Certain Legal aspects of implementation of Bioenergy projects in Ukraine

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Bioenergy is part of energy sector that is based on the use of biofuel. For Ukraine bioenergy is one of the strategic areas for development of renewables given its high dependency on the imported energy resources, mainly of natural gas, and the high potential of biomass and biogas available for energy production in Ukraine. In comparison to wind and solar energy, bioenergy does not depend on weather conditions and does not require additional input to balance its capacities, which is an unconditional advantage for stimulating its development in Ukraine.

Although bioenergy development rate in Ukraine lags far behind Europe, over the past 5 years the installed bioenergy capacities in Ukraine has grown more than three times (from 49 MW in 2014 to 170 MW at the end of 2019). Bioenergy projects capacities are expected to grow by approximately 11% in 2020.

In this article we would like to discuss certain legal considerations of bioenergy projects implementation in Ukraine.

1. 1.   Regulatory framework for BIOENERGY Support IN UKRAINE

The Law of Ukraine on Renewable Energy Sources No. 555-IV dated 20 February 2003 (the “RES Law”) establishes support mechanisms for generation and consumption of energy produced from renewable energy sources, in particular, for bioenergy projects that generate electricity from biomass and biogas (the “BPPs”).

In accordance with the RES Law, biomass is deemed to be non-fossil biologically renewable organic substance, that is capable of biological decomposition, in the form of products, waste and left-overs of forestry and agriculture (crop farming and cattle breeding), fishing industry and related industries, as well as a part of industrial or household waste capable of biological decomposition.

Further, the RES Law establishes that biogas may be: (1) produced from biomass as a result of biological decomposition; (2) obtained by forced gasification of biomass; or (3) obtained from waste storages facilities from biomass which is part of industrial or household waste.

The RES Law provides for the following key mechanisms for BPP support: (1) green tariff; (2) purchase of the entire volume of electricity dispatched by the BPP at an auction price; and (3) local content premium to the green tariff or an auction price.

1.1 Green tariff

The green tariff is set by the National Commission for State Regulation of Energy and Utilities (the “Regulator”) until 1 January 2030 for electricity generated by the BPP. In accordance with the RES Law, Ukraine guarantees for the entire term of application of the green tariff that electricity produced by the BPPs that have been granted the green tariff will be purchased in each settlement period at such green tariff.

The green tariff is set after the BPP has been commissioned in parallel or after the BPP has obtained the electricity generation licence.

The green tariff for the BPP is approximately 12.39 eurocents for 1 kW per hour and is paid in UAH equivalent calculated by the Regulator for each quarter during a year.

On 25 April 2019 the Law of Ukraine On Amendments to Certain Laws of Ukraine regarding Securing of Competitive Conditions for the Production of Electricity from Renewable Energy Sources No. 2712-VIII (the “Auctions Law”) was adopted, which significantly limited the application of the green tariff for wind and solar energy, and reduced the green tariff rates for the relevant power facilities that will be commissioned into operation starting from 1 January 2020. However, as far as the BPPs are concerned, not only did the Auctions Law preserved their eligibility for support under the green tariff unchanged but also cancelled the reduction of the green tariff for such projects that was supposed to take effect from 1 January 2020 while preserving it at the same level until 2030.

1.2 Purchase of the entire volume of electricity dispatched by the BPP at the Auction price

The Auctions Law provides for the introduction of an auction scheme for the distribution of state support for the development of renewable energy (the “Auctions”). In this case, the support is granted in the form of the guaranteed purchase of the entire volume of electricity dispatched by a renewable energy project at an auction price within a quota obtained by such project through an auction.

The participation of BPPs in the Auctions is voluntary. Currently, there are no noticeable benefits from the participation in the Auctions as compared to the green tariff scheme, however, this may change in the future.

For the purpose of introduction of the Auctions the Cabinet of Ministers of Ukraine (the “CMU”) approved Resolution of the CMU dated 27 December 2019 No. 1175 (the “Auctions Procedure”) in which procedure for their performance was established.

