Law on Feed-in Tariff Restructuring Passed by the Parliament of Ukraine

On 21 July 2020, the Law on Feed-in Tariff Restructuring (the “Law”) was passed by the Verkhovna Rada of Ukraine.

The Law correlates with the provisions of the Memorandum of Understanding signed on 10 June 2020 between the Government of Ukraine and two associations representing the interests of investors in the field of renewable energy sources (“RES”): the Ukrainian Wind Energy Association and the European-Ukrainian Energy Agency.

The Law was signed by the President on 31 July 2020 and is expected to enter into force in the nearest days.

Reduction of FiT rates

Under the Law the FiT rates shall be reduced as follows:

Amendments regarding a 2-year extension of the FiT have not been upheld on the contrary to numerous requests of Ukrainian business and international establishments.

Application of FiT for electricity generated from biomass and/or biogas

The FiT for producers of electricity from biomass and/or biogas shall only apply to electricity generated by facilities commissioned before 01 January 2023.

Introduction of accelerated liability for electricity imbalances

Accelerated liability for electricity imbalances will apply for RES facilities with an installed capacity of more than 1 MW:

Accelerated liability for electricity imbalances does not apply to RES facilities with an installed capacity of less than 1 MW. For such facilities, as before, the gradual introduction of a liability for imbalances is stipulated from 01 January 2021: 10% with a subsequent increase of 10% every year until reaching 100% in 2030.

Decrease of tolerance margin

Currently, the tolerance margin (applicable until 31 December 2029) constitutes 20% for WPPs and 10% for SPPs. The Law envisages a reduced tolerance margin, which will constitute:

  • 10% for WPPs;
  • 5% for SPPs.

Special tariff for electricity transmission services for “green” electrometallurgy enterprises

The Law envisages the establishment of a special tariff over transmission services of electricity purchased for the purposes of steel production by the enterprises of “green” electrometallurgy.

The tariff for such enterprises will be lower, since it will not include expenses of the TSO for fulfilling its Public Service Obligations in ensuring an increase in the share of electricity production from alternative energy sources.

A “green” electrometallurgy enterprise is a legal entity conducting economic activity in the production of steel with direct emissions of CO2 (carbon dioxide) from steel production not exceeding 250 kg per ton of steel product and using the electric arc production method.

A special tariff for electricity transmission services for “green” electrometallurgy enterprises will be applied within the period of FiT validity (until the end of 2029). A special tariff shall be established simultaneously with the revision of the standard tariff of NPC “Ukrenergo” for electricity transmission services.

The Law also contains the procedure for establishing of such special tariff by the NEURC. The grounds for establishing a special tariff by the NEURC are as follows:

  • Certificate of the Ministry for Development of Economy, Trade and Agriculture of Ukraine on confirmation of the status of a “green” electrometallurgy enterprise for a particular enterprise;
  • Certificate of the Ministry of Environmental Protection and Natural Resources of Ukraine confirming production of steel by the “green” electrometallurgy enterprise through the electric arc production method and with the direct emissions rates of steel production of CO2 at the level not exceeding 250 kg per ton of steel products.

Updated rates of a premium to FiT or auction price

The Law envisages the following updated rates of a premium for the use of equipment manufactured in Ukraine:

At the same time, the maximum size of a premium to an auction price for the use of equipment manufactured in Ukraine upon reaching 6 years of operation of the relevant power facility must not exceed 10%.

Ensuring payments to RES producers

The Law stipulates that the Cabinet of Ministers of Ukraine (“CMU”) shall envisage in state budget expenditures to financially support the Guaranteed Buyer for payments to RES producers. Such expenditures are formed in accordance with budget requests of the Ministry of Energy on the basis of calculations provided by the NEURC, in the amount of not less than 20% of the forecasted marketable products of electricity generation from alternative energy sources for the relevant year.

