On 21 July 2020, Ukrainian parliament passed draft law No. 3658 “On amending of certain legislative acts of Ukraine regarding improvement of terms of support of renewable energy producers” (Implementing Law No. 3658).
Implementing Law No. 3658 implements the agreements regarding the restructuring of the green tariff reached between Ukrainian authorities and some of renewable power producers (RPPs) in a memorandum of understanding regarding regulation of problematic issues in the sphere of renewable energy in Ukraine dated 10 June 2020 (MOU).
Although the MOU was executed by the Ukrainian Wind Energy Association and the European-Ukrainian Energy Agency it is not supported by all RPPs including some members of the aforementioned associations. (For more details regarding the MOU, see the following Law-Now dated 24 June 2020).
The Implementing Law No. 3658 is a significant milestone for the Ukrainian renewable energy market as it dramatically changes the landscape of the sector. The document covers the majority of the provisions in the MOU regarding mandatory restructuring of the green tariff, commitments of RPPs and the partial commitments of Ukrainian authorities (regarding the stability clause, green auctions and the payments of compensation for the performance of curtailment commands issued by the transmission system operator or TSO).
Below is a summary of Implementing Law No. 3658. Given that the final version of the Implementing Law was not available during the writing of this article, the final law may differ from the summary below.
Mandatory green tariff decrease
Implementing Law No. 3658 envisions a mandatory green tariff decrease without prolongation of its applicability.
Note that Implementing Law No. 3658 has also changed the criteria for green tariff eligibility. In particular, it excluded eligibility of wind RPPs with up to three wind turbines (irrespective of their capacity) for the green tariff; and established requirements for biomass and biogas RPPs to be commissioned before 1 January 2023 in order to be eligible for the green tariff.
Stabilisation clause
The RPPs under the green tariff will be regulated by legislation, which will be valid as of the date when the Implementing Law is effective, except for instances when newly enacted legislation decreases taxation, simplifies regulation of business operations or softens legal responsibility. This stabilisation clause does not cover changes to legislation regarding defence, national security, taxation, public order and environmental protection.
Through the separate clause, the government directly guarantees that between 1 July 2020 and 31 December 2029 the green tariff will not be decreased or be changed in any way that lowers the lawfully expected income of RPPs.
Responsibility for imbalances
New balancing responsibilities have been implemented in relation to RPPs with installed capacity exceeding 1MW in particular. RPPs that are part of the balancing group of the Guaranteed Buyer will be responsible for balancing as follows:
- 50% starting from 1 January 2021; and
- 100% starting from 1 January 2022.
Note that until 31 December 2029, these RPPs will pay for imbalances only if the deviation between actual and forecasted generation exceeds 5% (for solar) or 10% (for wind).
Changes of green auctions support scheme
The Cabinet of Ministers of Ukraine (CMU) will establish the auction schedule for the following year by 1 December of the preceding year. The annual quota and schedule for auctions will be established for the next year only. For the following four years, the CMU will establish indicative forecasts of annual quotas.
The CMU is also entitled to set the following requirements for the auctions within the annual quota:
- name the specific regions for development of RPPs;
- determine the maximum capacity of RPPs, which is entitled for support under the quotas;
- offer roofs and facades of buildings in addition to the land plots to be granted by lease by owners with specified technical characteristics and conditions for grid connection.
New minimal shares of certain renewable technologies in the annual support quota have received the following reductions:
- solar – 10% (instead of 15%);
- wind – 10% (instead of 15%);
- all other renewable energy technologies – 10% (instead of 15%).
Caps for auction bid prices for solar and wind RPPs will be 9 eurocents per kWh for auctions performed until 31 December 2024 and 8 eurocents for auctions performed after 1 January 2025. Auction bid prices for RPPs other than solar and wind will be 12 eurocents per kWh irrespective of the date of the auction.
Completion of projects that have obtained support through auctions must be confirmed by certificate on completion of grid connection in addition to the confirmation of the commissioning of the energy facilities.
Repayment of existing debts before RPPs under the green tariff
At least 20% of the Offtaker’s projected funds necessary for payment to RPPs for the forecasted amount of energy to be generated in the respective year will be earmarked and provided in the State Budget. (The Regulator will calculate these amounts and submit them to the Ministry of Energy, which will initiate amendments to the budget).
Draft laws regarding repayment of outstanding debts to RPPs during 2021 and 2022 must be prepared within three months after Implementing Law No. 3658 enters into force.
The TSO is allowed to use the 70% funds accumulated by the TSO from the sale of cross-border capacity as of 1 April 2020 or 1 July 2020 (the precise date is still unclear yet, as the final text of the Implementing Law No. 3658 is not available as of the date of this Law-Now) to pay to the Offtaker for RPPs debts (i.e. 50% to RPPs; 50% to the nuclear operator).
Compensation for curtailments
Implementing Law No. 3658 establishes that preparation and approval of the amendment of the regulatory framework that will ensure payment of compensation for the performance of curtailment commands issued by the TSO to the RPPs must be made within one month after the implementing law enters into force.
Local content premium
The implementing law also establishes additional local content premiums to the green tariff for RPPs that consist of more than 70% of locally produced equipment in the amount of 20% (with a decrease to 10% after six years of operation of the respective RPP).
The Chairman of parliament signed Implementing Law No. 3658 on 28 July 2020. Before entering into force, this bill must be signed by the President of Ukraine and officially published.
We will keep you updated on any further developments on the matter.
For more information on the new regulation, contact you regular CMS advisor or local CMS experts: Anna Pogrebna, Sergiy Datsiv, Vitaliy Radchenko, Maryna Ilchuk, Anatolii Doludenko.
Authors:
Anna Pogrebna, Partner, anna.pogrebna@cms-rrh.com
Sergiy Datsiv, Associate, sergiy.datsiv@ cms-rrh.com
Vitaliy Radchenko, Partner, vitaliy.radchenko@cms-cmno.com
Maryna Ilchuk, Senior Associate, maryna.ilchuk@cms-cmno.com
Anatolii Doludenko, Associate, anatolii.doludenko@cms-cmno.com
