The Parliament of Ukraine approved the Law 2010-D this week adjusting the support scheme for renewable power plants. After the President signs the Law, we will publish detailed analysis of the new legislation. The most important change, in our opinion, is abolishment of the local content requirement that used to be a major barrier for development of renewable projects in Ukraine. Below chart shows new feed-in tariffs for various types of renewables…
Review of Regulatory Aspects Related to Renewable
Electricity Producers under the Law of Ukraine
“On the Principles of Functioning of the Electricity Market in Ukraine”
(approved by the Parliament on 24 October 2013)
During the transitional period (till the middle of 2017) the activity of “green” electricity producers shall be governed by the applicable provisions of the Law “On the Power Sector”. The changes related to such producers shall take place when the Cabinet of Ministers of Ukraine (hereinafter – the CMU) decides to implement the full-scale bilateral contracts market and balancing market, which is expected no later than 01 July 2017.
Pursuant to the Law “On the Principles of Functioning of the Electricity Market of Ukraine” (hereinafter – the Electricity Market Law or the Law) producers that generate electricity at alternative energy facilities (e.g. renewable electricity producers) under the new market model shall be able to sell electricity in two ways:
- electricity sale at the “green” tariff according to the procedure and taking into account the peculiarities of this type of electricity sale set by the law;
- electricity sale by the producers at the prices established at respective markets.
Electricity sale at the “green” tariff
If electricity is generated at alternative energy facilities and the “green” tariff is established for such producers, sale of electricity shall be carried out by the producers taking into account the following specific features.
In order to fulfill the state guarantees set by the Electricity Market Law to purchase all electricity generated at energy facilities that use alternative energy sources and to pay for the electricity at the “green” tariffs, the so called Guaranteed Buyer shall be established (it will be state enterprise designated by the CMU). It is expected that the Guaranteed Buyer will be established on the basis of the state enterprise Energorynok (current operator of the Wholesale Electricity market) till 31 December 2015.
Guaranteed electricity sale-purchase
The Electricity Market Law (article 22) sets forth that until 01 January 2030 electricity producers at the “green” tariff shall sell generated electricity to the Guaranteed Buyer. Also the Law specifies the unconditional commitment of the Guaranteed Buyer to purchase such electricity at the bilateral contracts market as well as the commitment to make settlements with the producers for purchased electricity at the “green” tariffs.
Sale of electricity at the “green” tariff to the Guaranteed Buyer shall be performed by the producers on condition that:
- access right to the electricity market is obtained under the procedure set by the law;
- electricity producer at the “green” tariff is included into the special balancing group of producers at the “green” tariff;
- electricity sale-purchase agreement is concluded with the Guaranteed Buyer based on the standard agreement approved by the regulatory authority (NERC);
- hourly schedules of electricity generation are submitted to the Guaranteed Buyer on daily basis. The Law envisages possibility for wind power plants and solar power plants to adjust electricity generation schedules submitted by such producers to the Guaranteed Buyer two hours prior to actual production of electricity.
The Guaranteed Buyer, in its turn, shall sell all purchased “green” electricity on the day-ahead market under the rules set by the Law for electricity sale on this market. The Law provides for the priority purchase of electricity from the Guaranteed Buyer on the day-ahead market that is ensured by indicating the minimum price for electricity (permitted by the day-ahead market rules) in the application submitted by the Guaranteed Buyer. Reimbursement of the difference between the value of electricity at the “green” tariff and the value of electricity sold at the prices of the day-ahead market shall be made to the Guaranteed Buyer at the expenses of the Cost Imbalance Allocation Fund (article 25).
Formation of the Cost Imbalance Allocation Fund (hereinafter – the Fund) that ensures compensation payments to the “green” producers shall be provided at the expense of the funds obtained from:
– producers of electricity generated at nuclear and hydro power plants (except for micro-, mini- and small HPP);
– suppliers that perform import of electricity;
– electricity transmission company.
The Fund shall be formed by means of income derived from the provision of the service on “adjustment of the competition conditions” on the market to above mentioned categories of market participants. The service shall be provided on the basis of the standard agreement approved by the NERC.
