The news is published in “Kyiv Post” media source.

In recent years Ukraine’s green tariffs have attracted international investors and have engendered a lot of positive hype from investment promotion agencies in Ukraine. But the tariffs might also place a major financial burden on the state.

In 2015, Ukraine adopted the ambitious goal of producing 25 percent of its energy from renewable sources by 2035. The green tariff, which is higher than in any other European country, was meant to attract investors into the sector to help achieve the government’s goal. However, the increase in energy output from renewable sources has mainly been beneficial for large players. The benefits also are financially unsustainable for the country in the long run, as the price at which the government buys renewable energy is pegged to above-market prices.

A new law on green auctions is currently in limbo in parliament. But if adopted, it will create a fairer market that doesn’t just benefit mainly large companies.

Green tariff

Oleksiy Feliv, a managing partner at law firm Integrites, explains that while the initial green tariff was adopted in 2009 at a rate of 0.46 euros per kilowatt to promote investments into renewables, prices were set to drop every five years. After the introduction of the feed-in tariff, state agency EnergoRynok, which is responsible for energy distribution, was obliged to buy renewable energy at the highest price in Europe.

Feliv says that the price was substantially above market prices, making the return on investment in producing energy from solar panels, wind farms and biogas higher than in most countries.

According to Economichna Pravda, when Viktor Yanukovych was president, 85 percent of Ukraine’s solar energy was produced by Activ Solar, a company owned by Serhiy Klyuyev, a close ally of the ousted president, due to a provision obliging companies to use Ukrainian-made equipment. This effectively closed the market to foreign investors.

Oleksandra Gumeniuk, head of the European Ukrainian Energy Agency, says that after 2015, that requirement was canceled.

The tariff itself is set to decrease each year, with the price for plants opening in 2019 standing at 15 euro cents per kilowatt for solar energy, 10 euro cents per kilowatt for wind farms, and 10–17 euro cents per kilowatt for hydropower. Plants put into operation this year will enjoy the green tariff until 2030.

The feed-in tariff exists in most European Union countries, says Gumeniuk, yet the gap between the cost of production and the tariff by which companies sell electricity is much less, with Germany having a two times lower solar panel rate of 8 euro cents per kilowatt.

Free cash

“Because the tariff is so high we see that solar panels are being built even where it isn’t economically justified,” Feliv says.

For example, Slavutych, a city of around 25,000 residents that’s 150 kilometers north of Kyiv, is aiming to crowdfund the $300,000 construction cost of a photovoltaic power station which will cover the needs of the city, while earning profits for residents that are willing to invest.

However, Slavutych is rather an exception. Mostly the current market is run by large corporations willing to invest a lot of money as well as by those closely affiliated with the lawmakers that influence the green tariff.

Big players dominate

“We have an upside-down system in which the field is dominated by large companies, whereas in Europe it is the small proprietorships that benefit,” says Oleksiy Ryabchyn, head of the parliament’s subcommittee on energy efficiency and a representative of the 20-member Batkivshchyna faction.

In 2016, the China National Building Material Company, fully-owned by the Chinese government, bought solar plants and wind farms owned by Klyuev. The corporation now controls 10 plants with a total output capacity of 300 megawatts, being the largest foreign investor into the field.

TIU Canada has invested over $100 million into two new solar stations in Odesa Oblast, while Norway’s NBT is planning to invest $400 million in what will become, when built in late 2019, Ukraine’s largest wind farm, citing “attractive” green tariffs as the main reason for their investment.

But the largest beneficiaries from the feed-in tariff are large Ukrainian companies, including those controlled by Ukraine’s richest person, Rinat Akhmetov, whose net worth passed $6 billion on Feb. 1, according to Bloomberg.

DTEK Renewables, a DTEK subsidiary created in April 2018 as a branch of Akhmetov’s energy holding, in mid-January this year became the country’s largest single producer of solar energy, after the company launched a 200-megawatt solar plant near the city of Nikopol, 650 kilometers south-east of Kyiv. DTEK Renewables is planning to expand even more as its renewable energy capacity is planned to reach 1 gigawatt by the end of 2019.

Oligarchs, lawmakers

Other notable Ukrainian businesspeople that have invested in renewable energy and collected green tariff benefits are: oligarchs Yuriy Kosyuk and Vasyl Khmelnytsky, and Vitaliy Antonov, the owner of the OKKO chain of gas stations.

