Ukraine retroactive FIT cuts far from globally approved

Jun 23, 2020 07:21 PM ET
  • They are words to chill the spirit of solar project proprietors when said in regard to feed-in tariffs: retroactive FIT cuts. A Ukrainian government smarting at the cost of funding an extremely successful solar incentive program shows up set on imitating the approach of governments in Spain, Italy and also Czechia by reopening signed settlement agreements to reset the monies spent for clean power, regardless of the costly claims that have actually welcomed such moves in the past.
Ukraine retroactive FIT cuts far from globally approved
Image: Gala Chevaillier/Wikimedia Commons

Ukraine shows up to have actually joined the rankings of the 'solar boom and bust club' after market reps as well as the federal government inked a memorandum of recognizing to accept retroactive cuts to concurred feed-in tariffs.

Much from being a concession appropriate to all events, however, the bargain signed has actually been likened to economic terrorism by some participants of the Ukrainian solar sector.

The remedy reached in between the Kyiv authorities and also domestic market bodies the European-Ukrainian Energy Agency as well as the Ukrainian Wind Energy Agency has been complied with by the filing of 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" with parliament.

The tale so far

The suggested legislation shows up to draw a line under long-running settlements in between the federal government as well as eco-friendly market gamers who clambered to take advantage of a charitable feed-in tariff of EUR0.1502/ kWh introduced by the authorities which saw the country pile up more than a gigawatt of solar capability in 2018 and also 2019.

The federal government announced in 2015 the spiralling costs of the FIT program would certainly lead to its replacement with an auction-based purchase regime to motivate objection from developers. During nationwide PV trade show CIsolar in April in 2015, an impassioned speech by Vsevolod Kovalchuk, supervisor of grid operator SE NPC Ukrenergo, suggested trouble in advance as Kovalchuk lashed out at the government for not doing enough in terms of law and also future-proofing the grid by realizing its solar capacity.

In October, the dispute intensified. At the Sustainable Energy Forum show in Kyiv, rumors spread on the program flooring that the federal government had actually mooted the dreaded retroactive FIT cuts. At the time, sector reps rejected the supposition, insisting it as at best a power play from the authorities.


" Definitely, our energy industry has actually been altering a whole lot just recently," Denys Kosoi has told pv magazine. Kosoi, chief executive of design, purchase and also construction (EPC) providers ETL Group. "First, significant modifications began with the brand-new power market opening up last year and also public auctions for the renewable energy project discussion. They [the federal government] must have offered allocations and they ought to have done first pilot auctions by the end of in 2014. They did not."

In March, trade body the Ukrainian Association of Renewable Energy (UARE) informed pv publication of government plans to retrocatively apply FIT cuts. At the time, the government suggested what it termed a "volunteer" FIT cut of 12.5%. If that fell short to prove acceptable, UARE said, the federal government intended to cut solar power settlements 15-25% instead, albeit at the same time as prolonging the term of existing FIT agreements by 5 years.

The proposition was declined.

In October, state-owned entity Guaranteed Buyer-- the department responsible for making FIT settlements-- was still able to vaunt its 100% document for prompt settlement. Nonetheless, as the reward bills mounted, Guaranteed Buyer's financials were swiftly aggravating and that settlement record was not as glowing by this spring.


" We are now observing a rapid decrease in the solar industry and also the nation's electrical energy market remains in deep situation," claimed Sergii Shakalov, CEO of Ukrainian solar module producer Kness. "Over the past three to 4 months, the amount of settlements for the produced 'eco-friendly' electrical power [was simply] 5-10%, which results in the truth that the ... proprietors of the producing facilities are not able to spend for the maintenance and also administration of PV plants, a lot less maintenance lendings and so on"

It is uncertain whether the stagnation in repayments was to the government wanting a bargaining chip to bring the industry to the negotiating table, a basic result of Guaranteed Buyer's chronic financials-- intensified by the arrival of Covid-19-- or a combination of both.

Whatever the cause, the impact of payment disruption has been obvious, with market associates authorizing a contract Shakalov dubbed "economic terrorism. "The memorandum suggested by the government is concerned by our firm as prejudiced," added the primary director.

Counterpart Philipp Leckebusch, head of energy firm DTEK Renewables, pointed the finger at the National Energy as well as Utilities Regulatory Commission (NEURC) and also stated the failing of the regulatory authority to accomplish its duties bring about a dysfunctional solar market which left Guaranteed Buyer financially crippled. The start of Covid-19, Leckebusch recommended, better worsened the situation.


In April and May another dilemma was brewing. As grid business supervisor Kovalchuk had actually cautioned a year previously, the electrical power network confirmed incapable to handle the huge volumes of solar coming online in action to that juicy FIT degree. The government division in charge of compensating solar project proprietors for the resulting curtailment was none other than struggling Guaranteed Buyer. And while the right of generators to assert payment was not challenged, no system was in location to calculate the amount of power wasted to keep the grid stable.