Ensuring payments for sold electricity
The Guaranteed Buyer shall pay for the electricity purchased at the bilateral contracts market from the producers at the “green” tariff for the actual amount of sold electricity in full in monetary form within the terms and according to the procedure specified by the contracts. However, the payment term shall not exceed 90 calendar days from the delivery date of relevant electricity volume by the producer.
Calculations with the producers at the “green” tariff shall be carried out under the algorithm approved by the NERC with the use of special accounts opened for the Cost Imbalance Allocation Fund and its donors as well as the Guaranteed Buyer. Special accounts are protected against forced withdrawal of funds, its arrest by analogy with the existing system of special accounts used for settlements for sold electricity. Opening of the special accounts for producers at the “green” tariff is not envisaged by the Law.
At the same time, it should be noted that the Law does not set the priority of allocation of the Fund’s funds among the recipients as well as types of payments for each of the recipients. This, in its turn, may lead to the insufficient receipt of funds by the producers for the electricity sold at the “green” tariff to the Guaranteed Buyer.
Participation of producers in the balancing market
Until 01 January 2030 the producers at the “green” tariff shall not take part on their own in the balancing market to settle imbalances. These producers are not the independent parties responsible for balance, but should enter the special balancing group of producers at the “green” tariff where the party responsible for balance on behalf of all such producers is the Guaranteed Buyer. The imbalances that emerge from such special balancing group shall be settled by the Guaranteed Buyer. The costs of the Guaranteed Buyer associated with the settlement of electricity imbalances of the balancing group shall be reimbursed from the funds of the Cost Imbalance Allocation Fund (article 25).
In order to gradually introduce the liability for the producers who obtained “green” tariff for the electricity imbalances caused as the result of their activity, the Law provides for the phased-in reimbursement by such producers (except for wind and solar power plants) of the cost of electricity imbalances created after the launch of the full-scale electricity market operation The amount of compensation shall be:
1st year – 0%;
2nd year – 50%;
3rd year – 100%.
Thus, provided that the full-scale market is implemented in 2017, the Law envisages full transition by the middle of 2019 of the producers at the “green” tariff, except for WPP and SPP, to reimburse the costs of electricity imbalances resulting from their fault. Wind and solar power plants till 2030 shall not pay compensation of electricity imbalances resulting from their operations.
Starting 2030 absolutely all producers at the “green” tariff shall take part in the balancing market on a general basis.
Sale of electricity at the prices set on respective markets
If electricity is generated at the alternative energy facilities and for such producer the “green” tariff is not approved or the producer takes a decision to sell electricity not at the approved “green” tariff, the sale of electricity shall be carried out according to the general procedure specified by the Law. In this case the Law suggests selling electricity by the producers on the bilateral contracts market, day-ahead market or balancing market.
For this purpose the producer shall obtain the right to access the market according to the procedure set by the Law. In order to settle possible imbalances during performance of its contractual obligations the producer shall:
– register on the balancing market as a party responsible for electricity balance or enter the balancing group;
– be held liable for imbalances resulting from its fault.
The sale of such electricity by the producers shall be carried out at the prices that are set on the respective segments of market (bilateral contracts market, day-ahead market or balancing market).
Amendments to the Law of Ukraine “On the Power Sector”
The final and transitional provisions of the Law shall introduce the list of amendments to the effective Law of Ukraine “On the Power Sector”, including the list of amendments related to regulation of the activity of producers at the “green” tariff.
1. For electricity producers at alternative energy facilities, the installed capacity of which exceeds 5 MW, additional requirement shall be established in order to obtain the “green” tariff (in addition to the local content requirement) – the construction design documents for such facilities shall correspond to the Development Plan of the United Energy System (hereinafter – the UES) of Ukraine for next 10 years (article 17-1 of the Law “On the Power Sector”).
The conclusion on compliance of the construction project of the alternative energy facility to the Development Plan shall be provided by the system operator according to the procedure stipulated by the Grid Code. The system operator shall provide the conclusion taking into account the needs in relevant generating capacity from respective energy source and in relevant region (all data should be contained in the Development Plan) as well as previously issued “technical conditions” and constructed facilities.