While the market’s profitability is largely sustained by a high feed-in tariff, a number of Ukrainian parliamentarians, government officials and people connected with them also seized the opportunity to benefit from selling green energy to the state agency EnergoRynok at above market prices.

As of Jan. 1, over 300 companies received the green tariff. The list includes companies owned by Stepan Ivakhiv, a member of parliament from the 18-member Volya Narody faction and a co-owner of Continuum, a company that operates a chain of gas stations under the brand WOG.

Yulia Lyovochkina, a parliamentarian from the 38-member Opposition Bloc and the sister of Serhiy Lyovochkin, formerly head of Yanukovych’s presidential administration, owns six companies with a total output capacity of 30 megawatts of clean energy, receiving the feed-in tariff until 2030.

Maxim Efimov, a member of the 138-member Petro Poroshenko Bloc, has the largest stake among all members of parliament with seven wind farms, four of which are located in Russian-controlled territory, with a total capacity of over 200 megawatts.

According to Ekonomichna Pravda, a number of members of parliament have stakes in renewable energy either through relatives or business partners. Among them are the Dubnevych brothers — Yaroslav and Bohdan — of the Petro Poroshenko Bloc, who were involved in a scandal with two power plants in Lviv Oblast, allegedly costing the state Hr 305.2 million ($11 million).

Others include Viktor Romanyuk and Yuriy Voznyk from the 81-member People’s Front, Vasyl Petovka from Volya Narodu, Yuriy Chizhmar from the 21-member Radical Party, Independent lawmakers Yuriy Levchenko and Oleksandr Livyk, Valeriy Lybinets, Mykhailo Dovbenko and Oleksandr Dombrovskyi from the Petro Poroshenko Bloc. Dombrovskyi is the deputy head of the parliament’s energy committee.

Rulebook changes

The European Bank for Reconstruction and Development, an international financial institution, which, among other functions, gives out loans to companies looking to produce renewable energy, released a statement in mid-November that it will hold off from financing any new solar projects until the renewables market becomes more transparent.

Anton Usov, the bank’s spokesperson, explained that the EBRD is persuading Ukrainian parliamentarians to adopt the so-called “green auctions” law that would make prices more competitive.

“The green tariff served its purpose, now we need clear pricing, and to maintain the demand we need to change the rulebook,” Usov says.

The EBRD fears that with a rising percentage of energy coming from renewables, maintaining a high feed-in tariff will put a heavy burden on Ukraine’s economy.

A similar problem occurred in Spain, according to Ryabchyn, where its high feed-in tariff attracted investors, eventually raising the percentage of renewable energy generation to a level that the government could not sustain financially.

“With the launch of green auctions we’ll witness an economically justified price, because competition will drag the price down,” says Feliv.

Ryabchyn expresses a similar opinion, stating that the green tariff was worth it, as it attracted investors into renewables, but the time for a competitive market has come.

“We now have to transition to a phase where competition will dictate the price,” he says.

The proposed law, which passed the first hearing on Dec. 20 2018, allows multiple companies to bid for the right to sell their energy to EnergoRynok. The company that offers the lowest price to the state will sign a 20-year contract. Concerning those already collecting the feed-in tariffs, the proposed legislature will decrease the tariff by 20 percent for solar energy and 10 percent for wind farms in 2020, with further gradual decreases until 2030.

But the green tariff would be kept for small producers such as Slavutych. The law is meant to create fair competitive pricing for large companies that are currently making excess profits yet help small local producers maintain sustainability, according to experts.

Gumeniuk expects that the new green auction law will make the renewables market more predictable. She explains that currently there is no penalty on those who do not match their declared energy output. But if the new law passes, companies will be fined if they do not meet their generating targets, and the law would also set a deadline for companies to complete their solar plants within a two-year term.

According to Feliv, the balancing tax for those using the green tariff starts in 2020 and will include a 10 percent fine for those producing green energy and not meeting their declared targets, with the fine increasing by 10 percent each year until 2030.

Nonetheless, while members of parliament are discussing the law and over 200 amendments that were submitted after the first hearing, large companies are speeding up the construction of new solar panel arrays and wind farms to qualify for the green tariff while it lasts.

“While companies like DTEK had plans for multiple years ahead, now they are in a state of emergency trying to put everything into operation this year to benefit from the green tariff,” says Ryabchyn.

Top countries by renewable energy capacity (in gigawatts, 2017)

China — 600
USA — 230
Brazil — 128
Germany — 113
India — 105

Ukraine (2018) — 2
Source: International Renewable Energy Agency

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