The level of annual quotas for each of the following five years and the schedule of the quota distribution auctions are adopted by CMU resolutions before 1 December each year. The Auctions must be held twice a year before 1 April and before 1 October.

The annual support quota is distributed according to the renewable energy sources. A share of the annual support quota for renewable energy projects that does not belong to wind or solar generation (as, for example, BPPs) must not bel less than 15% of the total annual quota. In addition, technology neutral support quotas may be envisaged, which may be obtained by any renewable energy projects.

It is worth noting that the first Auction was supposed to be held before 1 April 2020. However, at the time of writing of this article, the CMU has not approved the level of the quotas and the auction schedule for 2020.

1.3 Local content premium

BPPs that will be commissioned into operation before 31 December 2024 may, in addition to the green tariff or the auction price, obtain a local content premium for compliance with the level of use of equipment manufactured in Ukraine (the “Local Content Premium”).

The Local Content Premium is provided in the form of an additional payment to the green tariff or the auction price and may amount to (See Table 1):

Table 1

Local Content Premium to the green tariff/auction price (%)

Level of use of equipment manufactured in Ukraine (%)

5

30% and more but less than 50%

10

50% and more

The level of use of equipment manufactured in Ukraine is determined as the total of coefficients of equipment elements. For BPPs such coefficients are as follows (See Table 2):

Table 2

Equipment elements

Coefficient (%)

Boiler

25

Turbine generator

25

Network pumps/water boilers

10

Fuel feeding system (conveyors for continuous feeding of fuel)

10

Gas filtering or purification equipment

15

Water treatment system

5

Steam coolers/condensers

5

Household waste water, rain water and industrial water treatment stations; screw-type sludge dehydrators and similar equipment 

5

Ukrainian origin of the equipment elements is proved with certificates of Ukrainian origin and conclusions on the origin of goods issued by Chambers of Commerce and Industry.

2. Permitting documentation

The main permitting documentation required for the BPP operation includes the following:

2.1 Electricity Generation Licence

An electricity generation licence (the “Licence”) is mandatory for all electricity producers with installed capacity of power generating equipment exceeding 5 MW and electricity producers intending to sell the electricity generated from renewable energy sources to LLC “Guaranteed Buyer” under green tariff irrespective of the installed capacity of power generation facilities.

Hence, in most cases the operation of a BPP requires the Licence.

The procedure for obtaining the Licence and the licence terms to be complied with by the licensee while carrying out the licenced activity are established by the Regulator’s Resolution No. 1467 dated 27 December 2017.

According to the aforementioned resolution, the applicant must, among other things, submit the following to obtain the License:

  1. copies of documents confirming that the applicant has, by the right of ownership, economic management, use, lease or on the basis of a concession agreement, the means of conducting business in the place of business;
  2. copies of the pages of the technical passports for the power generating equipment that confirm the installed capacity of the declared power generating equipment; and
  3. schemes of connection of the licence applicant’s power generation facilities to the power grid with marked electricity metering devices.

2.2 Environmental Impact Assessment

The BPP activities may require the environmental impact assessment (the “EIA”) to be carried out in accordance with the Law of Ukraine On Environmental Impact Assessment, No. 2059-VIII dated 23 May 2017.

Depending on the BPP characteristics and the features of the relevant project, the EIA can be required due to, among other things, the following:

  1. the BPP generates electricity, steam and hot water with the thermal capacity of 50 megawatts or more with the use of organic fuel;
  2. the BPP activities include operations in the field of hazardous waste management (storage, treatment, processing, disposal, removal, neutralisation and burial) or operations in the field of household and other waste management (treatment, processing, disposal, removal, neutralisation and burial) in the volumes of 100 tonnes per day or more;
  3. the BPP activities include disposal, removal, treatment, neutralisation and burial of household waste; or
  4. the BPP project involves the construction of 110+ kV transmission lines (overhead and cable) or 330+ kV substations.

In the above cases the BPP construction or connection to the grid will be impossible without the EIA.

