Ukraine federal government provides retroactive FIT cuts and new auction policies to parliament

• The Ukrainian government's meeting room have been stuffier than common recently, as policymakers and renewable resource industry reps attempted to thrash out a compromise to reduce the economic burden left on the management by a feed-in tariff incentive routine which drove almost 2 GW of generation capability. The resulting cuts to settlements, detailed listed below by Ukraine-based lawyer Svitlana Teush, have at the very least had input from both sides.

15 June, Draft Law No. 3658 "On the Amendments to Certain Laws of Ukraine on the Improvement of Support for the Production of Electricity from Alternative Energy Sources" (Law 3658) was sent by the federal government of Ukraine and also registered with the parliament.

Legislation 3658 has actually been clarified to execute stipulations of a memorandum of understanding (MoU) authorized last week after prolonged arrangements between policymakers and also renewable energy reps in a quote to "restructure" feed-in tariff (FIT) payments produced clean power generation.

There complies with a recap of the essential problems of Law 3658, based upon the information released on Ukraine's parliamentary website, adhering to the arrangement process moderated by the Energy Community Secretariat.

a) Reduction of the FIT. Regulation 3658 implements the reduction of the FIT via the pertinent decisions of the power regulator, with regard to the following decrease elements (reducing coefficients), depending upon the resource of energy, appointing date as well as mounted ability, probably. It basically replicates the worths found in the variation of the MoU signed by the government with RES [renewable resource sources] sector associations (based on the message offered and shared by the above associations).

For in-depth details on the FIT reduction, please describe Table 1.

* where the installed system ability of a wind generator is equal to, or surpasses, 2 MW.

** based on the normal regard to appointing called for under pre-PPA [preliminary power acquisition contract] to get the FIT, which makes 2 years for solar as well as three years for wind from the day of signing the pre-PPA.

For all RES under the FIT commissioned on or before June 30, 2015, the FIT ought to be covered at (not exceed) the optimum rate of the FIT developed for ground-mounted solar with a set up generation capacity of greater than 10 MW, as well as for those appointed before March 31, 2013, multiplied by a reducing coefficient of 0.85. If lower than or equal to the above optimum cap, the FIT is multiplied by a coefficient of 1.

The very same coefficient-- one-- applies to all various other RES not pointed out over.

Especially, the cut-off day for the appointing of projects which are unfinished to be eligible for the FIT-- among the most intensely-debated topics-- has actually been gotten rid of from Law 3658 and replaced with a considerably reduced decrease factor for solar plants commissioned from 1 August 2020.

The above decrease of the FIT is suggested to apply on a forward-looking basis, adhering to enactment of the regulation. It shows up a manufacturer can not opt out of reduction of the FIT, as had actually formerly been suggested within the framework of conversations about a voluntary restructuring of the FIT.

b) The regard to the FIT. Regulation 3658 does not offer the extension of the regard to the FIT, although this alternative has actually been formerly reviewed for restructured tasks. For this reason, the FIT will remain to apply until 31 December 2029, as pondered by current legislation. However, it can not be excluded that the term of the PPA might be prolonged in the final draft of this regulation, adhering to the ongoing efforts of capitalists.

c) Balancing responsibility. The present legislation offers a progressive intro of the balancing duty which must relate to projects under the FIT or the auction rate from 2021; it is evaluated 10% in 2021 as well as enhances by 10% every year till it gets to 100% in 2030, with resistance margins evaluated 20% for wind, 10% for solar as well as 5% for hydro. Legislation 3658 increases the balancing responsibility for plants with an ability of more than 1 MW as complies with:

• 50% from 1 January, 2021; and also
• 100% from 1 January, 2022,

based on resistance margins of 10% for wind and 5% for solar and also various other RES.

The federal government should, within three months of enactment of the law, submit the draft legislation entitling RES producers to stop the offtaker's stabilizing team (in which team, RES manufacturers under the FIT or auction price need to presently participate) as well as to freely market electricity and also be compensated for the difference between the FIT or the auction price and the market cost, however not lower than the rate in the day-ahead market.

d) Compensation for curtailment. The existing law does not give any in-depth assistance as to curtailment-related procedures, consisting of payment for curtailment as well as the assigned body responsible for any kind of repayment.

Legislation 3658 suggests utilizing the system of the provision by RES producers of load decline solutions to the TSO [transmission system driver] The expense of such solutions ought to amount to the FIT or auction price, probably, due for settlement to RES manufacturers for the quantities of under-supplied electrical energy following TSO commands. The appropriate expenses of the TSO payable to RES manufacturers must be included in the transmission tariff. So it must be the TSO (not the off-taker, as previously gone over) that will be in charge of payment of curtailment payment to RES producers at the FIT or public auction price.

The procedure of arrangement of such solutions (including the top priority order in approval of offers for lots reduction solutions), as well as the approach of estimation of electricity quantities under-supplied by RES producers adhering to TSO commands, need to be accepted by the power regulatory authority and also included in the market guidelines within a month of enactment of the regulation.

Just like the current law, Law 3658 stipulates compensation for curtailment (the price of the appropriate solutions of RES manufacturers) is not payable in the event of curtailment commands released by the TSO due to power system constraints brought on by force majeure.

e) Stabilization stipulation. Legislation 3658 contemplates particular adjustments to the law of Ukraine "On the Regime of Foreign Investment" relative to the state guarantee as well as stabilization (or "grandfathering") stipulations. It is maintained that the civil liberties and also commitments of celebrations to PPAs under the FIT ought to be controlled by regulation efficient as of the day of implementation of the pertinent legislation, save for the changes in regulation connecting to protection, national safety and security, public order or environmental management. The State assurances that from 1 July 2020 up until 31 December 2029, the FIT will certainly not be transformed or terminated and also decreasing coefficients will certainly not be transformed or used in a manner entailing losses or problems or loss of legally expected revenues by tasks which have gotten or will certainly get the FIT according to this brand-new regulation. A fair debate can be made that, based on certain streamlining of the phrasing, the state warranty would relate to not only tasks functional under the FIT, but additionally growth tasks qualified to the FIT under the pre-PPA.