Main requirements to the content and procedure of the approval of the Development Plan are covered by the Electricity Market Law (article 17 “the system operator”). It is proposed to regulate the procedure for preparation of the Development plan at the level of the Ministry of Energy and Coal. The Development Plan of the UES of Ukraine shall be prepared by the system operator for 10 years and be subject to review on an annual basis. The Plan shall be agreed with Ministry of Energy and Coal, the NERC, the State Agency on Energy Efficiency and submitted by the system operator for the CMU approval. In case of disagreement by any of mentioned stakeholders, the system operator shall submit the Plan for the CMU approval together with respective explanations.
2. Certain amendments that are introduced to the article 17-2 of the Law “On the Power Sector” make the procedure of funding connection of the alternative energy facilities more complicated.
In case if the facility’s construction complies with the Development Plan of the UES of Ukraine, the current procedure of funding of the facility’s connection to the grid remains in force – 50% at the cost of electricity transmission tariffs and 50% at the cost of electricity producer via return financial assistance provided to the transmission company. In case if the facility’s construction is not envisaged by the Development Plan, the funding to connect such facility shall be carried out according to the general procedure as it is specified by the law for non-standard connection of the facilities.
3. The final and transitional provisions of the Law “On the Power Sector” include the provision according to which the requirement for the construction of alternative energy facility to comply with the Development Plan of the UES of Ukraine shall not extend to the facilities with respect to which grid connection agreements have been concluded prior to 01 July 2014.
Approval of the Development Plan of the UES of Ukraine for the first time is envisaged before 01 January 2015, therefore, conclusion on compliance of the projects related to construction of the alternative energy facilities shall not be required before the approval of the mentioned Plan (e.g. till 2015).
Amendments to the Law of Ukraine “On Alternative Energy Sources”
The final and transitional provisions of the Electricity Market Law amend the effective Law of Ukraine “On Alternative Energy Sources” (article 9) with regard to the issuance of the guarantee of electricity origin. It is proposed that the guarantee of electricity origin shall be provided upon the request of the producer at the “green” tariff by the authorized body according to the procedure prescribed by the CMU.
1. The Electricity Market Law to maximum possible extent takes into account the state guarantees provided by the Law “On the Power Sector” to purchase full amount of electricity generated at the alternative energy facilities and to ensure payment at the “green” tariffs.
There are certain risks in the mechanism that ensures the state guarantees to provide full payment to the producers at the “green” tariff (operation of the Cost Imbalance Allocation Fund) as timely and full payment by the Guaranteed Buyer to such producers at the “green” tariff shall depend on the funds allocation algorithm set by the NERC and payment discipline of the Fund’s donors.
2. Amendments to the Law “On the Power Sector” set additional requirement to the initiators of the constructions projects of alternative energy facilities – the need for compliance of such facilities with the Development Plan of the UES of Ukraine that in the future may be the limiting factor for the development of the projects in this area.
The provisions of the Law “On the Power Sector” related to the amount of the “green” tariff and the procedure of its establishment set by the NERC as well as the local content requirement have not been changed.
3. Amendments to the Law “On Alternative Energy Sources” regulate the issues related to the issuance of guarantees of origin for electricity generated at the alternative energy sources. The norm is of the dispositive nature and does not contain the obligation of the producers at the “green” tariff to obtain this guarantee of origin.
Alexey Romanov, Director of IMEPOWER, made a presentation about current status and prospects of the renewable energy sector in Ukraine at the workshop organized in the framework of EBRD’s USELF program for representatives of local banks and leasing companies.
The latest issue of Ukraine Renewable Energy Newsletter was published. You can download full version here. Please see below introduction and the list of content.
Development of renewable energy projects in Ukraine continues at active pace. Despite complications caused by new local content rules that were introduced by the Parliament in late 2012 via amendments to the Electricity Law, we see more renewable capacities added by developers every month – several small and middle size solar power plants have been commissioned recently, DTEK has given 105 MW order to Vestas for wind turbines, while newly introduced green tariff for electricity produced biogas sparked interest from agricultural holdings to the development of biogas projects.
