Ukraine changes renewable energy legislation
In the recent period, many amendments have been made to legal acts in the field of renewable energy. The adoption of new legal acts on renewable energy is also expected in the near future.
I. Recent renewable energy legislation amendments
1. Amendments to the Procedure for the establishment, adjustment and termination of feed-in tariff
On 14 January 2020, the National Energy and Utility Regulatory Commission (“NEURC”) adopted Resolution No. 158, which amends the Procedure for the Establishment, Adjustment and Termination of Feed-in Tariff on Electricity for Legal Entities, Electricity Consumers, Including Energy Cooperatives, and Private Households Whose Generating Units Produce Electricity from Alternative Energy Sources (“Procedure”). Amendments concern requirements for documents submitted for establishing feed-in tariff, the NEURC right to refuse in establishing feed-in tariff, as well as the NEURC right to suspend consideration of the application on establishing feed-in tariff.
What are the major amendments?
- Clarified requirements for documents submitted to establish feed-in tariff, including for the establishment of feed-in tariff for rooftop solar power plants:
– explanatory note with detailed information about legal entity shall also include information about useful output of electricity;
– summary calculation of actual expenses for RES object construction shall also include cost of grid connection;
– in case of submitting a copy of a Certificate that confirms compliance of constructed RES object with design documentation and confirming its readiness for operation, the relevant act of readiness for operation shall also be submitted;
– in case of an application of the legal entity concerning establishment of feed-in tariff for electricity producing from a roof or facade solar plant, the application concerning establishment of feed-in tariff shall include attached documents confirming that the facilities/buildings, on the roofs and/or facades of which such RES object is mounted (installed), are capital (excerpt from the State Register of Property Rights to Real Estate etc.).
- Established period for written notification from NEURC on leaving the application concerning establishment of feed-in tariff without consideration. NEURC shall notify the licensee in written form within 15 calendar days.
- Procedure is supplemented by the opportunity for NEURC to refuse establishing feed-in tariff. If, after leaving the application without consideration, the legal entity has applied repeatedly to NEURC with the application on establishing feed-in tariff and the documents attached thereto, in which the comments have not been eliminated that had become the ground for leaving the application without consideration, NEURC has the right to take a decision on refusal to establish feed-in tariff.
- Procedure is supplemented by the opportunity for NEURC to suspend consideration of the application on establishing feed-in tariff in case need for receipt of additional explanations and/or materials from authorized bodies or the licensee. This should be taken into account by future RES producers because the actual period for consideration of the documents for establishing feed-in tariff may exceed the 30-day period.
The above-mentioned amendments to the Procedure became effective on 21 January 2020.
2. Cancellation of VAT exemption for renewable energy equipment
On 16 January 2020, the Verkhovna Rada of Ukraine (parliament) adopted the Law of Ukraine “On Amendments to the Tax Code of Ukraine on Improvement of Tax Administration, Removal of Technical and Logical Inconsistencies in the Tax Legislation” (“Law on Amendments to the Tax Code”). The Law on Amendments to the Tax Code abolished the VAT exemption previously applicable to import into Ukraine of certain equipment for solar and wind power plants. Therefore, imports of such equipment made after the law’s entry into force will be subject to regular VAT at a rate of 20%. VAT will be included into the import price of the equipment. Despite these amendments, importers will be entitled to input VAT credit for the VAT paid on such imports.
II. Legal acts that can be adopted in the near future
1. The Law of Ukraine on energy storage
At the end of 2019, two draft laws on electricity storage systems were registered:
– Draft Law No. 2496 dated 26 November 2019 On Ensuring Energy Security and Flexibility of the Power System, Real Competition, Decarbonization of the Economy, Reduction of Prices of Electricity Consumption (concerning energy storage systems) (“Draft Law No. 2496”);
– Draft Law No. 2582 dated 12 December 2019 On Amendments to the Law of Ukraine “On the Electricity Market” (concerning energy security, balancing of the energy system and energy storage systems) (“Draft Law No. 2582”).
Draft Law No. 2496 and Draft Law No. 2582 are completely different, despite the fact that they are both aimed at regulating energy storage systems. None of the Draft Laws have yet been approved by the Verkhovna Rada Committee on Energy, Housing and Utility Services. However, the working group of the Verkhovna Rada Committee on Energy, Housing and Utility Services on the introduction of energy storage systems has considered the Draft Law No. 2582.
Amendments to article 71 of the Law “On the Electricity Market” under the Draft Law No. 2582 stipulates the opportunity to use energy storage systems by renewable energy producers within the framework of the balancing group of the SE “Guaranteed Buyer”. These amendments may be useful in case of introduction of full balance liability for RES producers.