It is even more, specifically kept that the state assurance of international investment related to the FIT will request the entire period of the FIT.

f) Changes to the regulatory structure on renewable resource auctions

Boosted role of government

Regulation 3658 broadens the powers of the federal government relating to the public auction process, with the purpose of attaining higher adaptability. It is recommended to delete the timetable from the law which presently attends to semiannual auctions-- prior to April an as well as October 1-- as well as to instead let the government select the timetable of public auctions for each and every succeeding year. Furthermore, the federal government will certainly have the ability to develop quotas with reference to the demands of various areas, cap maximum quotas used for auction and auction stories of land or rooftops with available grid link requirements.

Technology-specific shares of allocations minimized

Under the existing regulation, no less than 15% of the annual allocation must be allocated per of (i) solar, (ii) wind and also, cumulatively, (iii) other RES, while the continuing to be quota ought to be designated among different energy sources by the federal government. Legislation 3658 minimizes that minimum figure to 10%. This would certainly enable greater discretion to the federal government in the allowance of the remaining allocation amongst various sources of energy.

The government can also choose to hold technology-neutral auctions.

To advertise competition as well as suit technology-neutral auctions, Law 3658 calls for state assistance be provided just for ability not surpassing 80% of the aggregate capacity offered by all individuals in an auction (irrespective of the renewable resource resource, as pondered by the current legislation).

Auction rate caps

Under the present legislation, the public auction price can not exceed the FIT for the relevant source of power. Regulation 3658 ponders the auction cost for wind and solar not exceed EURo.o9/ kWh for public auctions before December 31, 2024, as well as EUR0.08/ kWh for procurement rounds from January 1, 2025. Hence, the price caps might come to be reduced compared to those established under the existing law.

For other kinds of RES, it is recommended the public auction rate be capped at no greater than EUR0.12/ kWh.

Roof solar eligible

The current legislation does not offer roof solar to participate in auctions. The modifications recommended under Law 3658 permit the opportunity for rooftop systems and specify essential records for such installations to take part in public auctions.

Optimum threshold to be raised for jobs of affiliated persons

Draft Law No. 3658 increases the threshold for the maximum allocation which can be awarded solitary prospective buyers (along with affiliates having the same supreme beneficial proprietor), from 25% to 35% of the overall annual allocation.

Prompt grid connection needed

Under the present regulation, a producer needs to commission a task within two years of signing a solar PPA, and also three years for other RES tasks. Appointing does not include grid connection and also is certified by an appointing certificate for mechanical conclusion of nuclear power plant.

Legislation 3658 requires a task to be grid-connected within the above term to be eligible for public auction assistance. This does not relate to projects under the FIT, for which an appointing certification remains to be enough as evidence of appointing.

The MoU authorized in between the government as well as market stakeholders mentions the relevant law needs to be adopted prior to August 1, 2020. It stays to be seen what changes will certainly be recommended by concerned stakeholders to Draft Law No. 3658, as well as whether any alternative draft laws will certainly be signed up-- a likely scenario. It is also uncertain whether any one of the variations will certainly handle to effectively pass the legislative energy committee and hearing in parliament. Other adjustments in regulation are also expected to carry out the stipulations of the MoU, consisting of on the schedule of payments to RES producers by the off-taker, as well as gauges to more enhance the off-taker's liquidity.

The other day, an additional draft regulation-- No. 3657 "On the Amendments to the Electricity Market Law"-- was likewise signed up with the parliament, identifying certain measures aimed at accomplishing such enhancements, including diversity of the market sectors for marketing power by the off-taker. This draft law, among other things, boosts the procurement structure for the construction of generation abilities as well as execution of demand-response monitoring actions as may be required to guarantee the operational safety of power systems, including decrease of the timeline and also simplification of the procedures entailed. Tenders for the advancement of such abilities will certainly be released based upon the guidelines embraced by the federal government in 2014. Incentives for capitalists in such abilities will certainly be specified by the federal government in its tender statement.

The changes amount to appealing indicators of an extra incorporated as well as complex strategy toward more well balanced and also lasting growth of Ukraine's power system and also attending to the difficulties presently dealt with.

About the writer

Svitlana Teush, PhD, is head of building and construction, renewable energy as well as infrastructure at Redcliffe Partners law office, an independent organisation which previously ran as the Kyiv office of international law firm Clifford Chance. She has actually practiced legislation for more than 15 years, sustaining jobs in the power, building as well as framework industries. She holds conclusion certificates from the Florence School of Regulation for "Regulation of the Power Sector" and also "Trans-European Energy Networks Regulation." Because the introduction of the FIT in Ukraine in 2009, she has actually been sustaining renewable energy projects in the nation and also has actually advised on associated issues of land usage; building; grid connection; governing licenses and licenses; contracts for design, purchase as well as construction and also operations as well as upkeep activity; along with application of the FIT; regional material rewards; acquisition obligation; and also other aspects of the support system for renewables. She has additionally served as vice-chairman of the board of the European-Ukrainian Energy Agency. She is a contributing legal expert of the Ukrainian Wind Energy Association; a participant of the Supervisory Board of the Bioenergy Association of Ukraine and a participant of the National Commission on Environment as well as Energy of the International Chamber of Commerce in Ukraine.