The EBRD has financed its first small hydro power project in Ukraine and is in the process of finalizing several other loans to renewable developers under USELF program. It also considers, jointly with the IFC, providing debt financing for the first stage (126 MW) of the Western Crimean Wind Power Plant that became the first large renewable project in Ukraine developed by foreign owners (Guris from Turkey and Greenworx from Belgium) that secured the construction permit.
At the same time, there is still lack of clarity regarding ability of majority of developers to comply with the new local content rules after the requirement for “fixed shares” comes in force starting 01 July 2013. We expect that it will delay implementation of many projects before the authorities come up with clear guidelines how new regime should be applied and it will become clear who from equipment suppliers and/or EPC contractors is willing to undertake efforts to comply with it.
In This Issue
I. Legal and Regulatory Developments
1.1. Rules for connection of power units to networks came into force
1.2. Methodology of payment calculation for connection of power units came into force
1.3. NERC approved green tariffs for renewable energy producers for March 2013
1.4. NERC proposed new amendments to the secondary legislation regulating renewable projects
II. Investment News
2.1. Vestas receives 105 MW wind turbine order from DTEK
2.2. EBRD and IFC consider loan provision to the Western Crimean Wind Power Project
2.3. EBRD finances the first hydro power project in Ukraine
2.4. Vindkraft Ukraine plans to expand wind power capacities on the Black Sea coast in 2013
2.5. Ekotechnik Praha launches the first stage of solar power plant in Khmelnytsky oblast
2.6. Smart Holding launches the first stage of pellet production plant
2.7. Eco-Optima revises the construction design of wind power plant due to bankruptcy of Fuhrlander
2.8. Ukreximbank provided UAH 50 million for Ivankiv TPP construction
2.9. Rengy Development plans to construct solar power plants with capacity of 20-25 MW in 2013
2.10. 10 MW solar power plant launched in Kherson region
EBRD will provide a senior secured loan to Hydropower LLC for development, construction and operation of two small hydropower plants on the Bily Cheremosh River in Western Ukraine. Small hydro power plants with total capacity of 1.6MW will produce 6,470 MWh per annum which will be sold to the grid at the feed-in tariff.
Total financing needs for the project are estimated at EUR 3.8 million, which will be financed from the following sources:
(i) Hydropower equity contribution – EUR 1.8 million
(ii) EBRD senior loan – EUR 1.3 million
(iii) Clean Technology Fund senior loan – EUR 0.7 million from the EBRD CIF Special Fund.
Respective loan agreement was signed on 26 December 2012.
This project is the third project financed by the EBRD and the CTF in the framework of Ukraine Sustainable Energy Lending Facility (USELF).
(Please note that we will expand below analysis in the coming days to provide more information on the “fixed shares” of the “local content”)
On 20 November 2012 the Parliament of Ukraine has adopted the Law “On Introducing Changes to the Law of Ukraine “On the Electricity Sector” (regarding promotion of electricity production from renewable energy sources), registration number 10183 (hereinafter referred to as “the Law 10183”). The Law was signed by the President on 29 November 2012.
