The Regulation also establishes a form of Agreement on the expansion of grid capacity to meet the demands
\nof increased renewable energy generation. This Agreement is to be concluded between the Guaranteed
\nPurchaser and electric power distribution company, governing the basis on which the latter will be
\ncompensated for expansion or modernization of its electric grid.<\/p>\n
The Auction Law: distribution of feed-in tariffs through auctions,\u00a0introduction of annual capacity quotas<\/strong><\/p>\n Under the current legislative framework, the feed-in tariff rate is fixed by law 1 . There are currently no\u00a0restrictions on the capacity of the renewable energy generated in Ukraine, and the electricity market\u00a0operator is obliged to purchase all renewable energy generated by the market. This has resulted in the rapid\u00a0growth of construction of renewable energy plants and dangerous misbalances in the national electricity\u00a0grid. The Auction Law introduces competition to gradually bring down the cost of renewable energy and\u00a0provides a mechanism to limit the quantity of electricity that may be purchased under the tariff.<\/p>\n Main provisions of the Auction Law<\/strong> Other types of renewable energy plants (such as biomass, hydroelectric, etc.) will sell their electricity\u00a0according to the existing rules under the Fixed PPAs. The law, however, provides that they may participate in\u00a0the auction on a voluntary basis.<\/p>\n The winner of the auction will execute an Auction PPA with the Guaranteed Purchaser of electricity.<\/p>\n It should be mentioned, that Fixed PPAs and Auction PPAs are different mandatory documents<\/span>. As of today,\u00a0Auction PPAs have not been adopted. NEURC has to adopt them by August 22, 2019 (see more details in the\u00a0next section and Annex\u00a01)<\/em>.<\/p>\n The new rules do not cancel existing green tariffs for existing WPPs\/SPPs Transitional framework for WPPs\/SPPs under the Pre-PPA mechanism<\/strong> The requirements for signing a Fixed Pre-PPA are, in short, as follows:<\/p>\n For your convenience, we have classified all types of renewable energy producers according to these criteria<\/em>\u00a0(see Annex 2).<\/em><\/p>\n Requirements to participate in power auctions<\/strong> Terms of power auctions<\/strong> Auctions will be held via the electronic trading system \u201cProzorro\u201d. The format of auctions will be closed-type\u00a0Dutch auctions (price-reducing).<\/p>\n Auction participants shall submit closed proposals containing the technical proposal (capacity) and the price\u00a0proposal (eurocents per 1 kilowatt hour). The amount of capacity is important for the size of irrevocable\u00a0bank guarantee for participants.<\/p>\n The proposed price is the only criteria for determining the auction winner. The participant with the lowest\u00a0bid price is recognized as the auction winner for the declared capacity.<\/p>\n Price proposal may not be higher than the reference rate of the maximum feed-in tariff for a relevant type of\u00a0renewable energy. The Auction Law provides that the reference rate will be established by reduction of the\u00a0current feed-in tariff, starting from 2020:<\/p>\n The Auction Law provides a list of documents that are necessary to be filed by the producer to participate in Annual capacity quotas for new SPP and WPP projects<\/strong> The law provides for minimum quotas \u2013 not less than 15% for each category:<\/p>\n The remaining 55 % will be distributed at the discretion of the CMU.<\/p>\n The law provides for two options of the auctioning of the quotas: either through a separate auction for each\u00a0type of renewable energy, or through a single, \u201ctechnology neutral\u201d auction available for all producers. The\u00a0option is to be selected by the CMU.<\/p>\n The rate increase for the use of local components remains<\/strong> The new standard form of Fixed PPA<\/strong><\/p>\n General provisions<\/strong> The PPA is concluded between a renewable energy producer and Guaranteed Purchaser. It is expected that\u00a0the Guaranteed Purchaser will be incorporated by July 1, 2019. As of today, the function of the Guaranteed\u00a0Purchaser is performed by the State Enterprise \u201cEnergorynok\u201d.<\/p>\n The procedure for transfer from the present PPAs to the new form of the Fixed PPAs for existing producers<\/strong> The producer (which has already concluded a PPA or pre-PPA with \u201cEnergorynok\u201d) has to file an application\u00a0to the Guaranteed Purchaser to amend the PPA, submitting the following documents:<\/p>\n Upon completion of this application process Guaranteed Purchaser, \u201cEnergorynok\u201d and producer conclude a\u00a0tripartite Agreement on the change of the PPA\u2019s parties.<\/p>\n Regulation No. 641 establishes essential terms of Agreement on change of the PPA\u2019s parties as follows: At the same time, Regulation No. 641 doesn\u2019t clearly establish any liability for failure to change the PPA.