On June 30, 2023, the Verkhovna Rada of Ukraine adopted and sent to the President for signature the Draft Law of Ukraine "On Amendments to Certain Laws of Ukraine on the Restoration and Green Transformation of the Energy System of Ukraine" No. 9011-d dated 04/28/2023. This Draft Law covers an extremely wide range of issues and existing problems in the alternative energy sector of Ukraine. Below are the main innovations that are expected shortly.
- A system of issuing guarantees of origin for electricity generated from renewable energy sources is introduced
The legal regulation of guarantees of origin for electricity produced from renewable energy sources (hereinafter referred to as "guarantees of origin") is being introduced. Earlier, the obligation to create a mechanism for issuing, using, and terminating guarantees of origin was enshrined in Directive 2018/2021 of the European Parliament and of the Council as of 11.12.2018, which is mandatory for implementation in Ukraine.
In essence, the guarantee of origin confirms the amount of electricity supplied to the grid or produced and used for own consumption, generated from renewable energy sources, and issued for a volume of 1 MWh. The ownership of the guarantee of origin may be transferred separately from the electricity, and the circulation of guarantees of origin may be carried out separately from the volume of electricity within 12 months from the date of production of the volume of electricity for which such a guarantee of origin was issued.
A separate register of guarantees of origin will be created, which will be further integrated into the regional register of the Energy Community. The authorized body for issuing guarantees of origin will be the National Energy and Utilities Regulatory Commission (hereinafter referred to as "NEURC"). The guarantee will be generated automatically in the register.
The procedure for issuing, circulating, and redeeming guarantees of origin will be approved by the Cabinet of Ministers of Ukraine separately.
In our opinion, the system of issuing guarantees of origin can become a powerful incentive to boost the export of "green" energy from Ukraine, as well as strengthen the trend in the country to use the energy produced from alternative sources.
- Market premium mechanism is introduced
The draft law introduces a new mechanism for stimulating the production of electricity from alternative energy sources in Ukraine – the market premium mechanism. According to this mechanism, the Guaranteed Buyer pays the difference between the feed-in tariff or auction price and the estimated price for electricity to business entities that have been set a feed-in tariff and business entities that have been eligible for support based on the results of the auction. Such a model is called Feed-in-Premium or Contracts for Difference and is provided for, among other things, by Directive 2018/2021 of the European Parliament and of the Council as of 11.12.2018, which is mandatory for implementation in Ukraine.
The purchase of the service under the market premium mechanism will be carried out by the Guaranteed Buyer based on a contract for the provision of services under the market premium mechanism. The form of such a model agreement will be approved by the NEURC separately. The amount, calculation of the cost of the service, and the procedure for paying for the service will also be approved by the NEURC separately.
Importantly, entities that decide to leave the balancing group of the Guaranteed Buyer will be entitled to enter into a contract for the provision of services under the market premium mechanism. In this case, the agreement will be concluded for the duration of the feed-in tariff.
For entities that have just received the right to support based on the results of the auction, the term of support will be 12 years.
- The withdrawal of business entities from the balancing group of the Guaranteed Buyer is regulated
The draft law entitles business entities that produce electricity from alternative energy sources at electricity facilities and sell it at the feed-in tariff to withdraw from the balancing group of the Guaranteed Buyer by suspending the electricity purchase and sale agreement at the feed-in tariff and the agreement on participation in the balancing group. The business entity will be able to decide to suspend (terminate) the feed-in tariff electricity purchase and sale agreement.
The exclusion and inclusion of electricity facilities from/to the balancing group will be carried out by concluding an additional agreement on the suspension or renewal of contracts between the Guaranteed Buyer and the producer, or their suspension (termination). Importantly, upon re-enabling, the validity of the agreement for the purchase and sale of electricity at the feed-in tariff will be renewed.
The Draft Law directly stipulates that suspension or termination (cancellation) of the feed-in tariff electricity purchase and sale agreement and the agreement on participation in the balancing group of the Guaranteed Buyer and exclusion of the Guaranteed Buyer from the balancing group is not a ground for termination of the feed-in tariff and invalidation of the resolution approving the feed-in tariff. The absence of such a provision in the current legislation was a major risk for most producers and deterred them from trying to sell electricity on market terms under bilateral agreements.
From now on, a business entity that has excluded an electricity facility from the balancing group of the Guaranteed Buyer by terminating the validity of the purchase and sale agreement under the feed-in tariff has the right to apply to the Guaranteed Buyer for re-conclusion (renewal) of the validity of the purchase and sale agreement under the feed-in tariff. The Guaranteed Buyer has no right to refuse such a business entity to conclude (renew) the agreement.
- The draft law provides for the possibility of electricity exports by producers and the Guaranteed Buyer
The Draft Law stipulates that electricity producers that generate electricity from alternative energy sources have the right to sell electricity under bilateral agreements, on the day-ahead market, on the intraday market, on the balancing market at prices prevailing on the respective markets, and under electricity export-import agreements or at a feed-in tariff.
It also provides that the right to export electricity is also granted to the Guaranteed Buyer.
- The possibility of completing the construction and commissioning by the end of 2023 of facilities that plan to produce electricity at the feed-in tariff (for certain categories of energy sources) has been introduced
The draft law extends by one year the term for commissioning and by two years the validity of technical specifications for electricity facilities or their construction stages that produce electricity from alternative energy sources by business entities that entered into electricity purchase and sale agreements under the feed-in tariff before December 31, 2019. These extensions do not apply to electricity facilities that produce electricity from solar energy.
The above is only a part of the innovations and regulations proposed to be introduced by the Draft Law, which deserves further analysis and consideration on other issues. Now we are waiting for the President of Ukraine to sign it and generally welcome the legislative activity in this extremely important area of Ukraine's energy sector.