Latest updates on renewable energy auctions in Ukraine

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Vitaliy Radchenko, Partner and Coordinator of Energy Practice at CMS Cameron McKenna Nabarro Olswang Kyiv office, explains the updated proposed system for provision of state support for renewable energy projects through auctions, which are expected to be performed starting from the next year (According to the draft of the Procedure for holding support quota auctions published on for public discussion on 10 October 2019).

On 25 April 2019, the Ukrainian parliament approved the draft law On Introduction of Certain Changes to Laws of Ukraine regarding Ensuring Competitive Conditions for Generation of Electricity from Alternative Energy Sources No. 8449-д (the “Law”), which calls for the implementation of a quota auction scheme – instead of a green tariff – starting from 2020.

Under this system, the State support will be provided under the quota auction scheme through the guaranteed purchase of all electricity produced by the renewable energy source project within the limits of the quota purchased at auction at the established fixed tariff.

For the purpose of implementation of the this scheme, on 22 August 2019 the Ministry of Energy and Coal Industry of Ukraine has circulated for comments by the stakeholders of the draft of the Procedure for holding support quota auctions (the “Procedure”) and the Resolution of the Cabinet of Ministers of Ukraine ("CMU") that approves it. On 10 October 2019, the Ministry of Energy and Environment Protection (“MEEP”)1 published on its web-site the Procedure for public discussion (which was performed until 4 November 2019).

Below we provide our short summary of the Procedure.

1.      APPROACH TO THE AUCTIONS SETUP

1.1    Adopting of the annual support quotas

1.1.1 The size of the annual support quotas with distribution for separate types of alternative energy for the next five years and schedule of the support quota auctions (the “Auctions”) are adopted by the CMU decisions by 1 December of each year.

1.1.2  The draft of this decision is prepared by the MEEP annually by 31 October based on proposals from the Transmission System Operator (Ukrenergo) and the State Agency on Energy Efficiency and Energy Saving of Ukraine. The deadline for preparing proposals by the Transmission system operator and the State Agency on Energy Efficiency and Energy Saving of Ukraine is 15 September each year.

1.1.3 In addition, the CMU can also propose land plots with technical conditions for grid connection within the annual support quota or additional support quota for certain renewable energy source (“RES“) technologies. The Auctions with land plots will be initiated based on the development plan for transmission system of Ukraine for the next 10 years and priorities for energy efficiency. Prior to holding Auctions with land plots, the following steps should be implemented:

(a)  the MEEP publishes the notice on the website or sends the letter directly to the state agencies or/and local authorities with proposals to allocate land plots for construction of the renewable power projects;

(b)  state agencies or/and local authorities develop land documentation and register the land title in the Property Rights Register;

(c)  state agencies or/and local authorities submit the information regarding land plots for the Auctions to MEEP; and

(d)  the MEEP negotiates technical specifications of the renewable power project and technical conditions for grid connection with the Transmission system Operator (Ukrenergo) and/or Distribution system operators and calculation of the approximate value of grid connection..

1.2    Platform for Auctions

1.2.1 All Auctions will be held within electronic trading system (the “ETS”). All information in the ETS will be in Ukrainian (Auction announcements which will be uploaded into ETS also in English). According to the draft Resolution of the CMU Prozzoro.Sales will be selected as an administrator of the electronic trading system.

1.2.2 The access to the ETS will be provided by the operators of authorised electronic platform (the "Operators"). We understand that they are various websites that provide access to the Prozorro.Sales system. The Operators will be selected according to the Procedure for selecting of operators of authorised electronic platforms for holding Auctions. Among others, the following requirements are established for the Operators:

(a) experience of holding electronic Auctions in the ETS for no less than 1 year with the total amount of the Auction transaction value of no less than UAH 50 million (approximately USD 2 million); and

(b) no less than 5 employees.

1.2.3 The State Enterprise “Guaranteed Buyer" (the “Guaranteed Buyer”) will execute agreement for performance of the Auctions with the Operator on the basis of the template agreement approved by the CMU.

2.       PERFORMANCE OF THE AUCTION

2.1     Preparation of the Auction

2.1.1  The Guaranteed Buyer announces Auction on ETS and on its own web-site.

2.1.2  The Auction must be performed not earlier than within 20 and not later than within 60 days after publishing of the announcement.

2.1.3   The announcement, among others, must contain:

(a)      information on the lot (amount of quota for each RES or just total amount of quota in case of technology neutral Auction);

(b)      details of the Auction (date and time of the Auction, deadline for the submission of applications); and

(c)      conditions for participation in Auction (template of the PPA, maximum price offer of the participant and list of the required documents).

2.1.4   Potential applicants in order to participate in the Auction must register and submit application via the platform of the Operator.

2.1.5   Application, among others, must contain:

(a)      proposed capacity of the project (not higher than the capacity indicated in the interconnection agreement of the respective project that was executed by the applicant prior to the Auction), and

(b)      price offer (for wind and solar - not higher than the respective green tariff for projects commissioned as of the date of the Auction (decreases gradually until 1 January 2025) and for other RES technologies (small hydro, biogas and biomass, geothermal) - not higher than the green tariff for biomass projects commissioned as of 1 January 2020 (EUR 123.86 per MWh)).