\u00a0However, taking into account requirements of Regulation and the new laws governing the energy market, it\u00a0can be assumed that, starting from July 1, 2019, \u201cEnergorynok\u201d (the old party to the PPA) will not be able to\u00a0buy electricity, and, accordingly, the producer would need to conclude a new form Fixed PPA with the\u00a0Guaranteed Purchaser to continue selling electricity.<\/p>\n The new form of Fixed PPA doesn\u2019t allow agreements between creditors and the Guaranteed Purchaser<\/strong> Unlike the previous version, the new PPA doesn\u2019t provide the possibility of concluding Direct Agreements between the Guaranteed Purchaser and producers\u2019 creditors.<\/p>\n Dispute Resolution<\/strong> Furthermore, the clause includes a provision whereby in case of simultaneous commencement of litigation\u00a0and arbitration procedures, both parties must submit an application to the Ukrainian court for termination of\u00a0court proceedings and in support of the arbitration proceedings. It is difficult to see that, in the case of a\u00a0conflict, the party initiating litigation would really be willing to cancel it in favour of the other party, which\u00a0prefers arbitration.<\/p>\n Moreover, Ukrainian law provides for an international arbitration only in case there is a foreign party in the Applicable Law<\/strong> Amendment of the Fixed PPA by changes in the law<\/strong> The Regulation also establishes the procedure and time limits for making changes to the PPA. In the event of\u00a0changes in the Fixed PPA form, the Guaranteed Purchaser should publish the relevant amendments on its\u00a0website and send a new version of the PPA to the producer.<\/p>\n The producer should provide a new version of the signed PPA to the Guaranteed Purchaser within 1 month\u00a0from the date that it was sent by the Guaranteed Purchaser. Failing to do this will be interpreted as the\u00a0producer\u2019s will to terminate the PPA.<\/p>\n Overall, the introduction of a uniform, standardized Fixed PPA will provide benefits in terms of\u00a0standardization, in particular, it would save costs for renewable project analysis, create equal rules for all\u00a0market players, and provide predictability with regard to changes to the Fixed PPA.<\/p>\n However, the Fixed PPA will lose its flexibility, including the options of creditors to have a direct contractual\u00a0relationship with the Guaranteed Purchaser. Furthermore, it will make the Fixed PPA more sensitive to the\u00a0political influence, as both the regulator responsible for the PPA\u2019s form and the Guaranteed Purchaser will\u00a0represent the state.<\/p>\n Finally, there remains an issue of the legality of compulsory conversion of all existing Fixed PPAs into the new\u00a0standard Fixed PPAs. Concerned investors may potentially claim the government is imposing less favourable\u00a0conditions for investment and therefore potentially violating the guarantees provided by a relevant bilateral\u00a0investment treaty.<\/p>\n For further information please contact Taras Tertychnyi (tertychnyi@hillmont.com.ua<\/a>) or Oleksandr\u00a0Smishko (smishko@hillmont.com.ua<\/a>).<\/strong><\/p>\n Disclaimer<\/strong><\/em> <\/p>\n <\/p>\n <\/p>","protected":false},"excerpt":{"rendered":" \u0412\u0438\u0431\u0430\u0447\u0442\u0435 \u0446\u0435\u0439 \u0442\u0435\u043a\u0441\u0442 \u0434\u043e\u0441\u0442\u0443\u043f\u043d\u0438\u0439 \u0442\u0456\u043b\u044c\u043a\u0438 \u0432 “\u0410\u043d\u0433\u043b\u0456\u0439\u0441\u044c\u043a\u0430”.<\/p>\n","protected":false},"author":5,"featured_media":1378,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false},"categories":[29,31],"tags":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/posts\/367"}],"collection":[{"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/comments?post=367"}],"version-history":[{"count":25,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/posts\/367\/revisions"}],"predecessor-version":[{"id":1032,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/posts\/367\/revisions\/1032"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/media\/1378"}],"wp:attachment":[{"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/media?parent=367"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/categories?post=367"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hillmont.com\/ua\/wp-json\/wp\/v2\/tags?post=367"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nAccording to the Auction Law, from 2020 energy producers wishing to join the renewable energy market will\u00a0have to compete for the green tariff at auction. Guaranteed Purchaser will organize the auctions according\u00a0to a specific Regulation to be approved by the Cabinet of Ministers of Ukraine by 22 August 2019. The State\u00a0guarantees to purchase all electricity produced by the winner(s) of such auctions. The auction procedure will\u00a0be mandatory for:<\/p>\n\n
\n<\/strong>Existing SPPs and WPPs will continue enjoying the current green tariff rate as previously stipulated by law\u00a0until 2030 if they have already been commissioned\u00a0or will be commissioned by the end of 2019.<\/p>\n