In terms of the projects worst affected by the retroactive FIT cut draft law thrashed out in Kyiv, owners of agreed settlement contracts may at the very least take some solace from the expertise it is facilities which are incomplete right now which will take the heaviest discomfort. The proposed legislation includes timelines for the appointing of brand-new solar projects, along with fines. For instance, the draft regulation stipulates projects which miss their August 1 due date will give up about 60% of the already-reduced feed-in toll, according to ETL Group's Kosoi. That would suggest projects which began life with the guarantee of producing returns of EUR0.1502/ kWh might bank just EUR0.045.

Kness CEO Shakalov stated project commissioning timelines would certainly be shortened under the regulation being taken into consideration by parliament with brand-new governmental hurdles being included at the same time. On top of that, stated the chief executive, due dates would certainly not be forgoed in case of assured grid framework not emerging in a timely manner. That, said Shakalov, opens a considerable corruption risk.

Lawful prep work

" We are preparing for the most awful as well as expecting the best," claimed ETL's Kosoi. "Collective [lawful] insurance claims are being prepared from our companies that own solar energy plants as well as from the owners of the plants we did EPC for." Law office, too, have actually sniffed their possibility as well as started releasing info sheets about the retroactive feed-in tariff reduced plan perenially called a "FIT restructuring" by the federal government. Foreign companies impacted, keep in mind the legal representatives, would qualify for business mediation over any type of lower income.

" We are currently examining the message of the existing bill, along with its alternatives, for perhaps defending the passions of capitalists [with] global authorities, since a significant part of investment was brought in [right into solar], consisting of from international banks," said Shakalov.

Spain, Italy as well as Czechia have all turned to retroactive FIT cuts in the past-- as well as paid a collective expense encountering a number of hundred million euro after 50 or so settlement situations. Even if legal cases prove successful, ETL employer Kosoi said, the worry would be that the federal government declare a default in feedback, or opt to extend any kind of settlement schedule enforced.


" The state ought to safeguard capitalists who rely on the country, investing their capital, and also form interaction at the nationwide degree concentrating on the demand for environment-friendly and also clean power, as well as the climate emergency proclaimed in the world," stated Kness' Shakalov.

The FIT-related imborglio will not halt Ukraine's energy transition, according to Kosoi, that stated: "Unlike our federal government, we are not going to stop the development of [a] environment-friendly future. Right now we [have] executed a couple of rooftop projects as well as we are ending up the link of [a] 2 MW power plant in the Dnipro area. ETL Group likewise is an EPC contractor in pre-PPA [power purchase contract] signed projects with a total capability of greater than 65 MWp just in the Dnipro region. We marketed two ready-to-build projects-- [with a capacity of] 15MWp-plus-- at the end of in 2014. Others get on time out right now since nobody wants to take threats of financing them currently. Neither do we."

Other Ukrainian EPC Helios Strategia resembled that favorable belief.

" Despite our clear awareness of the consequences of the retroactive FIT cuts, we are still thinking positively concerning the future of the Ukrainian RES [renewable resource resource] market," said principal advertising and marketing police officer Vladyslav Shevchenko. "Everyone must identify that dilemma conditions that were produced by different factors needed to be changed rapidly and resolutely. Now Helios Strategia Group is glad because we have at the very least a short-lived service and also work instructions. In point of view, a calculated technique needs to be utilized and also, truthfully talking, we are sure that long-lasting choices have to be accepted based upon a much fairer foundation."


DTEK's Leckebusch has actually likewise tried to pour oil on the troubled waters. "Investors and depictive associations acted in an extremely responsible fashion as well as contributed to a resolution of the severe issues the marketplace is facing," he informed pv publication. "The outcome is the authorized memorandum which we highly really hope will certainly discover its means to a legally binding obligation when passed as a modification of the RES regulation by lawmakers. RES financial investments in Ukraine have been one of minority investment success tales for Ukraine until now and also it is now the obligation of the authorities to quickly maintain the market and return to a lasting prepare for the future development of RES."

It is significant that the severe cuts proposed to the solar FIT would not apply to wind power under the suggested legislation. While solar projects set up after August 1 are readied to lose 60% of their FIT, wind centers would certainly obtain 97.5% of the agreed cash.

While Ukrainian solar firms prepared to speak up concerning the retroactive repayment cuts, the foreign EPCs and designers come close to by pv publication have actually remained quiet on the concern so far.

With the draft regulation anticipated to be adopted by parliament, the fallout on the Ukrainian solar sector remains to be seen. Spain and Italy have both rebounded strongly after heavy-handed payment restrictions-- albeit under later federal governments of a different red stripe. Something is for sure, the legal representatives look established for one more bumper payday.