What will happen to solar projects which have obtained prePPA and are not commissioned by 31 October 2020?

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On 10 June 2020 the representatives of the European-Ukrainian Energy Agency (EUEA) and the Ukrainian Wind Energy Association (UWEA) executed the "Memorandum of Understanding on the Settlement of Problematic Issues in the Renewable Energy Sector" (hereinafter - the "Memorandum"). To implement it, the parliament should amend five laws of Ukraine. In pursuance of the main part of the Memorandum, on 21 July 2020 the Parliament of Ukraine adopted the draft law No.3658 "On Amendments to Certain Laws of Ukraine as to Enhanced Support for the Electricity Production from Alternative Energy Sources" (hereinafter - the "Draft Law") and on 31 July 2020 the Draft Law was returned with the signature of the President. The Draft Law has been enacted since 1 August 2020.

According to the Memorandum, the RES producers voluntarily agree to change the regime of support for renewable energy in Ukraine, and the Cabinet of Ministers of Ukraine, the Ministry of Energy and Environmental Protection of Ukraine (or its successor), the National Commission for State Regulation of Energy and Public Utilities (NEURC) and other state bodies of Ukraine undertake to propose and support the amendments to the laws necessary for the implementation of the arrangements by 1 August 2020, not to change the conditions of support for electricity producers with a "green" tariff, to introduce quotas to support "green" and ensure auctions from their distribution. In addition, the Memorandum states that one month after the changes come into force, the parties promise to restore full and timely payment for electricity with RES producers, repay debts by 2021 and avoid debts in the future.

To the great extent, the Draft Law follows the provisions of the Memorandum, with certain exceptions. According to the Draft Law, the RES producers are facing the cut off date for new solar power facilities (SPP) with the installed capacity of more than 1 MW at a "green" tariff until 31 October 2020 inclusively. For projects commissioned between 1 January 2020 and 31 October 2020 the tariff cut will be 2,5%. For solar power plants commissioned from 1 November 2020 to 30 March 2021 (capacity 1 MW - 75 MW) it is expected to reduce the "green" tariff by 30% and for project above 75MW the tariff will be reduced by 60%. Starting from 1 April 2021 all solar projects above 1 MW will be entitled for the 60% reduced tariff A significant number of risks for the commissioning of new SPP, which are currently under construction (in particular, in terms of financing the construction of such facilities) appears.

For the SPP with the installed capacity less than 1 MW, commissioned from 1 July 2015 to 31 December 2019, the "green" tariff will be reduced by 7.5%, and for SPP commissioned from 1 January 2020 (installed capacity up to 1 MW) - reduction of the "green" tariff by 2.5% and they can be commissioned after 31 October 2020.

According to the NEURC, at the end of April this year, the total installed capacity of SPP in Ukraine was 5.6 GW, wind - 1.2 GW. At the beginning of 2020, solar generation in Ukraine operated with a total capacity of 5,614 MW, while the National Renewable Energy Action Plan for 2020 provided for the commissioning of 2,3 MW, ie the National Plan was exceeded by 150%. This is stated in the report of the Ministry of Energy on the implementation of the decisions of the Anti-Crisis Energy Response Team. It is quite difficult to calculate the number of SPPs that are planned to be constructed and will be launched by 31 October 2020. SPPs are constructed much faster than wind power plants.

At the moment, we can predict a small reactivation on the market, as projects that are at the final stage of construction will intent to be commissioned as soon as possible.

Which scenarios can such projects expect?

1. Auctions

Andriy Konechenkov, the Chairman of the Board of the Ukrainian Wind Energy Association, has predicted that there would be no suspension of "solar" projects due to the termination of their "green" tariffs, as all "will go to "green" auctions."

The exact timing for auctions launchings is unknown. The pilot project of "green" auctions in Ukraine was to be launched in 2019. The first "green auctions" of electricity were scheduled for April 2020. Due to the situation in the sector, lawmakers may hurry and act in the spirit of the Memorandum. The Memorandum supports the speedy and most reliable implementation of the process of conducting auctions for the distribution of quotas to support production of electricity from RES. In particular, the Memorandum states that the state authorities of Ukraine will determine and approve annual support quotas within two months from the date of entry into force of amendments to the legislation, as well as ensure auctions for the distribution of support quotas by the end of 2020.

As noted by the acting Minister of Energy Olga Buslavets, the first task they have to fulfill is to approve quotas for various technologies. These quotas will be determined after the amendments to the laws are adopted. Two months after the amendments come into force, they are expected to be adopted.

2. Trade in electricity markets

Another option is to complete the projects and, in the absence of auctions or no quotas, to sell on the bilateral market and the day-ahead market and the intraday market.

 As for the risks that arise in this case, it is the risk of obtaining markets and the selling price of electricity, which may be significantly lower than the "green" tariff.

A private power purchase agreement for the purchase and sale of electricity produced from alternative energy sources, which is quite popular abroad, is not used in Ukraine. This means that companies enter into agreement for the purchase and sale of electricity where one party supplies electricity on a regular basis and the other buys it. This is especially popular among large corporations, which for their marketing purposes produce their products using electricity produced from RES.

3. Re-profiling of the project

If the project has just initiated its implementation, then there is an option to repurpose the project and initiate the implementation of a new project. The expediency of such re-profiling depends on the stage of project implementation and the availability of other business ideas.

More specifically, it is possible to reassign from solar to wind project. For doing this the installation of masts for wind research in a particular area is needed. If such a wind project is economically feasible, then this option should be considered.

Therefore, solar projects must hurry to get a "green" tariff. Otherwise, solar projects will have to face numerous risks.