Draft Law on Feed-in Tariff Restructuring Has Been Registered at the Parliament of Ukraine

01/ 07/ 2020

Author: Tetiana Mylenka, Counsel at Hillmont Partners, Head of Energy Practice Download in pdf On 15 June 2020, the Draft Law “On Amendments to Certain Laws of Ukraine on the Improvement of Conditions of Support for the Production of Electricity from Alternative Energy Sources” No. 3658 (the “Draft Law”) was registered at the Verkhovna Rada of Ukraine. The Draft Law was developed to implement the provisions of the Memorandum of Understanding (the “Memorandum”) signed on 10 June 2020 between the Government of Ukraine and two associations representing the interests of investors in the field of renewable energy sources (“RES”): the Ukrainian Wind Energy Association and the European-Ukrainian Energy Agency. The Draft Law also envisages significant changes to the procedure for the organization and holding of auctions for the allocation of support quota. The Draft Law proposes amendments to the following Laws of Ukraine: “On Alternative Energy Sources”; “On the Electricity Market”; “On the Foreign Investment Regime”; “On the Leasing of State and Municipal Property”. The Memorandum stipulates that the Draft Law should be adopted by the Verkhovna Rada by 1 August 2020. On 17 June 2020, the National Energy and Utility Regulatory Commission (the “NEURC”) approved the Memorandum, but with certain reservations. In the opinion of the NEURC, carving out wind power plants (“WPPs”) commissioned before 30 June 2015 from the FIT restructuring mechanism is discriminatory and ungrounded. The NEURC has also voiced a concern that the tariff of NPC Ukrenergo for electricity transmission services would be increased from 1 August 2020 at least up to the level of UAH 523 per 1 MWh (excluding VAT), which is three times higher than the current tariff rate for transmission services (UAH 155.4 per 1 MWh). Reduction of feed-in tariffs (FITs) and setting of an upper limit of FIT for RES facilities commissioned before 01 July 2015 The reduced FITs shall be as follows: Cut-off dates for new SPPs with concluded pre-PPAs and with an installed capacity 1 MW or more The new cut-off date for SPPs shall be 31 July 2020, while it remains unchanged for WPPs. SPPs (1 MW or more) with pre-PPAs that will be commissioned since 01 August 2020 will be eligible for FIT reduced by 60%. The feed-in tariff rate for SPPs commissioned after 1 August 2020 will be 4.5 eurocents per 1 kWh. Introduction of accelerated liability for electricity imbalances The Draft Law proposes accelerated liability for electricity imbalances for RES facilities with an installed capacity of more than 1 MW: Please note that the accelerated liability for electricity imbalances does not apply to RES facilities with an installed capacity of up to 1 MW. For such facilities, as before, the gradual introduction of liability for imbalances is stipulated from 1 January 2021: 10% with the subsequent increase of 10% each year until reaching 100% in 2030. Decrease of tolerance margin Currently, the tolerance margin (applicable until 31 December 2029) constitutes 20% for WPPs and 10% for SPPs. The Draft Law proposes to reduce the tolerance margin, which will constitute: 10% for WPPs; 5% for SPPs. Settlement of the issue of compensation to RES producers for curtailments The Draft Law proposes to settle at the legislative level the issue of compensation to RES producers for non-delivered electricity in the case of applying dispatchers’ commands of the TSO to reduce the load. The Draft Law proposes to define the TSO (NPC Ukrenergo) as the entity responsible for such compensation. RES producers will act as suppliers of balancing services, but outside of the electricity balancing market. The cost of load reduction service will be compensated to RES producers under the awarded feed-in tariff or at the auction price. The calculation of the volume of non-delivered electricity should be carried out in accordance with the methodology, which will be an annex to the Market Rules. The procedure for providing services to reduce the load by RES producers will be defined by the Market Rules. The corresponding draft amendments to the Market Rules were published on the NEURC’s website on 11 June 2020. Stabilization clause The Draft Law proposes to stipulate that for the period from 1 January 2020 until 31 December 2029, feed-in tariffs will not be changed or canceled for RES producers for whom FITs have already been established or will be established, and reduction coefficients will not be changed or applied in any other way which may lead to losses and/or damages and/or non-receipt of legitimately expected revenues by such RES producers. The Draft Law also proposes to fix in the Law of Ukraine “On Foreign Investment Regime” state guarantees for the protection of foreign investments related to the application of the feed-in tariff for the entire duration of the feed-in tariff. The rights and obligations of RES producers under the PPA should be governed by the legislation effective as of the date of enactment of the relevant law. Clarification of price caps at auctions The price offers of SPPs and WPPs cannot exceed 9 eurocents per 1 kWh for auctions before 31 December 2024, and cannot exceed 8 eurocents per 1 kWh for auctions from 1 January 2025. The price offers of producers from other RES (biomass, biogas, as well as micro, mini and small hydroelectric power plants) cannot exceed 12 eurocents per 1 kWh. Schedule of auctions Current legislation stipulates that auctions are held twice a year, not later than 1 April and 1 October of the relevant year. The Draft Law clarifies that auctions will be held in accordance with the schedule of auctions for the relevant year. Reduction of the minimum share of mandatory allocation of annual support quotas by separate technologies The annual support quota shall be allocated into shares by separate technologies of RES. It is envisaged to reduce the minimum share of the mandatory allocation of annual support quotas by separate technologies (solar, wind, other types of RES) from 15% to 10%. Other proposed amendments to the procedure for the organization and holding of auctions The Draft Law intends to provide the opportunity for SPPs located on rooftops and/or facades of buildings and facilities to participate in auctions. The Draft Law proposes to fix the opportunity to provide state-owned and municipal-owned rooftops and/or facades of buildings and other capital facilities into lease to conduct auctions for the construction of SPPs. The Draft Law clarifies that the Cabinet of Ministers of Ukraine may, by a submission from the Ministry of Energy within the annual or additional support quota: Define certain areas (regions) for the construction of RES facilities; Define the maximum levels of capacity of an RES facility for which the RES producer can obtain the right for support at the relevant auction; Propose land plots for the construction of RES facilities with defined technical parameters and technical conditions for connection to the power grid; Propose rooftops and/or facades of buildings and other capital facilities leased for the construction of SPPs with defined technical parameters and technical conditions for connection to the power grid. The features of announcing and conducting such auctions are defined by the Procedure for conducting auctions on the allocation of support quota. The Draft Law also proposes to increase the maximum share of the annual support quota that one ultimate beneficial owner can obtain in one calendar year, from 25% to 35%. Legislation: Draft Law “On Amendments to Certain Laws of Ukraine on the Improvement of Conditions of Support for the Production of Electricity from Alternative Energy Sources” No. 3658 of 15 June 2020.

