01-06-2021

The proposed amendments to the Ukrainian auction procedure for RES producers and update regarding the draft law on potential excise tax for RES

Please find below brief update on certain developments in the Ukrainian renewable energy sector.

Draft amendments to the auction procedure for RES producers

The Ministry of Energy of Ukraine on 14 May 2021 published at its website the Draft Resolution of the Cabinet Ministers of Ukraine (the “CMU”) On Introduction of Changes to Certain Resolutions as to Improvement of Competitive Conditions for Incentivizing Production of Electricity from Renewables (the “Draft Resolution”). The text of the Draft Resolution is available in Ukrainian at http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245534726&cat_id=167475. Almost all changes suggested by the Draft Resolution are introduced to Procedure on Running Auctions on Support Quotas Distribution (the “Procedure”) approved by Resolution of the CMU dated 27 December 2019 No. 1175.

In accordance with the explanatory note to the Draft Resolution it was prepared in order to implement Memorandum of understanding on resolution of problematic issues in renewables sector (MoU) between the Ukrainian state authorities and RES producers and investors producers dated 10 June 2020 which was at least partially introduced by Law No. 810-IX dated 21 July 2020 (Law No. 810) reforming the support of renewables in Ukraine. The Ministry informed that market players has one month to send their comments regarding the Draft Resolution.

Amongst the key changes to be implemented by the Draft Resolution are the following:

1. The Draft Resolution specifies that not only projects with “green” tariff or awarded auction tariff but also any other support and/or compensation in accordance with Article 62 of Law of Ukraine On Electricity Market (the Article covers special obligations in the electricity market, such as “last resort” supplier, services on securing development of generation facilities, etc.).

2. The Draft Resolution introduces the additional classification of auctions types:

2.1. an auction with buildings – an auction at which for construction of power plants are offered only roofs and facades of buildings and other capital constructions with determined technical parameters and technical conditions for grid connection (the current rules envisage the possibility of auctions with lands only);

2.2. an auction for other alternative energy sources – an auction for distribution of support quota of other alternative energy sources (other than wind, solar, small hydro, blast furnace gas and coke oven gas);

2.3. a closed auction – an auction in which from the moment of the module activation and until the end of the auction, the electronic trade system does not reflect (publish) any information submitted by the participants in their applications or attached documents, as well as price proposals, which has been changed during time allocated for renewal of the price proposals (the Draft Resolution specifies the procedure for such an auction);

2.4. an open auction – an auction in which from the moment of the module activation and until the end of the auction, the electronic trade system reflect (publish) the lowest price proposal amongst price proposals submitted by all participants (the Draft Resolution specifies the procedure for such an auction).

3. The CMU is authorized to establish an additional annual support quota on the top of the annual support quota in its resolution on carrying out auctions for the respective year.

4. Lots for auctions with lands are formed for each land plot (land plots if necessary for operation of the respective power plants) and lots for auctions with buildings are formed separately for each construction or several constructions, if necessary for operation of the power plant.

5. Ministry of Energy shall prepare the schedule of auctions for the following year (currently, the CMU establishes based on the former version of the primary law).

6. The draft CMU decision on establishing annual quotas (under the former primary legislation annual quotas were established for 5 years and now under Law No. 810 only for 1 year and indicative figures for the following 4 years), to be prepared by the Ministry of Energy, will contain the following additional information:

6.1. the share of quota for an auction for other alternative energy sources;

6.2. determination within one lot regions for construction of power plants (if necessary);

6.3. determination of the maximal amount of capacity of the power plant or its stage (launching complex) which are eligible to the support via quota distribution;

6.4. proposals as to roofs and/or facades of buildings and other capital constructions for construction of rooftop solar power plants with determined technical parameters and technical conditions for connection to the power grid (if necessary);

6.5. type of each auction (closed or open).

7. The procedure for auctions with lands would also cover auctions with buildings. The roof owners (either state or privately owned) would propose their roofs for solar projects. It is specified that owners of land/roofs are responsible for obtaining town planning documentation and environmental impact assessment (if necessary) in case of the discussed auctions.  The Draft Resolution also specifies documents and information to be provided by the roof owners to propose their roofs for solar projects, in particular information about their location and expected lease payments.

