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25 April 2019

Ukraine has adopted Law about auctions to support renewable energy projects

On 25 April 2019, the Verkhovna Rada of Ukraine passed in the second reading the Law on Amendments to Some Laws of Ukraine on Ensuring Competitive Conditions for the Production of Electricity from Alternative Energy Sources (the “Law about auctions”), which amends the Laws of Ukraine On Alternative Energy, On the Electricity Market, On the Regulation of Urban Development Activities.

The need to pass the Law about auctions resulted from high feed-in tariff, which does not promote competition in the renewable energy sources (the “RES”) sector. Moreover, recent research identifies increased application of auctions for RES around the world. For instance, according to IRENA data, 80 countries have already introduced auctions for renewable energy. European Union countries also rely on auctions as an economically profitable mechanism for RES development until 2030.

Therefore, a state support to electricity producers from renewable energy sources on a competitive basis, namely through the introduction of auctions, provides optimal support for electricity generation from renewable energy sources.

The Law about auctions contains the following key provisions before the second reading:

1. Terms of participation in auctions.

The auctions will be introduced from 1 July 2019.

The participation in auctions will be mandatory:

  • for solar above 1 MW;
  • for wind above 5 MW.

The auction participants should be able to rely on price by auction results (auction price) converted into EUR equivalent with a 20-year term of validity. In order to participate in auctions, participants shall submit closed offers that contain a technical proposal (amount of capacity subject to support) and a price offer (price per 1 kilowatt hour of electricity). Only the price will be taken into account for determining the winner of the auction.

Auctions shall be held twice a year, but no later than 1 April and 1 October. The auctions will be conducted until 31 December 2029.

2. Size and allocation of quotas.

The Cabinet of Ministers of Ukraine no later than 1 December shall approve the annual support quotas for the next 5 years.

According to the Transitional Provisions of the Law about auctions, during the transition period from 2020 till 2022, the annual support quota shall be allocated for separate RES type as the following:

  • for solar – not less than 30%;
  • for wind – not less than 30%;
  • for other RES types – not less than 15%.

After the transition period, the annual support quota shall be allocated for separate RES type with the minimum level as the following:

  • for wind – not less than 15%;
  • for solar – not less than 15%;
  • for other RES types – not less than 15%. 

3. Availability of the feed-in tariff.

Introduction of the auctions limits applicability of the feed-in tariff, but does not cancel it. The existing feed-in tariff scheme is guaranteed until 1 January 2030 and applied to:

  • projects of any capacity and type of RES technology that have been commissioned before 2020;
  • projects of any capacity and type of RES technology that have signed pre-PPA by 31 December 2019. Conditions for obtaining feed-in tariff in such case – commissioning of the power plant within 2 years from the date of signing pre-PPA for solar power plants, 3 years – for other types of RES;
  • any projects which will be constructed after 1 January 2020, where the installed capacity is less than the capacity for which auctions are mandatory.

4. Decrease of the feed-in tariff.

The Law about auctions decreases the feed-in tariff:

  • for solar: in 2020 – 25% with a further decrease of 2.5% each year for 3 years;
  • for wind: in 2020 – 10% without a further decrease.

The feed-in tariff for biomass/biogas will be leaved without changes.

5. Ensuring competition.

To ensure competition in auctions:

  • the total capacity to be awarded to the winners as of the result of the auction cannot exceed 80% of the total capacity that all the bidders have requested in their bids for the auction;
  • the maximum share of the early quota that can be awarded to a single bidder cannot exceed 25% of the yearly quota.

6. Bank guarantee.

To participate in auction and subsequently enter into an off-take agreement, a bidder have to, inter alia, submit the following bank guarantee:

  • EUR 5,000 per 1 MW as a bid bond to participate in the auction;
  • EUR 15,000 per 1 MW to be provided in case of winning of the auction as the guarantee for fulfilment contractual obligations.

7. Responsibility for imbalances.

Full balancing responsibility will apply to RES projects that:

  • obtained support through auctions that will be performed after the intraday market will have been considered liquid (but no later than 31 December 2023).

8. Technical conditions for grid connection.

Previously issued technical conditions for grid connection will be valid for:

  • 2 years for solar power plants;
  • 3 years for other RES.

In process of the second reading members of Parliament has made some changes, therefore the final version of the Law about auctions will be available later.

The advantages of the new support system over the existing feed-in tariff system are the following:

  • a longer support period – 20 years after the RES facility commissioning;
  • guaranteed off-take of the electricity generated by the electricity producers at a price by the auction results.

Sayenko Kharenko provides for legal support at all stages of realization of the RES projects. Do not hesitate to contact with us for resolving any issue related to the adopted amendments to legislation, including:

  • legal support of RES projects during the replacement feed-in tariff for auction;
  • identification and elimination of possible risks in realization of RES projects under the new scheme of state support;
  • complex analysis of RES projects in terms of participation in auction schemes and attraction of financing.

In case of any questions, please contact partner Nazar Chernyavsky and counsel Maryna Hritsyshyna.

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