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18 December 2019

Ukraine’s National Energy and Utility Regulatory Commission has adopted regulatory acts regarding the sale of electricity under feed-in tariff and at auction price

Introduction

On 13 December 2019, the National Energy and Utility Regulatory Commission (“NEURC”) adopted a number of regulatory acts regarding the sale of electricity produced from renewable energy sources (“RES”), namely:

  • the Resolution amending the Order on Purchase by the Guaranteed Buyer of Electricity Produced from Alternative Energy Sources (“Order for RES Producers”) and the Template Power Purchase Agreement Under the Feed-in Tariff (“PPA on sale of electricity under feed-in tariff”);
  • the Resolution approving the Template Power Purchase Agreement Between SE “Guaranteed Buyer” and Legal Entity that has Obtained the Right for a State Support Through Auction (“PPA on sale of electricity at auction price”);
  • the Resolution approving the Order on Sale and Accounting of Electricity Produced by Consumers, as well as Settlements for it (“Order for Consumers”).

The above-mentioned regulatory acts have been adopted by the NEURC in line with the requirements of the Laws of Ukraine “On the Electricity Market” and “On Alternative Energy Sources”.

In connection with the introduction of auctions in Ukraine, the amended Order for RES Producers regulates the sale of electricity under feed-in tariff and at auction price. Ukraine’s Cabinet of Ministers must approve the Procedure for conducting auctions on allocation of support quota which will contain the order for the conclusion of PPA on sale of electricity at auction price. The template PPA on sale of electricity at auction price is subject to approval by the NEURC. State support for RES Producers that have obtained the right for state support through auction is based on the concluded PPA on sale of electricity at auction price.

I. Order for RES Producers and PPA on sale of electricity under feed-in tariff

What are the major amendments?

The NEURC approved the new versions of:

– Order for RES Producers;
– PPA on sale of electricity under feed-in tariff.

We draw your attention to the fact that all RES Producers operating under feed-in tariff must sign an additional agreement within 15 business days after receiving it from the SE “Guaranteed Buyer” concerning bringing previously concluded PPAs into line with the new version of PPA. In case of non-provision by the RES Producer under feed-in tariff of a signed additional agreement to the SE “Guaranteed Buyer” within one month, the PPA shall be terminated.

Main amendments in the Order for RES Producers:

1. Addition of obligation of the SE “Guaranteed Buyer” to form and maintain registers of RES Producers under feed-in tariff and at auction price. These registers must include information about RES Producers under feed-in tariff and at auction price, as well as information about RES objects.

2. Supplemented list of documents for conclusion of PPA on sale of electricity under feed-in tariff:

a) for RES Producers with approved feed-in tariff:

  • the list of commercial metering points for each object;
  • a single-line diagram of each object indicating commercial metering points and boundaries of balance affiliation of power grids;
  • an application in free form on choosing dispute resolution procedure.

b) for the pre-PPA conclusion:

  • information regarding RES objects that will be constructed and/or commissioned with date of commissioning, location of RES object, RES type and capacity indicated.

3. Reduced period for conclusion of PPA on sale of electricity under feed-in tariff. The SE ”Guaranteed Buyer” must provide the candidate for RES Producers under feed-in tariff with a signed PPA within 10 business days after receipt of all required documents, instead of 15 business days as previously stipulated.

4. Amended conditions concerning the right of RES Producers to resolve disputes in arbitration under the Arbitration Rules of the International Chamber of Commerce (ICC) with the place of arbitration in Paris (France), and introduced contributions to cover arbitration fees of the SE “Guaranteed Buyer”. In order to resolve disputes in international arbitration, the RES Producer shall:

  • be an enterprise with foreign investments as per the definition in the Commercial Code of Ukraine (at least 10% of the foreign investment in the charter capital);
  • choose the dispute resolution procedure in international arbitration when applying for PPA conclusion.

If choosing dispute resolution procedure in arbitration, RES Producer shall pay contributions to cover arbitration fees of the SE “Guaranteed Buyer”. The payment of contributions is not required if the RES Producer does not choose arbitration.

The conditions regarding contributions to cover arbitration fees of the SE “Guaranteed Buyer” are the following:

  • the NEURC determines the size of contributions each quarter, but their size cannot exceed 1% of the RES Producer’s net income from its activities at the relevant RES object for the previous reporting period;
  • RES Producers must perform full payment of contributions by the 25th day (inclusively) of the month following the estimated quarter;
  • in cases of non-payment of contributions, the RES Producer shall pay default interest of 0.1% of the non-performed payment (but not more than twice the discount rate of the NBU) for each day of delayed payment; and shall pay additionally a fine of 7% of the non-performed payment, if the delay exceeds 30 days.

Main amendments in the PPA on sale of electricity under feed-in tariff:

1. Supplemented PPA on sale of electricity under feed-in tariff with the obligation of the RES Producer under feed-in tariff to notify the SE “Guaranteed Buyer” concerning changes in documents for the PPA conclusion within one day following the occurrence of such changes.
2. Revised conditions concerning the opportunity to assign rights and obligations under the PPA. As before, the rights and obligations under the PPA may be transferred to third parties after obtaining written consent. The PPA has been supplemented by the following list of conditions under which, including, but not exclusively, the SE “Guaranteed Buyer” gives such consent:

