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Ukraine adopts law on renewable energy auctions and new PPA

On 25 April 2019, the Ukrainian Parliament adopted the Law "On Amendments to Some Laws of Ukraine on Ensuring Competitive Conditions for Production of Electricity from Alternative Energy Sources" No. 8449-d (the "Auction Law"). The Auction Law is crucial for renewable energy sphere in Ukraine as it gradually substitutes the current "green" tariff scheme. 

Additionally, on 26 April 2019 the National Energy and Utilities Regulatory Commission ("NEURC") adopted several important regulatory acts on renewable energy, including "Procedure on Purchase of Electricity under the "Green" Tariff" ("Procedure") and new model PPA on sale of electricity under the "green" tariff ("New Model PPA"). 

Below we summarize the key provisions of the Auction Law, Procedure and New Model PPA. 

Auction Law 

The Auction Law introduces changes to the "green" tariff regime and sets the framework for renewable energy auctions. "Green" tariff and auction regimes will work in parallel. 

"Green" tariff 

Projects operating under the "green" tariff will continue enjoying the incentive until 2030. Projects under development, which are not commissioned before 2020 are falling under the so-called "transition period" and may be qualified for the "green" tariff provided that new pre-PPA is duly executed.

  • The deadline for signing pre-PPA for projects to be implemented under the "green" tariff regime without auctions is 31 December 2019. Land, interconnection and construction permits should be secured before pre-PPA is signed. Solar power plants should be commissioned within two years, and other types of RES plants - within three years after signing the pre-PPA. 
  • Reduction of the "green" tariff for new solar projects commissioned after 2020 - by 25%, with a further decrease for 3 years by 2.5% annually, reducing the "green" tariff for new wind power projects by 10% from 2020 without further reduction. 

Auctions 

  • The new auction regime starts on 1 July 2019. The pilot auctions will be held not later than 31 December 2019. The incentive regime is effective for 20 years. 
  • The auctions are mandatory: from 2020 – (i) for wind power plants with a capacity of more than 5 MW, and (ii) for solar power plants with a capacity of more than 1 MW.
  • Distribution of the annual auction quota is as follows:

-        15% for solar energy;

-        15% for wind energy;

-        15% for other types of RES (biomass, biogas, hydro, geothermal energy); and

-        55% at the discretion of the Cabinet of Ministers of Ukraine. 

Although for 2020-2022, the annual quota will be distributed as follows:

-        30% for solar energy;

-        30% for wind energy;

-        15% for other RES; and

-        25% at the discretion of the Cabinet of Ministers of Ukraine. 

  • Volume of the annual quotawill be determined by the Cabinet of Ministers of Ukraine for the next 5 years by 1 December 2019.
  • Financing guarantee – a bidder provides a refundable (after auction) irrevocable bank guarantee for participation in the auction in the amount of EUR 5,000 per MW of capacity and an auction winner provides for an irrevocable bank guarantee in the amount of EUR 15,000 per MW. 
  • Liability for imbalances starts after the internal market is considered to be liquid, but not later than 2024. 
  • Preservation of current premiums on top of the tariff for the use of locally produced equipment up to 10%. 
  • Validity of interconnection technical conditions: technical conditions issued before entry into force of the Auction Law will be effective for 2 years for solar projects and 3 years for wind and other renewable energy projects. 

The Auction Law will come into force after its official publication, save for some provisions. 

Procedure and New Model PPA 

The Procedure sets key terms for sale of electricity under the "green" tariff within the new electricity market model scheduled for launch starting from 1 July 2019. In particular, it provides terms for (1) signing PPAs; (2) forecasting of generated electricity; (3) forecasting by the offtaker of electricity sale volumes; (4) sale of electricity at day-ahead and intraday market; (5) functioning of balancing group; (6) settlement procedures; and (7) procedure for re-execution of existing PPAs to the New Model PPA. 

The New Model PPA defines the framework for purchase of electricity under "green" tariff, which is valid until 2030. The PPA includes force major, arbitration, change of law provisions, terms for pre-PPA validity. 

The Procedure and New Model PPA includes some inconsistences with the Auction Law, which should be fixed after the Auction Law becomes effective. 

The Procedure enters into force on 1 July 2019, except procedure on signing and re-execution of PPAs, which enters into force upon official publication. The New Model PPA enters into force upon official publication. 

For further information, please contact Asters' partner Yaroslav Petrov or senior associate Marta Halabala or associate Olena Sichkovska.

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