\nThe law allows renewable energy producers to sign Fixed PPAs prior to commissioning of their plants, subject\u00a0to certain requirements. Such PPAs have been named, accordingly, \u201cPre-PPAs\u201d<\/strong>. The significance of the Pre-PPA is that the tariff rate is fixed as of the date of signing of the Pre-PPA and not as of the date of\u00a0commissioning of the plant and\/or commencement of power generation. Accordingly, existing rules will\u00a0apply to SPPs and WPPs, which are under development, if they conclude pre-PPAs by December 31, 2019.<\/p>\n\n
\n\u2013 within 2 years from the date of pre-PPA \u2013 for SPPs;
\n\u2013 o within 3 years from the date of pre-PPA \u2013 for WPPs.<\/li>\n<\/ol>\n
\nFrom 2020, if investors would like to participate in a power auction, they must consider the following:<\/p>\n\n
\nThe pilot auctions will take place no later than November 22, 2019. In general, the Auction Law provides for\u00a0auctions to be held from January 1, 2020 until December 31, 2029. Auctions will be held twice per year\u00a0with\u00a0the following deadlines: by April 1 and by October 1. The incentive regime (i.e. the fixed tariff in euro) for\u00a0auction winners will be valid for 20 years.<\/p>\n\n
\nan auction (see Annex 3).<\/p>\n
\nThe Auction Law introduces annual capacity limits (quotas) for all renewable electrical power, which will be\u00a0distributed according to the results of the auctions during a particular year. Quotas are to be set by the\u00a0Cabinet of Ministers of Ukraine (CMU) for the relevant year. The annual quota has yet to be set for 2020.\u00a0Annual quotas will be divided by type of renewable energy.<\/p>\n\n
\nThe auction winners will be able to use the existing benefit of an increased feed-in tariff rate of 5-10% in the event that components of the plant were produced in Ukraine. This applies to power plants commissioned\u00a0before 2025.<\/p>\n
\nThe new form of the Fixed PPA is mandatory for renewable energy producers that have already received the\u00a0green tariff and which are going to receive it under the current framework (including the pre-PPA\u00a0mechanism). The new form of PPA is largely based on the previous form, which was a guideline and not\u00a0mandatory.<\/p>\n
\nExisting PPAs, which have already been concluded between renewable energy producers and \u201cEnergorynok\u201d,\u00a0need to be brought into compliance with the new form of Fixed PPA by July 1, 2019.<\/p>\n\n
\n\u2013 \u201cEnergorynok\u201d is not responsible for any of the Guaranteed Purchaser\u2019s obligations to the producer;
\n\u2013 \u201cEnergorynok\u201d and the Guaranteed Purchaser are not responsible for any obligations of the producer\u00a0towards its creditors.<\/p>\n
\nAccording to the previous version of the PPA, the producer\u2019s creditors had possibilities to conclude a direct\u00a0agreement with \u201cEnergorynok\u201d (the \u201cDirect Agreement\u201d). The Direct Agreement included an obligation of\u00a0\u201cEnergorynok\u201d not to terminate the PPA during 120 days from the date of a violation of the PPA by a\u00a0producer, which provided additional comfort to creditors.<\/p>\n
\nThe dispute resolution clause provides for an alternative between Ukrainian commercial courts and an ICC\u00a0arbitration in Paris, at the discretion of the claimant. It is well-known that complex arbitration clauses may\u00a0complicate the dispute resolution procedure.<\/p>\n
\ndispute, and, accordingly, if the power plant operator would be a Ukrainian-registered company,
\ninternational arbitration\u2019s jurisdiction may be substantially undermined.<\/p>\n
\nUkrainian law should govern the PPA.<\/p>\n
\nRequirements of the Fixed PPA can be amended only in the case of legislative changes. The Regulation strictly\u00a0establishes that changes cannot limit the scope of the producer\u2019s rights under the green tariff (which\u00a0probably aims to mean that whatever changes may be introduced to the Fixed PPA by the law, the original\u00a0rate of feed-in tariff should not be affected by the changes).<\/p>\n
\nOur views and recommendations are based on information obtained from, or are based upon public information\u00a0sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability.\u00a0All estimates and opinions included in the report represent the independent judgment of the analysts as of the\u00a0date of the issue.
\nWe reserve the right to modify the views expressed herein at any time without notice.\u00a0Moreover, we reserve the right not to update this information or to discontinue it altogether without notice.
\n<\/em>This information is given without any warranty on an “as is” basis and should not be regarded as a substitute for\u00a0obtaining individual advice.
\n<\/em>Neither Hillmont Partners, nor any of their respective directors, officers or employees nor any other person\u00a0accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this\u00a0document or its contents or otherwise arising in connection therewith.
\n<\/em>This analysis is being distributed by electronic and ordinary mail to professionals, who are expected to make<\/em>
\ntheir own decisions without undue reliance on this publication, and may not be redistributed, reproduced or<\/em>
\npublished in whole or in part for any purpose.<\/em><\/p>\n![\"\"](\"http:\/\/project6.webctemp.com\/wp-content\/uploads\/Green-auctions_1.jpg\")
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