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State guarantee for alternative energy green tariff

On June 3, 2011 Parliament approved changes to the Law on Electrical Energy that relate to state guarantees to incentivise the use of alternative energy sources. The legislative changes await presidential approval.

In 2009 Ukraine introduced a so-called 'green tariff' for electricity produced from alternative energy sources (with a few exceptions). The tariff is effective until 2030 and is one of the highest in Europe. As such, it is vital to attracting foreign investments: it not only sets a high rate, but also imposes a statutory obligation on the wholesale electricity market to buy all alternatively sourced electricity that is not sold to retail customers.

One of the government's priorities in the sector is to reform the Ukrainian electricity market in order to exclude the wholesale market from electricity transactions between generators and distributors, thereby enabling parties to enter into power supply transactions directly. However, the end result of the electricity reform - the liquidation of the wholesale market - may be unattractive to companies that are willing to operate under the green tariff, as at present the wholesale market provides the only mechanism for the state to purchase alternative energy on this green tariff basis.

In order to preserve the implementation of the tariff, the law declares that the state's obligation to purchase alternative energy at green tariff rates will survive the reform. However, if the wholesale energy market is liquidated, it is unclear how the green tariff will be implemented.

Author: Yaroslav Petrov
Source: International Law Office Newsletter. - 2011. - 27 June