  • the subject of assignment could be exclusively the right to claim for payment of indisputable debt of the SE “Guaranteed Buyer” to the RES Producer under feed-in tariff regarding payments for supplied electricity;
  • assignment is performed to fulfill the monetary obligations of the RES Producer under feed-in tariff to a new creditor, related to attracting credit resources to ensure electricity generation from RES and selling it to the SE “Guaranteed Buyer”, the execution date of which has come, in the amount corresponding to the amount of a debt under the PPA;
  • the right to claim must be specified on the ground of its occurrence (agreement), the estimated period (month) of the sale of electricity, the amount, as well as the term of performance of the obligation;
  • assignment cannot contain conditions that worsen the financial position of the SE “Guaranteed Buyer” (including bearing the risk of incurring such negative consequences) and are contrary to the law in force at the time of assignment performance;
  • performance of assignment cannot cause negative consequences in the form of worsening financial position of the SE “Guaranteed Buyer”;
  • an integral annex to an assignment agreement is a reconciliation act of payments between the RES Producer under feed-in tariff and the SE “Guaranteed Buyer” for the debt whose payment claim is the subject of the transfer of rights;
  • on the date of assignment, the RES Producer under feed-in tariff must fulfill before the SE “Guaranteed Buyer” all available counter monetary obligations under the PPA the execution date of which has come;
  • the right to claim that is the subject of the assignment cannot be transferred by the new creditor to another person;
  • the new creditor guarantees and confirms that he is duly established (registered), actually exists, and is a financial institution in accordance with the legislation (place of registration);
  • the RES Producer under feed-in tariff and the new creditor must provide the SE “Guaranteed Buyer” with all information that may be grounds for refusal of assignment;
  • in case of performance of assignment without observing the above-mentioned conditions, the RES Producer under feed-in tariff and the new creditor must jointly and severally reimburse the SE “Guaranteed Buyer” all costs and losses associated with such assignment.

It should be noted that the above-mentioned conditions are not exclusive and other conditions may also be applied.

3. Revised conditions concerning entry into force of the pre-PPA that are supplemented by the following additional documents:

  • a list of commercial metering points for each object of the RES Producer under feed-in tariff has been provided;
  • a single-line diagram of each object of the RES Producer under feed-in tariff indicating commercial metering points and boundaries of balance affiliation of power grids has been provided.

II. The PPA on sale of electricity at auction price

General information

The PPA on sale of electricity at auction price is subject to conclusion with the auction winner under the Procedure for conducting auctions on allocation of support quota that will be adopted by the Cabinet of Ministers of Ukraine.

In general, this PPA is identical to the main provisions of the PPA on the sale of electricity under feed-in tariff.

What are the features of the PPA on the sale of electricity at auction price?

1. Fixed in the text of the PPA the auction price in EUR and its UAH equivalent, as well as RES object capacity and RES type.
2. Included condition as to extend period of RES object construction for one year. This requires the relevant amendments to the PPA and the auction winner must provide an additional irrevocable bank guarantee.
3. Revised conditions concerning entry into force of the PPA. The entire PPA on sale of electricity at auction price shall enter into force after fulfillment of the following conditions:

  • the auction winner has obtained a license for electricity generation;
  • the auction winner has provided a Certificate that certifies compliance of the completed RES object with design documentation and confirms readiness for operation, or registered Declaration of readiness of RES object for operation;
  • the auction winner has concluded agreement on the settlement of imbalances;
  • the auction winner has provided information confirming membership in the balancing group of the SE “Guaranteed Buyer” and setting or not setting of a premium to the auction price by the NEURC.

III. The Order for Consumers

General information

Prior to approval of this Order, the issue of the activities of Consumers has not been regulated. As well as RES Producers under feed-in tariff, Consumers will sell electricity under feed-in tariff to the SE “Guaranteed Buyer”.

What are the features regarding the sale of electricity by Consumers?

1. Consumer – a consumer, including energy cooperative, whose generating units have installed capacity not exceeding 150 kW, intended for the generation of electricity from solar energy and / or wind energy, from biomass, biogas, from hydropower, geothermal energy.

Consumers sell electricity in the amount exceeding their monthly consumption under feed-in tariff. In order to receive payments for electricity under feed-in tariff, Consumers as well as RES Producers under feed-in tariff must become participants of the electricity market, enter into the balancing group of the SE “Guaranteed Buyer”, and sell electricity only to the SE “Guaranteed Buyer”. However, Consumers operate without license for electricity generation.

2. The list of documents for conclusion of PPA on the sale of electricity under feed-in tariff contains additional documents in comparison with the procedure for RES Producers under feed-in tariff. This list differs with reference to the following documents:

  • a copy of a certificate demonstrating the opening of a bank account certified in accordance with the legislation;
  • a copy of the passport of the distribution point or a copy of the electricity supply agreement;
  • a copy of grid connection agreements with the technical conditions for connection;
  • a copy of a registered Declaration on the readiness of the object for operation or Certificate, certifying compliance of the completed object with design documentation and confirms its readiness for operation, issued according to current legislation.

Additionally, in case the PPA on the sale of electricity under feed-in tariff is concluded with an energy cooperative, the charter of the energy cooperative shall also be provided.

Unlike RES Producers under feed-in tariff, the SE “Guaranteed Buyer” must provide the Consumer with a signed PPA within 15 business days after receipt of all required documents.

3. Consumers have obligations regarding forecasting and imbalance liability similar to those of RES Producers under feed-in tariff.

Conclusions

The adoption of the above-mentioned regulatory acts improves the legal position of RES Producers and regulates the activities of Consumers. These improvements include, in particular, the following:

  • a clear list of documents for RES Producers under feed-in tariff for the conclusion of PPA on the sale of electricity under feed-in tariff has been established;
  • the period for the conclusion of PPA on the sale of electricity under feed-in tariff by the SE “Guaranteed Buyer” has been reduced;
  • conditions concerning assignment of rights and obligations under the PPA have been supplemented.

Thus, the NEURC has updated normative acts and has fulfilled requirements stipulated by current legislation, in particular, concerning the introduction of auctions in Ukraine.

If you would like to discuss the issues raised in this paper in more detail, please contact the SK Energy practice team.

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

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