Author: Tetiana Mylenka, Counsel at Hillmont Partners, Head of Energy Practice

Download in pdf

On 15 June 2020, the Draft Law “On Amendments to Certain Laws of Ukraine on the Improvement of Conditions of Support for the Production of Electricity from Alternative Energy Sources” No. 3658 (the “Draft Law”) was registered at the Verkhovna Rada of Ukraine.

The Draft Law was developed to implement the provisions of the Memorandum of Understanding (the “Memorandum”) signed on 10 June 2020 between the Government of Ukraine and two associations representing the interests of investors in the field of renewable energy sources (“RES”): the Ukrainian Wind Energy Association and the European-Ukrainian Energy Agency. The Draft Law also envisages significant changes to the procedure for the organization and holding of auctions for the allocation of support quota.

The Draft Law proposes amendments to the following Laws of Ukraine:

“On Alternative Energy Sources”;
“On the Electricity Market”;
“On the Foreign Investment Regime”;
“On the Leasing of State and Municipal Property”.

The Memorandum stipulates that the Draft Law should be adopted by the Verkhovna Rada by 1 August 2020.

On 17 June 2020, the National Energy and Utility Regulatory Commission (the “NEURC”) approved the Memorandum, but with certain reservations. In the opinion of the NEURC, carving out wind power plants (“WPPs”) commissioned before 30 June 2015 from the FIT restructuring mechanism is discriminatory and ungrounded. The NEURC has also voiced a concern that the tariff of NPC Ukrenergo for electricity transmission services would be increased from 1 August 2020 at least up to the level of UAH 523 per 1 MWh (excluding VAT), which is three times higher than the current tariff rate for transmission services (UAH 155.4 per 1 MWh).

Reduction of feed-in tariffs (FITs) and setting of an upper limit of FIT for RES facilities commissioned before 01 July 2015

The reduced FITs shall be as follows:

Cut-off dates for new SPPs with concluded pre-PPAs and with an installed capacity 1 MW or more

The new cut-off date for SPPs shall be 31 July 2020, while it remains unchanged for WPPs. SPPs (1 MW or more) with pre-PPAs that will be commissioned since 01 August 2020 will be eligible for FIT reduced by 60%.