2.1.6   One application is submitted by participant in relation to each project.

2.1.7   The following documents shall be submitted in addition to the application:

 (a) irrevocable bank guarantee of the Auction participant (in the amount of EUR 5 per 1 kW for the duration at least of 50 working days after the date of the Auction);

 (b) copy of documents confirming ownership or land usage rights;

 (c) copy of the interconnection agreement; and

 (d) corporate documents (extract from the company registry, documents regarding governing bodies of the applicant and related parties).

2.1.8  Application and submitted documents can be amended by the applicant until the deadline for submission of applications.

2.1.9  The Guaranteed Buyer cannot require any other documents from the participant. The Operator checks whether information submitted by the applicant corresponds with information in the respective company register and may refuse participation in the Auction in case of any discrepancies. No other information is verified by the Operator for the purposes of confidentiality during the Auction.

2.1.10 The Guaranteed Buyer has the right to cancel the Auction until its ending, in case of: (1) termination or amendment of the decision of CMU on approval of support quotas and schedule of Auctions for the respective year; and (2) occurrence of unforeseeable technical or software problems that prevent work of ETS and performance of Auctions.

2.2    Performance of the Auction and Selection of the Winner

2.2.1 The Auction starts automatically in the ETS at the time and date stated in the announcement, if at least two applications have been submitted.

2.2.2 ETS provides 10 minutes for the participants to decrease their price offers after the start of the Auction.

2.2.3 After expiration of the abovementioned 10 minutes, ETS ranks the participants according to the price from the lowest to the highest. In case of the same price, participant which submitted its application earlier wins.

2.2.4 Minutes of the results of the Auction are formed and published on the day of performance of the respective Auction. ETS also discloses all the participants and information submitted by them after expiration of the abovementioned 10 minutes.

2.2.5 The Guaranteed Buyer reviews the minutes of the results of the Auction, applications and the documents submitted by all the participants of the Auction within 10 working days after the date of the Auction. On the basis of this review, the Guaranteed Buyer can disqualify any participant on the following grounds:

       (a) the participant has submitted incomplete or incorrect information or documents;

       (b) application or documents submitted do not comply with the requirements of the Procedure, namely:

        (i) the project has already acquired support through the green tariff or Auctions;

       (ii) the applicant submitted several applications in relation to one project;

       (iii) capacity stated in the application is higher than the actual capacity of the project;

       (iv) price offer of the applicant is higher than the maximum one established in the announcement for the respective Auction; and

       (v) amount and the term of the bank guarantee does not comply with the requirements of the Procedure;

       (c) the participant within one year before the Auction refused to sign minutes on the results of the Auction or to execute PPA with the Guaranteed Buyer;

       (d) the participant has not disclosed information on its beneficiaries;

       (e) the participant is subject to Ukrainian sanctions; and

       (f) the participant itself or together with other participants with which it has the same beneficiaries (controllers) acquired more than 25% of the annual quota.

2.2.6  Upon revision of the Guaranteed Buyer certain participants may be disqualified and as a result, ETS automatically reflects the results of such revision and disqualification, publishing the updated minutes on the results of the Auction. Based on such revision, the winners of the Auction among the remaining participants ranked by the price offer from the lowest to the highest (including those who were not among the winners before the final revision by the Guaranteed Buyer) are established.

2.2.7  Please note that the total amount of the distributed quota cannot exceed 80% of the projects’ capacities proposed by the applicants that were not disqualified.

2.2.8  For example, if the RES technology neutral quota is 100 MW and the capacity of the projects of the applicants that were not disqualified is also 100MW, only 80 MW of quota will be distributed among the applicants ranked according to the price offers from the lowest to the highest. The undistributed amount of quota may be allocated on the next Auctions by the decision of the CMU.

3.      EXECUTION OF THE PPA WITH THE AUCTION WINNER

3.1    The winner of the Auction must within 15 working days after publishing of the new minutes of the results of the Auction sign the respective minutes and execute PPA with the Guaranteed Buyer.

3.2    In order to execute the PPA, the winner of the Auction, among others, must submit the following documents to the Guaranteed Buyer:

3.2.1 documents uploaded in the ETS for participation in the Auction;

3.2.2 irrevocable bank guaranteed of the winner of the Auction (in the amount of EUR 15 per 1 kW for the duration of construction of the Project according to the PPA (2 years for solar and 3 years for wind); and

3.2.3 documents confirming payment of the fee to the Operator (EUR 1 per 1 kW).

3.3   The Guaranteed Buyer may refuse to execute PPA with the winner of the Auction on the same grounds as for disqualification of the participants of the Auction.

3.4   In case the winner refuses to sign the minutes of the results of the Auction or in case of refusal either by the winner or the Guaranteed Buyer (based on grounds set for disqualification of the participants of the Auctions) to execute the PPA, the Guaranteed Buyer prepares and publishes in the ETS the respective announcement, ETS automatically distributes the quota of such winner between the participants with the next price offers, and the winner (who refused to sign the minutes or execute the PPA) loses its bank guarantee. The PPA with the new winners must be executed and published within 29 working days after the Auction.

3.5   In case the capacity of the new winner's project is only partially covered by the distributed quota, the respective new winner on the 30th working day after the Auction receives the status of the conditional winner, and the latter can within the following 5 working days either accept or decline partial coverage by the quota of its project.

3.6   The Guaranteed Buyer during 15 working days after execution of the PPAs with the winners of the Auction but not later than 60 working days after the Auction provides to the MEEPCI report on performance of the Auction and distributed quotas.

 

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1 On 29 August 2019 Ministry of Energy and Environment Protection was created on the basis of MECI and Ministry of Ecology