Authorization
On November 28, 2019, at the 10th International Renewable Energy Investment Forum the Ministry of Energy and Environmental Protection of Ukraine (Ministry) presented a Draft law on changes to the RES support scheme in Ukraine. According to Kostyantyn Chyzhyk, the Deputy Minister, the Draft Law was developed in close cooperation with RES market participants, industry associations and investors. But we can confidently assert that the Ministry has neglected the proposals made by business.
Key provisions of the Draft Law by Ministry include:
1.Voluntary reduction of “green” tariff for commissioned power plants:
2.In respect of the solar and wind power projects with concluded pre-PPAs before 31 December 2019 the following options are suggested as a part of voluntary restructuring:
- solar projects – decrease of GT rate by 15 % (for SPPs commissioned in 2020 GT rate would be then approximately 9.56 eurocents per kWh) with GT extension by 5 years (until the end of 2034); and
- wind projects - decrease of GT rate by 10 % (for WPPs commissioned in 2020 GT rate would be then approximately 8.23 eurocents per kWh for wind farms with turbines capacity exceeding 2 MW) with GT extension by 5 years (until the end of 2034).
3.Liability for imbalances for RES producers will be introduced gradually depending on the option selected:
a) Non- restructured projects
b) Voluntarily restructured projects
4. All market participants are to make their decisions on option by 01 April, 2020.
5. Terms for commissioning facility under the pre-PPA signed by 31 December 2019 with concluded agreement on GT restructuring:
UWEA members who participated in the working groups initiated by the Ministry to resolve the problem of the Guaranteed Buyer` deficit and to update the aid support for the RES development in Ukraine, strongly object to the concept presented by the Ministry.
Firstly, the proposed Draft Law is fragmented rather than coherent and holistic. Moreover, i
it does not reflect the position previously presented by the Ministry during the Working Group meetings. In fact, this document only aims at decreasing “green” tariff for operating and future RES power plants. Such approach is not a comprehensive solution to the problem of the Guaranteed Buyer's deficit. Business proposals to abolish the subsidy for TSO`s technological losses and increase the TSO`s tariff have been completely ignored; in particular, there is no proposal on amendments to Cabinet of Ministers Resolution “On Approval of the Regulation on Special Obligations of the Electricity Market Participants to Ensure Common Interests in the Electricity Market Functioning”.
Secondly, according to the current legislation annual auction quotas were to be submitted by 1 December 2019, while a pilot auction were to be conducted by 31 December 2020. However, these provisions have not been implemented and the Draft Law lacks any information on auction quotas. Thus, the Draft Law should set an auction quota of at least 75% of the cumulative capacity foreseen by pre-PPAs. The absence of quotas makes RES project planning impossible.
Thirdly, the Ministry's proposals for timeline for construction of RES facilities with concluded pre-PPAs, actually make construction of these plants impossible. For example, it takes more than 1 year to conduct all science-intensive researches related to a wind project including wind measuring campaign and site selection.
During working groups and in numerous letters addressed to public authorities, investors agreed to a voluntary GT rate reduction only if there were no changes in the legislatively established terms of construction. We would like to remind that these terms were set at the legislative level only six months ago. The changes proposed by the Ministry will demonstrate inconsistency in the investment policy in Ukraine.
The state guarantee for the voluntary restructuring of the “green” tariff rate is based on a contract with a guaranteed buyer. However, this contract may be terminated at any time for formal reasons. It is therefore important to discuss this proposal, which also needs restructuring guarantees. The guarantee should be based only on the NEURC regulations on GT rate revision, but not on the entities’ contractual documents.
Introduction of the liability for the imbalance of electricity is also important. But the terms proposed in the Draft Law suppress those RES power plants that will reject voluntary restructuring. In such circumstances, the “green” tariffs restructuring is not voluntary. Therefore, the amount of liability for electricity imbalance should be the same for all renewable power plants.
In addition, the Draft Law does not improve the rights of the owners of RES power plants under the pre-PPA signed by 31 December 2019 with concluded agreement on GT restructuring (there is no right of concession to the creditors of the producer under the "green" tariff without the consent of the guaranteed buyer, the possibility of a direct agreement with such creditors, etc.).
In our opinion, such Ministry`s position will lead to rejecting voluntary restructuring of the GT rate by all market players. The proposed changes directly violate the rights of investors who have already invested in the development and construction of renewable power plants. Moreover, adoption of such law could lead to numerous lawsuits against the state.
Adoption of the Draft Law proposed by the Ministry will stop “green” energy development in Ukraine.
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