The Law 10183 provides for a number of significant changes to the incentive system for renewable power plants, including:
1) Adjustment of the green tariff values for renewable power plants commissioned in different periods (up to 2030) depending on the date of their commissioning. Respective green tariffs rates are provided in the table below. Special attention should be paid to reduction of green tariffs for solar PV facilities;
2) Differentiation of hydro power plants to micro (installed capacity not exceeding 0.2 MW), mini (installed capacity between 0.2 and 1 MW) and small (installed capacity between 1 and 10 MW);
3) Introducing green tariffs for the electricity (i) produced from biogas and (ii) produced from energy of solar irradiation by electricity facilities installed on the roofs and/or facades of private households with the capacity not exceeding 10 kW;
4) Expending the term “biomass” to the wastes of animal origin and organic part of industrial or municipal solid wastes, which allows for the electricity produced from those to be eligible for the green tariff (that is currently eligible only for vegetative origin wastes);
5) According to the Law 10183 the “local content” means a share of components of electricity facility (elements of the local content) of the Ukrainian origin used for construction of electricity facility and applies to electricity facilities, the construction of which has started after 01 January 2012. The Law 10183 designates “fixed share” (percentage) for specific element of the local content for wind, solar, biomass and biogas power plants. “Local content” requirement does not apply to hydro power plants and electricity facilities installed on the roofs and/or frontages of private households;
6) To be eligible for the green tariff, “local content” for electricity facilities producing electricity from the energy of wind, solar and biomass commissioned before 01 July 2013 should be no less than 15%, after 01 July 2013 – no less than 30% and after 01 July 2014 – no less than 50%. The Law 10183 has removed additional requirement for local content in the solar modules, while to some extent this was replaced by above mentioned “fixed shares”;
“Local content” for electricity facilities producing electricity from biogas and commissioned after 01 January 2014 should be no less than 30% and for the facilities commissioned after 01 January 2015 – no less than 50%;
7) Possibility to have approval of the green tariff for each “launch stage (complex)” of electricity facility if construction is performed in stages.
The Law 10183 shall enter into force starting from 01 April 2013, except for: (i) provisions on the local content requirement, which shall enter into force starting from 01 July 2013; till then for the renewable energy facilities commissioned before 01 July 2013 the “local content” should be no less than 15%; (ii) provisions introducing green tariff for electricity produced from solar energy by electricity facilities installed on the roofs and/or facades of private households that shall enter into force on 01 January 2014.
Table 1. New Green Tariff Rates Effective as of 01 April 2013
|Categories of Electricity Entitled for the Green Tariffs||Green Tariffs for the Facilities Commissioned Within the Period, EUR per MWh|
|up to and including 31 March 2013||From 01 April 2013 through 31 December 2014||From 01 January 2015 through 31 December 2019||From 01 January 2020 through 31 December 2024||From 01 January 2025 through 31 December 2029|
|Electricity produced from wind energy by electricity facilities with the installed capacity not exceeding 600 kW||64.6||–||–||–||–|
|Electricity produced from wind energy by electricity facilities with the installed capacity higher than 600 kW but not exceeding 2,000 kW||75.4||–||–||–||–|
|Electricity produced from wind energy by electricity facilities with the installed capacity exceeding 2,000 kW||113.1||–||–||–||–|
|Electricity produced from wind energy by the wind power plants consisting of the wind units with single installed capacity not exceeding 600 kW||–||64.6||58.2||51.7||45.2|
|Electricity produced from wind energy by the wind power plants consisting of the wind units with single installed capacity of more than 600 kW but not exceeding 2,000 kW||–||75.4||67.9||60.3||52.8|
|Electricity produced from wind energy by the wind power plants consisting of the wind units with single installed capacity exceeding 2,000 kW||–||113.1||101.8||90.5||79.2|
|Electricity produced from biomass||123.9||123.9||111.5||99.1||86.7|
|Electricity produced from biogas||–||123.9||111.5||99.1||86.7|
|Electricity produced from the energy of solar irradiation by ground-mounted electricity facilities||465.3||339.3||305.3||271.4||237.5|
|Electricity produced from the energy of solar irradiation by electricity facilities installed (mounted) on roofs or at facades of buildings, constructions or facilities with the installed capacity exceeding 100 kW||445.9||348.9||314.1||279.2||244.3|
|Electricity produced from the energy of solar irradiation by electricity facilities installed (mounted) on roofs or at facades of buildings, constructions or facilities with the installed capacity not exceeding 100 kW||426.5||358.6||322.8||286.9||251.0|
|Electricity produced from the energy of solar irradiation by electricity facilities installed (mounted) on roofs or at facades of private households (buildings, constructions or facilities) with the installed capacity not exceeding 10 kW||–||358.6||322.8||286.9||251.0|
|Electricity produced by micro hydro power plants||116.3||193.9||174.5||155.1||135.7|
|Electricity produced by mini hydro power plants||116.3||155.1||139.6||124.1||108.6|
|Electricity produced by small hydro power plants||116.3||116.3||104.7||93.1||81.4|