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The parliament approves retroactive cut of the "green" tariff

On 21 July 2020 the Parliament of Ukraine approved draft law No. 3658 "On Amendments to Certain Laws of Ukraine on Improving the Conditions for Supporting the Production of Electricity from Alternative Energy Sources" (the "Law"). The Law is enacted on 1 August 2020.

The Law is aiming to implement the "Memorandum of Understanding on the settlement of problematic issues in the field of renewable energy" (the "Memorandum"), which was signed by the Government on 10 June 2020 with investors, and improve regulation for renewable energy auctions.

The Law provides for the following changes to the "green" tariff:

  • for wind power plants (WPP) commissioned from 1 July 2015 to 31 December 2019 - reduction of the "green" tariff by 7.5%;
  • for WPP commissioned from 1 January 2020 - reduction of the "green" tariff by 2.5%;
  • for solar power plants (SPP) commissioned from 1 July 2015 to 31 December 2019 (capacity 1 MW and more) - reduction of the "green" tariff by 15%;
  • for SPP commissioned from 1 July 2015 to 31 December 2019 (capacity up to 1 MW) - reduction of the "green" tariff by 7,5%;
  • for SPP commissioned from 1 January 2020 to 31 October 2020 (capacity 1 MW and more) - reduction of the "green" tariff by 2.5%;
  • for SPP commissioned from 1 January 2020 (capacity up to 1 MW) - reduction of the "green" tariff by 2.5%;
  • for SPP commissioned from 1 November 2020 until 31 March 2021 (capacity 1 MW– 75 MW) - reduction of "green" tariff by 30%;
  • For SPP commissioned from 1 April 2021 (capacity 1 MW - 75 MW) - reduction of the "green" tariff by 60%;
  • For SPP commissioned from 1 November 2020 (capacity 75 MW and more) - reduction of the "green" tariff by 60%; and
  • tariff cap for projects commissioned before 1 July 2015 – 22 EUR cent.

 

According to this Law the companies are provided with the stabilization provisions, i.e. state guarantees that "green" tariffs will not be changed or canceled from 1 July 2020 till 31 December 2029. However, the stabilization clause will not apply to legislative changes in the taxes. Based on this there is a risk that in addition to the cut of the "green" tariff under the Law the Government may change tax policy and impose additional tax burden on RES investors.

Moreover, the Law provides for the gradual introduction of liability for imbalances of electricity producers paid to the SE "Guaranteed Buyer". Thus, for facilities with an installed capacity of less than 1 MW, from 1 January 2021 there will be an annual increase of 10% to reach 100% compensation for imbalances in 2030. For facilities with a capacity exceeding 1 MW, the introduction of liability for imbalances in the amount of 0% until 31 December 2020, 50% from 2021, and 100% from 2022 is expected. 

Cut-off date:

  • 31 October 2020 for PV projects (starting 1 November 2020 the "green" tariff will be reduced for 30% (capacity 1 MW– 75 MW) and for 60% (capacity 75 MW and more);
  • wind projects will not be subject to the cut-off day and they can be finished based on existing pre-PPA.

The Law envisages that up to 20% of the "green" tariff can be compensated from the State budget. 

Additionally, the Law introduces separate incentives for enterprises of "green" electrometallurgy. In particular, steelmaking enterprises emitting up to 250 kg of carbon dioxide per 1 ton of steel products are entitled to pay TSO transmission tariff, which will not take into account the costs of NEC Ukrenergo for payments under the "green" tariff.

The Law increases the surcharge from 10 to 20% to the green tariff and the auction price for renewable energy facilities, where the used Ukrainian locally produced equipment is 70% and more. After six years of operation of the relevant RES facility, the maximum allowance may not exceed 10%.

The Law introduces procedures on compensation of curtailments. The Government should develop a relevant secondary legislation.

The above regulatory changes may be considered as retroactive changes to the legislation and may result in investment claims by RES investors.

 

Сhanges to the auctions regime

In addition to the Memorandum related changes, the Law introduces some changes to the auction regime.

The Law sets the maximum caps for tariffs that producers from renewable sources can receive during green auctions. Until 31 December 2024, the owners of SPP and WPP will be able to receive at auctions no more than 9 eurocents per 1 kWh. From 1 January 2025 the maximum cap at auctions will be 8 eurocents per 1 kWh. For other producers of electricity from RES other than SPP and WPP the maximum cap at auctions will be 12 eurocents per 1 kWh.

The government plans to identify oblasts (regions) for the installation of new generating capacity within the annual auction quotas. The Government may offer land plots for the construction of facilities that produce electricity from RES, as well as roofs or facades of buildings on which it will be possible to install alternative generation.

The Cabinet of Ministers of Ukraine is determined to be responsible for setting a schedule for the auctions for the next year.

The Law cancels the earlier introduced exclusion for power plants with three wind turbines, regardless of installed capacity, regarding non-participation at auctions. Thus, after the adoption of the Law, all WPP with a capacity of more than 5 MW will have to participate in auctions. Although the projects holding prePPAs may implement the projects under the "green" tariff.

For further information, please contact Asters' partner Yaroslav Petrov and associate Olena Sichkovska.

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