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Green Tariff: Ukrainian Version
In 2010-2011 we could observe the commissioning I of several large renewable energy projects in Ukraine, in particular the first stage of the Novoazovskiy wind park, Rodnikovoye solar plant and one of the largest solar plants in Europe, Ohotnikovo. It is rather interesting that these projects were implemented with the technical assistance of German and Austrian companies; however, beneficiaries of these projects are high-profile Ukrainian businesses. Foreign investors are also assessing whether Ukraine is a potentially interesting place for the implementation of their own renewable energy projects. There are two factors which make Ukraine so attractive for these types of projects: Ukraine uses the world's best practices and has adopted important legislative changes by introducing the so-called Green Tariff (the Green Tariff) in 2008. The Green Tariff is basically a special, increased tariff for the power produced based on renewable or other non-traditional energy sources. The concept of the Green Tariff, one way or the other, exists in 41 countries, including the EU, Canada, China, Israel and Australia. In addition to the Green Tariff, Ukraine implemented several tax and import duties incentives that bring attention to Ukraine as a potential haven for alternative energy in this region. For example, the Ukrainian Green Tariff is one of the highest in Europe. As of October2011 theGreenTariff had been used by 6 wind energy, 2 biomass, 12 solar energy and 32 hydro energy companies.
Green Tariff: regulatory framework and definition
The key legislative acts regulating the Green Tariff are: the On Electroenergetics Act of Ukraine of 16 October 1997, No.575/97-BP (the Energy Act), On Alternative Energy Sources Act of Ukraine of 20 February 2003, No.555-15 (the AES Act) and the Regulation of National Electricity Regulatory Commission of Ukraine On Determination, Revision and Cancellation of the Green Tariff of 22 January 2009, No.32 (the Green Tariff Regulation).
The Energy Act defines the Green Tariff as a special tariff for the purchase of electricity produced by power generating companies using alternative energy sources (except blast-furnace and coke-oven gases, and produced by small hydro-electro plants). According to the AES Act the types of alternative energy sources are limited to the following: solar, wind, geothermal energy, energy of waves and tides, hydro energy, biomass energy, gas from organic waste, gas from sewage purification plants, biogas and secondary energy sources composed of blast-furnace and coke-oven gases, gas methane from degassing of coal deposits, energy from transformation of draining energy potential of technological processes. However, the Energy Act, despite the above-mentioned definition of alternative energy sources, applies the Green Tariff only to energy produced from: wind, biomass, solar, small hydro stations. Moreover, biomass is limited to products of photogenic or plant origin. Such a limited definition of biomass became an obstacle for bringing investment into the production of energy from biomass based on products of zoogenic or animal origin, many farms in Ukraine produce a huge quantity of animal origin waste products, which can be burnt to produce energy. To resolve this situation Ukrainian MPs adopted the relevant amendments to the Energy Act on 6 October 2011 (Biogas Amendment). Amendments still await the President's approval. The Biogas Amendment suggests the following definition: biomass is a non-fossil bio regenerated substance of an organic origin, which is subject to biological decomposition, in a form of products, remains and waste from farming (crop production and cattle breeding), food industry, forestry and technically related branches of production, which can be used as fuel for the purpose of energy transformation present therein.
According to the Energy Act the Green Tariff is a temporary long-term measure to encourage production of energy from alternative energy sources, which is effective till 1 January 2030. Moreover, the Green Tariff cannot be used by power generating companies producing energy from traditional and alternative sources. The latter may change soon because the Biogas Amendment suggests that the Green Tariff is applicable to companies producing energy from both traditional and alternative energy subject to at least 50% of energy being produced from alternative energy sources (in this case the Green Tariff would only apply to such alternative-based energy).
Tariff algorithm
The Green Tariff is approved by the National Electricity Regulatory Commission (NERC). The tariff is determined for each company, for each type of alternative energy source and for each generation facility. The Green Tariff varies depending on the alternative energy source. For example, for October 2011 the NERC approved the following Green Tariffs (for purposes of this article we use the official National Bank of Ukraine exchange rate as of 17 October 2011):
— solar energy (surface facilities) — UAH 505,09 kopeks/kWh ~ EUR 45,87 cents/kWh;
— solar energy (non-surface facilities) capacity less than 100 kW — UAH 463.09 kopeks/ kWh ~ 42.05 EUR cents/kWh;
— wind energy — UAH 122.77 kopeks/kWh ~ EUR 11.15 cents/kWh;
— biomass energy — UAH 134.46 kopeks/kWh ~ EUR 12.21 cents/kWh; and
— small hydro energy — UAH 84.18 kopeks/kWh ~
EUR 7.64 cents/kWh.