The strengths of the Draft Law No. 2582 include the following:
– Draft Law No. 2582 contains definitions of the energy storage system and the storage system operator as a participant of the electricity market;
– it is proposed by the Draft Law No. 2582 to supplement the conditions of conducting competitive procedure for the construction of generating capacities in article 29 of the Law “On the Electricity Market” by the construction of energy storage systems. This will allow application of incentives for the construction of storage systems such as: establishing a fee for the service, allocation of land plots, using public-private partnership mechanisms, as well as providing state aid;
– Draft Law No. 2582 contains conditions that determine the status of energy storage systems operators and the conditions of licensing that activity.
Despite the importance of adopting a law to regulate energy storage systems, Draft Laws No. 2496 and No. 2582, registered in the Verkhovna Rada of Ukraine, still need to be discussed and finalized. It is also important to take into account the principles of energy storage system usage in EU countries. In particular, the operation of energy storage systems by the Transmission System Operator (“TSO”) and the Distribution System Operator (“DSO”) in EU countries is allowed only for their own needs. Therefore, the TSO and the DSO cannot be storage systems operators on the electricity market. However, the Draft Law No. 2582 provides the opportunity for the TSO to operate energy storage systems with a capacity of 250 MW in cases when other offers on the market are absent. Such conditions of the Draft Law 2582 reflect an absence of competition on the market and contradict the principles of electricity market functioning.
The adoption of a law on encouraging energy storage systems in 2020 will be the most anticipated for many participants of the electricity market.
2. The Procedure for licensing types of commercial activities, state regulation of which is performed by NEURC
On 20 January 2020, NEURC published on its official website the Draft Resolution of NEURC “On Approval of the Procedure for Licensing Types of Commercial Activities, State Regulation of Which is Performed by NEURC” (“Draft Procedure for licensing”).
The Draft Procedure for licensing has been developed by NEURC in connection with adoption by the Verkhovna Rada of the Law of Ukraine “On Amendments to Some Legislative Acts of Ukraine on Ensuring Constitutional Principles in the Fields of Energy and Utilities” dated 19 December 2019 No. 394-IX (“Law No. 394-IX”), almost all provisions of which became effective on 29 December 2019. The Law No. 394-IX stipulates that the Law of Ukraine “On Licensing Types of Commercial Activity” does not apply to licensing activity in the field of electricity, on the natural gas market and to other activities which are licensed by NEURC (this provision shall become effective after 2 months from the day of publishing the Law No. 394-IX).
The Draft Procedure for licensing defines the procedure for issuance, re-issuance, suspension, cancellation of licenses and other issues related to the licensing of commercial activities, state regulation of which is performed by NEURC.
Individuals and legal entities, and their associations, can provide comments and proposals to the Draft Procedure for licensing until 18 February 2020 (inclusively) in written and/or electronic form.
3. Requirements to prohibit and prevent abuse on wholesale energy markets
On 26 December 2019, NEURC published on its official website the Draft Resolution of NEURC “On Approval of Requirements to Prohibit and Prevent Abuse on Wholesale Energy Markets” (“Draft Requirements”).
According to the provisions of:
– part 2 of art. 1 of the Law of Ukraine “On Ratification of the Protocol Concerning the Accession of Ukraine to the Treaty Establishing the Energy Community” and
– Decision No. 2018/10/MC-EnC of the Ministerial Council of the Energy Community of 29 November 2018,
as a Contracting Party to the Treaty establishing the Energy Community, Ukraine has the obligation to transpose and implement the adapted version of Regulation (EU) No. 1227/2011 of 25 October 2011 on wholesale energy market integrity and transparency (“Regulation”).
Draft Requirements have been developed by NEURC to fulfil Ukraine’s international commitments to transpose Regulation in order to encourage open and fair competition on the wholesale energy market in favor of final consumers of electricity and natural gas.
The Draft Requirements define:
– requirements to prohibit and prevent abuse on energy markets;
– requirements concerning disclosure of insider information;
– requirements concerning registration of energy markets participants;
– requirements concerning handling with confidential information.
Individuals and legal entities, and their associations, can provide comments and proposals to the Draft Requirements until 27 January 2020 (inclusively) in written and/or electronic form.
RES producers should take into account the latest legislative amendments, in particular, during the procedure for establishing feed-in tariff and planning importation of energy equipment for solar and wind power plants into Ukraine, as well as monitor the adoption of new legal acts in the near future.
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.