The EIA has the following stages:

  1. BPP’s submission to the Ministry of Energy and Environment Protection or the relevant regional state administration (the “Competent Authority”) of a notice of the planned activities to be covered by the EIA;
  2. BPP’s obtaining from the Competent Authority of the conditions regarding the scope of research and the level of detail of the information, and development of the EIA report on that basis;
  3. public discussion of the EIA report held by the Competent Authority and preparation of a public discussion report; and
  4. issuance by the Competent Authority, on the basis of the EIA report and the public discussion report, of the EIA conclusion, whereby the Competent Authority determines whether it is acceptable or substantiates why it is unacceptable to carry out the planned activity and determines the environmental conditions of carrying out such activity.

2.3 Air Pollution Permit

Among other things, the BPP will also need to obtain an air pollutant emissions permit (the “Air Pollution Permit”).

The Air Pollution Permit allows operating the facilities that emit pollutants or their mixtures into the atmosphere, provided that the relevant emission limit values and technological requirements are met in terms of limiting the pollutant emissions for a period of time specified in the permit.

According to CMU Resolution No. 302 dated 13 March 2002, to obtain the Air Pollution Permit, the BPP needs to:

  1. make an application;
  2. prepare documents substantiating the volumes of emissions;
  3. carry out an inventory of stationary sources of emissions into the atmosphere, types and volumes of emissions into the atmosphere by stationary sources, dust and gas cleaning equipment;
  4. assess the impact of pollutant emissions on the atmosphere at the boundary of the BPP sanitary protection zone;
  5. develop action plans for: (1) meeting the established emission limit values for the most common and dangerous pollutants; (2) the protection of atmospheric air in case of emergencies of anthropogenic and natural character; (3) the elimination of the causes and effects of air pollution; (4) the permanent cessation of activities related to the emission of pollutants into the atmosphere, and bringing the place of business to the satisfactory condition; (5) preventing the exceedance of established emission limit values in the production process; (6) monitoring the compliance with the established emission limit values for pollutants and the Air Pollution Permit conditions;
  6. substantiate the size of normative sanitary protection zones; and
  7. estimate and analyse the costs related to the implementation of the planned measures aimed at the air pollution prevention.

The Air Pollution Permit is issued by the Ministry of Energy and Environment Protection or the relevant regional state administration for 7 or 10 years or with unlimited duration, depending on the group emission source.

It should be noted that, unlike the European practice, Ukrainian BPPs are not exempt from the tax on pollutant emissions into the atmosphere by stationary sources of pollution.

2.4 Permits for performance of hazardous works and operation of hazardous machines, mechanisms and equipment

Operation and maintenance of the BPP may require performance of hazardous works or operation of certain hazardous equipment, machines and mechanisms (“Equipment”). Such works and Equipment are listed in CMU Resolution No. 1107 dated 26 October 2011: 

2.4.1 Permit for hazardous works and operation of hazardous Equipment

The hazardous work permit is, in particular, required in the case of production (manufacture), use, processing, storage, transportation, application, disposal and neutralisation of explosive and hazardous substances of class 1 and 2, combustible liquids where their mass is equal to or exceeds the threshold masses normative standards determined by CMU Resolution No. 956 dated 11 July 2002. In addition, the Equipment designed to perform such work is operated on the basis of the permit.

The permit is obtained from the territorial bodies of the State Labour Service or the administrator of the administrative services centre on the basis of the application and the expert examination conclusion as regards the state of occupational health and safety at the business entity during the performance of hazardous works (for the performance of hazardous works), or the expert examination conclusion as regards the state of occupational health and safety at the business entity during the operation of hazardous Equipment (for the operation of hazardous Equipment). Documents are accepted in paper or electronic form.

2.4.2 Declaration of compliance of the material and technical base with the requirements of the labour protection legislation

To perform certain hazardous works, submission of the declaration of compliance of the material and technical base with the requirements of the labour protection legislation is required (the “Declaration”). Such works include: (1) works performed at a height of more than 1.3 meters; (2) works in wells, holes, trenches, foundation pits, bunkers, chambers, collectors, enclosed space (tanks, boxes, fireboxes, pipelines); (3) inspection, repair and cleaning of chimneys, air ducts; (4) works in operational electrical installations with voltage exceeding 1,000 V and in high frequency current zones; and (5) installation, removal, commissioning, repair, maintenance, reconstruction of hazardous Equipment.