8. In case of auctions with lands PrJSC “Ukrenergo” would be also responsible to provide feasibility study for connection or design documentation on the grid connection scheme for projects over 20 MW.

9. The Draft Resolution allows developers of roof top solar projects to participate in the auctions and specify that instead of land title documents they shall provide roof title documents to participate in the auctions.

10. The Draft Resolution specifies that 25% of the aggregate amount of annual and additional annual quota may be distributed to the companies controlled by one ultimate beneficial owner (currently, only annual quota was used for this calculation).

11. Certain additional rules are suggested for termination of the banks’ obligations bank guarantees to cover obligations of the auction applicants, in particular, such obligations are terminated if:

11.1. if the participant withdraws its application before the deadline for its submission;

11.2. cancellation of the auction by the guaranteed buyer;

11.3. if the auction is determined as one which has not occurred.

12. The Draft Resolution also specifies that act on completion of services related to grid connection shall be provided to prove that the respective power plant has been completed and started production within the deadline for its construction. Otherwise, there could be negative consequences, such as:

12.1. the bank guarantee covering obligations of the producer to construct the power plant would not be returned and may be enforced; and

12.2. the PPA executed as a result of the auction shall be terminated.

13. The bank guarantees for more than EUR 250 000 shall be issued by banks with a long term credit ranking not less than “uаA” at the national scale and if the amount is less by the banks which are listed by the National Bank of Ukraine amongst system important banks.

It is still unclear when the CMU adopts the annual quotas for RES auctions. Mr. Andrey Gerus, the chairperson of the parliamentary committee on energy and utilities matters stated during his meeting with the European Business Association, stated that the first pilot auction should take place yet this year as reported by the Internet media, and he will talk with the ministry of energy in this regard. He noted that it could be 5-10 MW auction and not 365 MW as the Ministry of Energy suggested in the end of 2020 (was not approved by the CMU).

Please note that in accordance with the Ministry’s position presented on 3 December 2020 365 MW should be the total amount of capacity distributed via renewables auctions in 2021 with the following breakdown for various RES technologies:

1. Solar power plants (SPPs) – 155 MW;

2. Wind power plants (WPPs) – 150 MW;

3. All other eligible RES power plants (biomass, biogas, small hydro power plants etc.) – 60 MW.

Update regarding the draft law on potential excise tax for RES producers

As informed earlier, 22 April 2021 it became known that the office of the Ukrainian President and Ministry of Finance of Ukraine consider the excise duty which apply to all RES producers and will require them to pay from 3.2% up to 40% of the electricity value. In addition, to FIT cuts, curtailments, past and current debts, and expedited introduction of imbalances liability, the investors might face another mechanism depriving them of income.

On 12 May 2021 the CMU apparently approved the Draft Law On Introduction of Changes to Tax Code of Ukraine and Certain Legislative Acts as to Securing Balanced Budget Revenues (the “Draft Law”), which, inter alia, suggest 3.2% excise tax for electricity produced from renewable energy sources, to be submitted to the parliament. As of 25 May 2021, the Draft Law has not yet been submitted to the parliament based on its website. Please note that the Draft Law encountered huge disagreement amongst various industries it could affect. Thus, it appears that the chances for its passing not high given low support amongst the business and potential difficulty to find enough supporters in the Ukrainian parliament.

We cannot exclude that the discussed legislative changes and developments in the RES market will be considered adverse to investors to such extent so even more investors will be forced to initiate individual or collective (mass) claims via investment arbitration. Our firm held webinars on collective claims in arbitration and consider holding them to discuss the above mentioned and other developments as well as queries raised by interested investors. If you want to register for future webinars, please contact our PR Specialist Myroslava Tretiak via e-mail myroslava.treitiak@dentons.com.

Before
01-06-2021

Зміни у процедурі проведення “зелених” аукціонів та оновлена інформація щодо законопроєкту про акцизний податок на ВДЕ