The business welcomes the adopted incentives for the restoration of energy infrastructure but also emphasizes the need to develop Ukraine’s wind energy sector

19/ 07/ 2024

A series of draft laws (namely, Nos. 11343, 11344, 11343-1, 11344-1) have been registered in the Verkhovna Rada of Ukraine, aimed at introducing preferential regimes for the restoration of Ukraines energy infrastructure. These documents propose amendments to the Tax Code and the Customs Code of Ukraine. In particular, they propose the abolition of import duties and VAT on energy equipment until 2025, which is undoubtedly an important initiative. However, after analyzing the draft laws, experts from the European Business Association emphasized that the provisions in these drafts do not fully address the issue of restoring energy infrastructure for several reasons. One reason is the need to expand the list of equipment and business entities that can benefit from import preferences, which would significantly accelerate the process of restoring energy infrastructure. This, in turn, would reduce the financial burden on businesses, save time and resources, and contribute to the faster restoration of energy facilities and stabilization of energy supply in the country. Moreover, creating favorable conditions for the import of goods necessary for the construction of energy facilities but not produced in Ukraine would attract additional investments to the energy sector, which has significantly lost its investment attractiveness due to the change in the rules of the game regarding the green tariff and the war risks caused by the full-scale invasion. Investors will be more interested in investing in projects that have preferential import conditions for materials and equipment, which will reduce the overall costs of project implementation and increase their attractiveness, particularly the amount of investment needed and payback periods, and accelerate the commissioning of new generation facilities, which is an urgent problem in Ukraine today – in the context of destroyed generation and the urgent need for its restoration and decentralization. At the same time, it is worth extending the tax exemption period for business entities until January 1, 2027, or one year after the end of martial law in Ukraine. The current draft laws do not yet contain such an initiative. This is based on the actual duration of organizing the logistics of equipment procurement and should facilitate the unimpeded import of necessary goods and technologies during the active period of recovery, post-war reconstruction, and development. In addition, considering the significant delivery times of the mentioned equipment from EU countries and China, as well as queues for the production of complex equipment due to its limited supply, extending the tax exemption period will ensure a stable flow of necessary resources and faster restoration of damaged energy infrastructure and construction of new generation facilities. At the same time, the deputies decided to move the provisions on benefits for alternative energy generation to other draft laws, Nos. 11258 and 11259 (on demining), and on July 16, 2024, they were voted on in their entirety. Despite the fact that the adoption of these draft laws had the important goal of strengthening the countrys energy security and stimulating the development of renewable energy sources, the resulting texts do not contain relevant provisions for the development of the wind energy sector, in particular, provisions regarding the UKTZED code 8502 31 00 00 (Electric generating sets and rotary electric converters: – other electric generating sets: – wind-powered), and, accordingly, the main equipment necessary for the construction of wind power plants will not be exempt from taxation, as the current situation in the countrys energy sector requires. It should be noted that by their nature and construction technology, wind power plants are decentralized electricity facilities. The distance between wind turbines of one power plant is usually 800 meters or more, which makes such power plants a difficult and expensive target for the enemy, as the destruction of one wind turbine can lead to the loss of up to 8 MW of power, unlike thermal power plants, where the destruction of one object often means the loss of 200 MW or more. Thus, the construction of wind power plants corresponds to the countrys strategy for building a decentralized energy system from renewable energy sources, is a safer and more difficult target for the enemy, and at the same time brings Ukraine closer to fulfilling its obligations to the European Union regarding the goals of green transition and decarbonization. Considering the above, the business community of the European Business Association emphasizes the need to introduce benefits for the development of wind energy in Ukraine. In particular, it is worth providing an opportunity to stimulate the construction of wind power plants and the development of wind generation in the country by including the relevant codes in other, alternative draft laws (blades, gearboxes, frequency converters, generators, equipment for control and distribution of electric current have the following codes: 8483 4021 00, 8501 64 0000, 8503 00 99 00, 8504 40 90 00,8537, 8502 31 00 00).

These documents propose amendments to the Tax Code and the Customs Code of Ukraine. In particular, they propose the abolition of import duties and VAT on energy equipment until 2025, which is undoubtedly an important initiative.

However, after analyzing the draft laws, experts from the European Business Association emphasized that the provisions in these drafts do not fully address the issue of restoring energy infrastructure for several reasons. One reason is the need to expand the list of equipment and business entities that can benefit from import preferences, which would significantly accelerate the process of restoring energy infrastructure. This, in turn, would reduce the financial burden on businesses, save time and resources, and contribute to the faster restoration of energy facilities and stabilization of energy supply in the country.

Moreover, creating favorable conditions for the import of goods necessary for the construction of energy facilities but not produced in Ukraine would attract additional investments to the energy sector, which has significantly lost its investment attractiveness due to the change in the rules of the game regarding the “green” tariff and the war risks caused by the full-scale invasion. Investors will be more interested in investing in projects that have preferential import conditions for materials and equipment, which will reduce the overall costs of project implementation and increase their attractiveness, particularly the amount of investment needed and payback periods, and accelerate the commissioning of new generation facilities, which is an urgent problem in Ukraine today – in the context of destroyed generation and the urgent need for its restoration and decentralization.

At the same time, it is worth extending the tax exemption period for business entities until January 1, 2027, or one year after the end of martial law in Ukraine. The current draft laws do not yet contain such an initiative. This is based on the actual duration of organizing the logistics of equipment procurement and should facilitate the unimpeded import of necessary goods and technologies during the active period of recovery, post-war reconstruction, and development. In addition, considering the significant delivery times of the mentioned equipment from EU countries and China, as well as queues for the production of complex equipment due to its limited supply, extending the tax exemption period will ensure a stable flow of necessary resources and faster restoration of damaged energy infrastructure and construction of new generation facilities.

At the same time, the deputies decided to move the provisions on benefits for alternative energy generation to other draft laws, Nos. 11258 and 11259 (on demining), and on July 16, 2024, they were voted on in their entirety.

Despite the fact that the adoption of these draft laws had the important goal of strengthening the country’s energy security and stimulating the development of renewable energy sources, the resulting texts do not contain relevant provisions for the development of the wind energy sector, in particular, provisions regarding the UKTZED code 8502 31 00 00 (Electric generating sets and rotary electric converters: – other electric generating sets: – wind-powered), and, accordingly, the main equipment necessary for the construction of wind power plants will not be exempt from taxation, as the current situation in the country’s energy sector requires.

It should be noted that by their nature and construction technology, wind power plants are decentralized electricity facilities. The distance between wind turbines of one power plant is usually 800 meters or more, which makes such power plants a difficult and expensive target for the enemy, as the destruction of one wind turbine can lead to the loss of up to 8 MW of power, unlike thermal power plants, where the destruction of one object often means the loss of 200 MW or more.

Thus, the construction of wind power plants corresponds to the country’s strategy for building a decentralized energy system from renewable energy sources, is a safer and more difficult target for the enemy, and at the same time brings Ukraine closer to fulfilling its obligations to the European Union regarding the goals of green transition and decarbonization.

Considering the above, the business community of the European Business Association emphasizes the need to introduce benefits for the development of wind energy in Ukraine. In particular, it is worth providing an opportunity to stimulate the construction of wind power plants and the development of wind generation in the country by including the relevant codes in other, alternative draft laws (blades, gearboxes, frequency converters, generators, equipment for control and distribution of electric current have the following codes: 8483 4021 00, 8501 64 0000, 8503 00 99 00, 8504 40 90 00,8537, 8502 31 00 00).