The feed-in tariff rate for SPPs commissioned after 1 August 2020 will be 4.5 eurocents per 1 kWh.

Introduction of accelerated liability for electricity imbalances

The Draft Law proposes accelerated liability for electricity imbalances for RES facilities with an installed capacity of more than 1 MW:

Please note that the accelerated liability for electricity imbalances does not apply to RES facilities with an installed capacity of up to 1 MW. For such facilities, as before, the gradual introduction of liability for imbalances is stipulated from 1 January 2021: 10% with the subsequent increase of 10% each year until reaching 100% in 2030.

Decrease of tolerance margin

Currently, the tolerance margin (applicable until 31 December 2029) constitutes 20% for WPPs and 10% for SPPs. The Draft Law proposes to reduce the tolerance margin, which will constitute:

10% for WPPs;
5% for SPPs.

Settlement of the issue of compensation to RES producers for curtailments

The Draft Law proposes to settle at the legislative level the issue of compensation to RES producers for non-delivered electricity in the case of applying dispatchers’ commands of the TSO to reduce the load.

The Draft Law proposes to define the TSO (NPC Ukrenergo) as the entity responsible for such compensation. RES producers will act as suppliers of balancing services, but outside of the electricity balancing market. The cost of load reduction service will be compensated to RES producers under the awarded feed-in tariff or at the auction price. The calculation of the volume of non-delivered electricity should be carried out in accordance with the methodology, which will be an annex to the Market Rules. The procedure for providing services to reduce the load by RES producers will be defined by the Market Rules. The corresponding draft amendments to the Market Rules were published on the NEURC’s website on 11 June 2020.

Stabilization clause

The Draft Law proposes to stipulate that for the period from 1 January 2020 until 31 December 2029, feed-in tariffs will not be changed or canceled for RES producers for whom FITs have already been established or will be established, and reduction coefficients will not be changed or applied in any other way which may lead to losses and/or damages and/or non-receipt of legitimately expected revenues by such RES producers.

The Draft Law also proposes to fix in the Law of Ukraine “On Foreign Investment Regime” state guarantees for the protection of foreign investments related to the application of the feed-in tariff for the entire duration of the feed-in tariff. The rights and obligations of RES producers under the PPA should be governed by the legislation effective as of the date of enactment of the relevant law.

Clarification of price caps at auctions

The price offers of SPPs and WPPs cannot exceed 9 eurocents per 1 kWh for auctions before 31 December 2024, and cannot exceed 8 eurocents per 1 kWh for auctions from 1 January 2025.
The price offers of producers from other RES (biomass, biogas, as well as micro, mini and small hydroelectric power plants) cannot exceed 12 eurocents per 1 kWh.

Schedule of auctions

Current legislation stipulates that auctions are held twice a year, not later than 1 April and 1 October of the relevant year. The Draft Law clarifies that auctions will be held in accordance with the schedule of auctions for the relevant year.

Reduction of the minimum share of mandatory allocation of annual support quotas by separate technologies

The annual support quota shall be allocated into shares by separate technologies of RES. It is envisaged to reduce the minimum share of the mandatory allocation of annual support quotas by separate technologies (solar, wind, other types of RES) from 15% to 10%.

Other proposed amendments to the procedure for the organization and holding of auctions

The Draft Law intends to provide the opportunity for SPPs located on rooftops and/or facades of buildings and facilities to participate in auctions. The Draft Law proposes to fix the opportunity to provide state-owned and municipal-owned rooftops and/or facades of buildings and other capital facilities into lease to conduct auctions for the construction of SPPs.

The Draft Law clarifies that the Cabinet of Ministers of Ukraine may, by a submission from the Ministry of Energy within the annual or additional support quota:

Define certain areas (regions) for the construction of RES facilities;
Define the maximum levels of capacity of an RES facility for which the RES producer can obtain the right for support at the relevant auction;
Propose land plots for the construction of RES facilities with defined technical parameters and technical conditions for connection to the power grid;
Propose rooftops and/or facades of buildings and other capital facilities leased for the construction of SPPs with defined technical parameters and technical conditions for connection to the power grid.

The features of announcing and conducting such auctions are defined by the Procedure for conducting auctions on the allocation of support quota.

The Draft Law also proposes to increase the maximum share of the annual support quota that one ultimate beneficial owner can obtain in one calendar year, from 25% to 35%.

Legislation: Draft Law “On Amendments to Certain Laws of Ukraine on the Improvement of Conditions of Support for the Production of Electricity from Alternative Energy Sources” No. 3658 of 15 June 2020.