Energy sector of Ukraine: main changes

The first decade of June 2020 has ended with the most important decisions for the renewable energy sector of Ukraine. On the one hand, the Ministry of Energy and some RES Investors reached an agreement on the main conditions for the feed-in tariff restructuring and signed a Memorandum of Understanding for the Resolution of Problematic Issues in the Renewable Energy Industry of Ukraine (“MoU”). On the other hand, the NEURC amended the Transmission Code with restriction on the issuance of the technical conditions for the grid connection.

Below we analyse these decisions in more detail.

Memorandum of Understanding with the RES Investors

On 10 June 2020, the Prime Minister of Ukraine Denis Shmygal, the acting Minister of Energy and Environmental Protection of Ukraine Olga Buslavets, the officials of the European-Ukrainian Energy Agency and the Ukrainian Wind Energy Association signed the MoU.

The MoU has further to be signed by the Head of the Energy Community Secretariat’s Dispute Resolution and Negotiation Centre and the Head of the National Energy and Utilities Regulatory Commission of Ukraine (“NEURC”). The issues of signing the MoU by the Head of the NEURC will be considered during the next meeting of the NEURC on 17 June 2020.

What were the main reasons for signing the MoU?

The following events preceded the conclusion of the MoU:

• from November 2019 – negotiations between the RES investors and the government;
• from December 2019 – a mediation procedure under the auspices of the Energy Community Secretariat; and
• from March 2020 – an increase of debt owed by the Guaranteed Buyer to the RES producers, only 31 per cent of which was paid by 5 June 2020.

In fact, the RES producers receive only 13 per cent of the payments due to them for March 2020 and just 5 per cent due for April and May 2020. Taking into account such payment delays, some RES producers found the signing of the MoU the more appropriate measure for solving the problem than the court proceedings.

Do all RES producers support the MoU?

The MoU was signed only by two renewable associations – the European-Ukrainian Energy Agency and the Ukrainian Wind Energy Association. According to the official statement of the Ukrainian Association of Renewable Energy, the MoU can be signed only after changes to the conditions of reduction of the feed-in tariffs are made. The Solar Energy Association of Ukraine did not participated in the mediation proceeding and did not signed the MoU. The lack of support is connected with the discriminated cut-off dates for realisation of the solar projects in comparison with the wind projects.

What are the main conditions of the MoU?

The MoU includes the following steps for resolving the problems in the renewable energy sector:

• adoption of the amendments to the laws regarding the mechanism for restructuring of the feed-in tariffs (“Law on restructuring”) by the Parliament, which includes:
• state guarantees on prevention of other changes to the rights and obligations of the RES investors under the PPAs;
• reduction of the feed-in tariffs without prolongation of the PPAs;
• cut-off dates: Solar – by 31 July 2020; Wind – no change;
• changing conditions of the balancing responsibility: 50 per cent from 1 January 2021 and 100 per cent from 1 January 2022 with tolerance margin – 5 per cent for solar and 10 per cent for wind;
• introducing feed-in tariff cap for all RES facilities commissioned before 1 July 2015 at the level of the feed-in tariff approved for the electricity generated from the solar energy by ground power facilities with capacity exceeding 10 MW and commissioned by 31 March 2013 with 15 per cent reduction.

Term for adoption of main amendments – 1 August 2020.

On 15 June 2020 the Draft Law on amending certain Laws of Ukraine to improve conditions for supporting production of electricity from alternative energy sources was registered in the Verkhovna Rada of Ukraine (Draft Law No. 3658).

• Payment terms:
• full and timely current payment by the Guaranteed Buyer to the RES Producers for the produced electricity;

Terms – from the month following the month in which the amendments to the Law about restructuring come into force.

• payment of the existed debts of the Guaranteed Buyers to the RES Producers;

Terms – according the following schedule:

• Amendments of the regulations by the NEURC as to the following:

The NEURC and other state authorities shall:

• revise the transmission tariff of NPC Ukrenergo and consider other financial income for fulfilment by the Guaranteed Buyer of its financial obligations to the RES Producers;
• adopt the amendments to the regulatory act regarding the compensation for curtailment of the RES Producers.

Term – within a month after the effective date of the Law about restructuring.

Are the conditions of the feed-in tariff restructuring voluntary?

It shall be noted that the MoU does not constitute an amendment to the PPAs and does not restrict the rights of the RES producers to apply to court. At the same time, the new rates of the feed-in tariffs under the MoU will come into force simultaneously with the Law on restructuring. This provision violates the state guarantees on stability of the supportive scheme effective on the date of commissioning of the RES facilities, and the RES producers can choose the new supportive scheme on the voluntary basis under the Article 9-1 of the Law about alternative sources of energy. For this reason, the implementation of the reduced rates of the feed-in tariffs without a voluntary approach will lead to the violation of the state guarantees.

When will renewable auctions be organised?

The MoU states that the state authorities will approve the annual support quotas within two months after the effective date of the Law about restructuring and will organise the auctions by the end of 2020. However, on 12 June the acting Minister of Energy and Environmental Protection of Ukraine Olga Buslavets informed that the renewable auctions will be organised next year.

Restriction of the issuance of technical conditions for the grid connection by the Transmission System Operator

The Transmission Code was amended by the NEURC Resolution of 3 June 2020. The crucial changes relate to the ability to connect to the grid, namely, if the operating safety limits of the operation of the Integrated Power System of Ukraine (“IPS”) are reached, the transmission system operator (“TSO”) is obliged to take measures to:

• temporarily stop (limit) the issuance of technical conditions for connection; and / or
• provide written conclusions / recommendations on the implementation of technical measures to ensure proper and sustainable operation of electric power facilities in the IPS of Ukraine and / or in its corresponding parts.

The requirements (criteria) for the adoption / cancellation of the relevant decision by the TSO are developed, approved and published by the TSO independently.

The Antimonopoly Committee of Ukraine informed that giving the right to temporarily stop (limit) the issue and / or agree on technical conditions for grid connection to the transmission system operator may lead to an abuse of a monopoly (dominant) position оn the market.

It may also lead to the prevention, elimination or restriction of competition or infringement of the interests of other business entities or consumers.

Thus, a procedure for the adoption and cancellation of the TSO decision on the temporary stop (limit) of the issuance and / or approval of technical conditions for grid connection defining clear and transparent grounds for the adoption and cancellation of relevant decisions of the TSO is required.

Conclusion:

The MoU and the amendments to the Transmission Code are directed at stabilisation of the situation with growth of the renewable energy and payments under the feed-in tariff. At the same time most of the proposed or implemented measures contradict to the current state guarantees and can lead to the violation of the rights of the RES investors.

To avoid being negatively impacted by the MoU and amendments to the Transmission Code, you can contact the Sayenko Kharenko energy practice team:

• to get a qualified advice regarding implementation of the MoU and its impact on the renewable projects;
• to analyse the current strategy of work in the renewable sector of Ukraine and consider possible changes in this strategy to avoid risks;
• to audit your possible risks in the current situation.

The information contained in this legal alert is for the general informational purposes only, does not constitute legal or other professional advice, and should not be relied upon as a substitute for a specific professional advice adapted to specific circumstances.