The Green Tariff is calculated based on a retail tariff approved by NERC for consumers with the second class of voltage for January 2009 (UAH 58.46 kopeks/kWh, which is equivalent to EUR 5 cents/kWh) multiplied by a coefficient, which varies depending on the type of alternative energy source, type and capacity of generation facilities.
The Electroenergetics Act provides for the following coefficients:
— 1.2 for electro energy, produced by wind energy facilities with a capacity not exceeding
600 kW;
— 1.4 for electro energy, produced by wind energy facilities with a capacity exceeding 600 kW, but no more than 2 MW;
— 2.1 for electro energy, produced by wind energy facilities with a capacity exceeding 2 MW;
— 2.3 for electro energy, produced from biomass;
— 4.8 for electro energy, produced from solar energy (surface facilities);
— 4.6 for electro energy, produced from solar energy (non-surface facilities, e.g. roofs) with a capacity exceeding 100 kW;
— 4.4 for electro energy, produced from solar energy (non-surface facilities, e.g. roofs) with a capacity of less than 100 kW; and
— 0.8 for electro energy, produced by small hydro stations.
Notably, the Biogas Amendment suggests the following coefficients for energy produced from various types of biomass:
— 2.7 for electro energy, produced from biogas obtained from biomass of plant and/or animal origin, and from the organic part of waste;
— 2.6 for electro energy, produced from dump biogas or biogas generated from slime of the sewage system, with an aggregate capacity of no more than 500 kW;
— 2.4 for electro energy, produced from dump biogas or biogas generated from slime of the sewage system, with aggregate capacity exceeding 500 kW, but no more than 2 MW; and
— 2.0 for electro energy, produced from dump biogas or biogas generated from slime of sewage system, with an aggregate capacity exceeding 2 MW.
The Green Tariff coefficient will decrease for the power produced at those facilities that were built or significantly overhauled after 2014, 2019 and 2024 for 10%, 20% and 30%, respectively.
The Green Tariff for each company cannot be less than the statutory fixed minimum Green Tariff, which is calculated under the official EUR/UAH National Bank of Ukraine exchange rate as of 1 January 2009 ( EUR 1 = UAH 10.85).
State guarantees?
Ukraine provides for a number of state guarantees to give an incentive for the production of energy under the Green Tariff: (a) the State obliges the Wholesale Electricity Market of Ukraine (WEM) to buy all alternative-based power at the Green Tariff (unless the producer has chosen to sell it directly to retail consumers or energy distribution companies itself); (b) the Energy Act includes a stabilization clause, which secures investors against unfavorable changes in terms and conditions of operating under the Green Tariff; and, finally, (c) in view of potential liquidation of WEM (envisaged as part of the foregoing energy sector reformation program), implementation of state guarantees as an incentive similar to item (a) even in case of liquidation of WEM.
How can one get the Green Tariff?
Note should be taken that among other documents required for application for the Green Tariff the applicant should also submit the following to the NERC: technical conditions for connection of new electric power units to the power grid, technical compliance regarding the power unit starting 1 January 2012; documents confirming that the share of raw materials, materials, capital funds, works and services of Ukrainian origin in the price of construction of the particular generation is no less than 15%, 30% starting 1 January 2013, and starting 1 January 2014 is not less than 50%.
Conclusion
Many would think that Ukraine implemented a very efficient mechanism to attract investment into renewable energy. However, it should be emphasized that there are still many obstacles for the implementation of such projects under the Green Tariff. For example, contrary to the best world practices, the Ukrainian Green Tariff can be obtained at the final stage of the project when tremendous investments are made and a generation unit is built and ready to be plugged into the power grid. Moreover, the so-called "national content requirement" is seen as an obstacle for implementation of projects by foreign investors under the Green Tariff.