The Declaration also is submitted in the event of operating the following hazardous equipment: (1) gas-consuming equipment with capacity exceeding 0.1 MW; (2) equipment with voltage exceeding 1,000 V (electric equipment for power stations and grid, technological electric equipment); (3) steam and hot water boilers with thermal output exceeding 0,1 MW; (4) steam and hot water pipelines with working pressure exceeding 0.05 MPa and heating temperature over 110°C, vessels operating at pressures greater than 0.05 MPa.

The declaration must be submitted not less than five business days before the commencement of the hazardous works or operation of the hazardous Equipment, to the territorial body of the State Labour Service or the administrator of the administrative services centre in the paper or electronic form.

2.5 Waste management permitting documentation

As stated in the RES Law, biogas can be generated with the use of industrial or household waste. If such waste is used, the BPP is required, depending on the volume of waste generated, to submit a waste declaration or to obtain a permit to conduct operations in the field of waste management in accordance with the Law of Ukraine On Waste, No. 187/98-BP dated 5 March 1998.

The waste declaration is submitted once a year in paper and electronic forms as the same time, to the administrative services centre, which will forward it to the regional state administration body.

It should be noted that waste management permits are not currently issued as there is no approved procedures. At the same time, companies operating in the field of waste management are operating under the “silent consent” principle. Following this principle, a business entity acquires the right to carry out certain acts actions in connection with its economic activity or activities without obtaining a relevant permit, provided that the business entity or its authorized person has duly submitted the application and documents in full, but no permit or decision refusing the permit was issued or sent within the time limit prescribed by law. Therefore, business entities submit, through the administrative services centres, to the permit authorities their applications for the permit to conduct operations in the field of waste management, and if no such permit is issued, they conduct their business under the principle of silent consent.

3. Certain other peculiarities of implementation of bioenergy projects in Ukraine

It is worth noting that the following must be also considered during implementation of bioenergy projects:

Restrictions on use of land plot. Starting form 1 January 2019, BPPs (as well as other renewable projects) can be performed on all lands of industry, transportation, communication, energy and defence, irrespective of land designation of such land plots. At the same time, possible restrictions that may be established in relation to usage of such land plots (protection zones, sanitary protection zones, water protection limitations and etc.) must be taken into account. Other requirements of land legislation, such as in relation to protection of the top soil layer and recultivation of damaged lands must be also taken into consideration.

Sanitary protection zones. Depending on the technical characteristics of a BPP, sanitary protection zones (“SPZ”) may be established around it. For example, according to the Resolution of the CMU No. 555 dated 27 July 1995, BPPs that are using daily up to 100 tonnes of bird farms waste must have SPZ of 300 meters around them.

State construction standards. During designing of a BPP it is necessary to comply with the state construction standards. For example, State Construction Standard DBN B.2.2-12:2019 “Planning and development of the territories and rural areas” establish requirements for planning and development of settlements and rural areas.

Consequence classes. Complexity of BPPs form the engineering point of view may result from usage of substances and waste that may be considered as hazardous for health and life of the population and from possible damages arising in case of failure of the equipment. Furthermore, due to the necessity to perform in certain cases EIA, BPPs are classified as having CC2 and CC3 consequence classes. In this case projects designs of BPPs are subject to expert examination.

High threat facility. Certain BPPs may be considered or may include high threat facilities. This may arise due to the usage on BPP (production, processing, storage or transportation) of one or several hazardous substances or categories of substances in the amount that exceeds thresholds established in the regulatory framework. For example, certain flammable gasses that are produced during activities of a BPP may considered as such. In case of classification of a BPP as a high threat facility, it is necessary to submit declaration of safety and perform its expert examination.

 

Volodymyr Kolvakh, Senior Associate at CMS
Anatoliy Doludenko,
Associate at CMS