the settlement month is calculated as the sum of 1) products of hourly volumes of electricity produced and sold at DAM, IDM and under direct contracts and 2) the difference between the auction price and the correlation of the average price indices under direct contracts concluded as the result of auctions organized by the guaranteed buyer and auctions organized by energy producers for the base load period, and the product of the average value of the DAM price indices for the base load for the billing period and the preceding month and the average price at the DAM for the respective hour during the settlement and preceding month.
If the amount of the calculated market price in the period exceeds the amount of the auction price, the renewable producer must pay the guaranteed buyer the cost of the service under the FiP mechanism.
The support quota will be determined annually and approved by the Cabinet of Ministers
NEURC will have powers to define the maximum price proposals that auction participants will be allowed to make. Bidders suggesting the lowest price will be selected as winning bidders.
Duration of support
State support will be provided for 12 years starting from the first day of the calendar month following the commissioning of the power facility and its connection to the power grid.
Provisions changing the auctions procedure and support awarding process become effective following the publication of the Green Transformation Law, however the FiP mechanism not be operative earlier than 6 months after the official publication of the Green Transformation Law.
III. Renewable energy producers benefitting from the feed-in tariff to switch to the FiP support mechanism
Renewable energy producers benefitting from the feed-in tariff will be able to switch to the FiP support scheme by leaving the Guaranteed Buyer balancing group according to the procedure we previously described here.
The FiP will apply to such producers as described above for the green auctions support scheme.
The form and terms of the FiP contract are still to be defined by NEURC.
The FiP will be applicable to renewable energy producers benefiting from the feed-in tariff support scheme until January 1, 2030.
IV. To restore damaged renewable generation while retaining the feed-in tariff
The Green Transformation Law conveys provisions enabling retention of the applicable feed-in tariff coefficient during the restoration of RES generation. When electricity facilities undergo reconstruction, restoration, or overhaul without an increase in the installed capacity, the same feed-in tariff coefficient (adjusted by a reduction factor) that was applied to these facilities before the process should continue to be applied afterwards.
V. Introduction of the new market participant – the aggregator
Definition of Aggregators
The aggregator is a market participant that performs its activities based on a license and unites power generation or storing facilities, as well as consumers, with the purpose of purchasing and selling of electricity, and providing ancillary and/or balancing services.
The aggregator will create an aggregated group that will function based on guidelines stipulated in the aggregator group participation agreement.
The aggregator shall be responsible for the balance of electrical installations in its aggregation, except for electrical installations serving consumers who purchase electricity from other market participants.
The aggregator may not transmit and distribute electricity, transport and distribute natural gas, or perform market operator functions. It buys and sells electricity on the market in accordance with the market rules and provides balancing and ancillary services in accordance with the relevant regulations.
Purpose of implementation of the Aggregators
Aggregators combine consumers and small electricity producers (with capacities up to 20 MW) into a kind of virtual power plant that can buy and sell electricity and provide other services in the electricity market.
Provisions concerning aggregators become effective following the publication of the Green Transformation Law.
VI. Limitation of opportunity to retain grid connection terms for wind projects located within the occupied territories
According to our earlier report, in June 2023 Ukraine deployed the law (REMIT rules transposing law) extending the tenure of grid connection conditions for wind power plants until December 31, 2024. This secured the previously agreed grid connection schemes for pending projects.
The Green Transformation Law is more specific regarding the mechanism of said extension. Particularly, producers can obtain the extension of the technical conditions for grid connection under the condition that the grid connection agreement was effective as of February 24, 2022, and that the producer does not have any unperformed obligations under such grid connection agreement that had matured before February 24, 2022. To formalize the extension the producer and the respective grids operator must enter an additional agreement to the grid connection agreement.
The Green Transformation Law stipulates that a producer can obtain the extension until December 31, 2025, without changing any terms of the grid connection agreement under the condition that the grid connection fee is changed under fair terms, in this case new grid connection fee should be determined as of the day following the day of the cancellation or expiration of the martial law regime.
However, additional agreements are not available to producers whose facilities, which are to be connected to the grid, are located within the occupied territory at the conclusion of the additional agreement. Hence such projects will be able to obtain the extension only if the respective territory is liberated by December 31, 2024. This approach had not been discussed with the industry and is an absolute surprise. It gives no opportunity for additional agreement for those projects located in occupied territory until these territories are liberated by Ukrainian Armed Forces.