The Law also contains another temporary measure to ensure payments to RES producers. It envisages that the funds received by the TSO (NPC “Ukrenergo”) from the capacity allocation of cross-border interconnectors as of 01 July 2020 shall be used for the following purposes:

  • 30% – to guarantee the actual availability of allocated capacity, maintenance and increases of capacity allocation through investment into the electricity transmission system, in particular, construction of new intestate electricity transmission lines;
  • 70% – for the repayment of the Guaranteed Buyer’s debts.

The Guaranteed Buyer shall transfer the received funds in the following way:

  • 50% – to SE Energoatom;
  • 50% – to pay RES producers for generated electricity.

Furthermore, in order to repay the debts of the Guaranteed Buyer to RES producers existent as of 01 August 2020, the CMU shall, within 3 months from the enactment of the Law, submit to the Parliament the draft laws on reimbursement of such debts within 2021-2022 by issuing domestic government loan bonds with a maturity of 5 years.

Settlement of the issue of compensation to RES producers for curtailments

The Law defines the TSO (NPC “Ukrenergo”) as the entity responsible for compensation to RES producers for curtailments. RES producers will act as suppliers of balancing services, but outside of the balancing electricity market. The cost of load reduction services will be compensated to RES producers under the awarded feed-in tariff or at the auction price. The calculation of the volume of non-delivered electricity should be carried out in accordance with the methodology, which will be an annex to the Market Rules. The procedure for providing services to reduce the load by RES producers will be defined by the Market Rules. The corresponding draft amendments to the Market Rules were published on the NEURC’s website on 11 June 2020.

Stabilization clause

The Law stipulates that for the period from 1 January 2020 until 31 December 2029 FiTs will not be amended or cancelled for RES producers for whom they have already been established or are intended to be established, and reduction coefficients will not be changed or applied in any other way that may lead to losses and/or damages and/or non-receipt of legitimately expected revenues by such RES producers.

It also envisages a fixation in the Law of Ukraine “On the Regime of Foreign Investment” of state guarantees for the protection of foreign investments related to the application of the FiT for the entire duration of the FiT. The rights and obligations of RES producers under the PPA should be governed by the legislation effective as of the date of enactment of the Law.

These guarantees do not apply to changes in legislation relating to the matters of defense, national security, tax legislation, ensuring public order, environmental protection.

Clarification of price caps at auctions

The price offers of SPPs and WPPs cannot exceed 9 eurocents per 1 kWh for auctions before 31 December 2024, and cannot exceed 8 eurocents per 1 kWh for auctions from 1 January 2025.

The price offers of producers from other RES (biomass, biogas, as well as micro, mini and small hydroelectric power plants) cannot exceed 12 eurocents per 1 kWh.

Reduction of the minimum share of mandatory allocation of annual support quotas by separate technologies

The annual support quota shall be divided into shares by the separate technologies of RES. The Law reduces the minimum share of the mandatory allocation of annual support quotas by separate technologies (solar, wind, other types of RES) from 15% to 10%.

Other amendments to the procedure for the organization and holding of auctions

The Law clarifies that the CMU may, by a submission from the Ministry of Energy within the annual or additional support quota:

  • Define certain areas (regions) for the construction of RES facilities;
  • Define the maximum levels of capacity of an RES facility for which the RES producer can obtain the right for support at the relevant auction;
  • Propose land plots for the construction of RES facilities with defined technical parameters and technical conditions for connection to the power grid;
  • Propose rooftops and/or facades of buildings and other capital facilities leased for the construction of SPPs with defined technical parameters and technical conditions for connection to the power grid.

The features of announcing and conducting such auctions are defined by the Procedure for conducting auctions on the allocation of the support quota.

The Law envisages that auctions will be held in accordance with the schedule of auctions for the relevant year. The maximum share of the annual support quota that one ultimate beneficial owner can obtain in one calendar year shall remain at the level of 25%.

Please note that minor changes may still be made, since the Law has not been officially published yet.

Legislation:  Law of Ukraine “On Amendments to Certain Laws of Ukraine on the Improvement of Conditions of Support for the Production of Electricity from Alternative Energy Sources” of
21
July 2020.