Legislative Acts for “Green” Auctions in Ukraine Are Officially Published

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Please be informed that official text of Resolution of Cabinet of Ministers of Ukraine (the “CMU”) On Implementation of Competitive Conditions for Stimulation of Production of Electricity from Renewable Energy Sources dated 27 December 2019 No.1175 (the “CMU Resolution”) became available in Ukrainian at https://www.kmu.gov.ua/npas/pro-zaprovadzhennya-konkurentnih-umov-stimulyuvannya-virobnictva-elektrichnoyi-energiyi-z-alternativnih-dzherel-energiyi-i271219-1175.

 

Please note that the annual quotas for the auctions are not yet available and will keep you posted in respect of their adoption.

 

The CMU Resolution approves the following legislative acts:

  • Procedure on carrying out auctions to distribute quotas of support (the “Procedure”);
  • Procedure on selection of operators of electronic platforms for carrying out auctions to distribute quotas of support.

 

The CMU Resolution determines STATE ENTERPRISE PROZORRO.SALE responsible for operation of an electronic trade platform – the administrator of an electronic trade system.

 

The main document for producers of electricity from renewables (the “RES Producers”) is the Procedure that contains the following main chapters and key provisions as discussed below.

 

The main chapters and provisions of the Procedure are as follows:

1.     Formation of annual quotas for the auctions

1.1.   PJSC “NPC UKRENERGO” and State Agency on Energy Efficiency and Energy Saving of Ukraine shall submit annually by 15 September to the Ministry propositions as to the amount of annual quotas of support for renewables for the following 5 years with a breakdown by types of renewables (in the earlier version there was a breakdown by years too). Propositions shall take account of international obligations of Ukraine, Energy Strategy of Ukraine, report on evaluation of compliance (sufficiency) of generating facilities and plant of the development of the transmission system, stage of realization of construction projects of renewable energy objects, status of RES objects implementation.

1.2.   At the Ministry’s request, PJSC “NPC UKRENERGO” shall within 30 business days propose specific areas in the Ukrainian power system having priority for construction the RES power plants as well as necessary capacity and other technical parameters of such RES power plants. Based on such propositions the Ministry will interact with competent state and local self-governing authorities to allocate the land plots for the purpose of the respective auctions (so called “auctions with land plots”), obtain from such authorities a copy of resolutions, inter alia, containing information about the land plots and determining  conditions of its provision to an auction winner, and agree with PrJSC “NPC UKRENERGO” technical parameters of the RES objects to be located in each specific land plot, obtain from PrJSC “NPC UKRENERGO” or distribution system operator the draft grid connection agreement and technical specifications (shall be provided within 30 business days after the Ministry’s request), which inter alia shall contain forecast capacity and approximate calculation of the grid connection fees. The forecast capacity is reserved for 2 years by the relevant operator. As a result of this procedure, the respective land plots with determined technical parameters and technical conditions are proposed for the auction with land plots.

1.3.   The Ministry shall determine the amount and parameters of quotas and submit the draft resolution for their establishment for the following 5 years to the CMU annually by 31 October. The draft resolution shall establish:

1.3.1. amount of annual quotas with a breakdown by types of renewables or without such breakdown (technically neutral auctions);

1.3.2. if necessary, amount of undistributed quotas during previous auctions;

1.3.3. if necessary, additional quotas for auctions, in particular for auctions with land plots and proposal of land plots for construction with determined technical parameters;

1.3.4. if necessary, proposals of land plots for construction of RES objects with determined technical parameters and technical conditions for connection;

1.3.5. schedule of auctions with detailed information about them;

1.3.6. if necessary, other information on organization and administration of the auctions.

1.4.   CMU’s resolution as to the establishment of annual quotas shall be published at the official web-sties of the CMU and the guaranteed buyer within 5 business days after its adoption.

2.     Functioning of the electronic trading system

2.1.   Basically, the chapter determines main principles for the electronic trading system establishment, its maintenance and use by the guaranteed buyer and auction participants or business entities planning to participate in the auctions, in particular, the use of a personal account (cabinet) of such business entities/participants/guaranteed buyers.

3.     Preparation for an auction

3.1.   The guaranteed buyer shall publish the announcement on the auction in the electronic trading system and its website about an auction. The announced auction shall take place not earlier than 30 days and not later than 60 days after publication of the announcement.

3.2.   The announcement shall contain certain information, inter alia,

3.2.1. information about the lot indicating the share of the annual support and type of alternative energy unless technologically neutral auctions are announced;

3.2.2. in case of the auction with land plots the announcement shall contain information about land (its location, cadaster number etc.), draft grid connection agreement with technical conditions, technical parameters of the RES object and allowed range of capacity;

3.2.3. information about an auction (date, place, deadline for submissions, etc.)

3.2.4. standard form of the PPA;

3.2.5. ceiling prices for the auctions as per the Alternative Energy Law;

3.2.6. list of documents for the auction and requirements to them;

3.2.7. contact details of the guaranteed buyer and other relevant information.

3.3.   Participants in the auction shall register at the website of the electronic platform and submit an application with  closed proposals (separate proposal for each power plant or relevant part thereof) containing information about the capacity of the power plant (in kW) or the part thereof and price proposal (in eurocents per 1 kWh) which shall not exceed the rate of “green” tariff applicable to electricity produced from solar and wind as of the date of the auction for wind and solar projects, and the rate of “green” tariff for electricity from biomass as of 1 January 2020 for all other RES projects.

3.4.   The application of the auction participant shall be accompanied by the following documents (in Ukrainian or official translation):

3.4.1. bank guarantee for participation in the auction provided in favor of the guaranteed buyer;

3.4.2. copies of documents confirming ownership rights and rights to use the land or copy of the superficies agreement, and excerpt from the State Registry on Ownership Rights over Immovable Assets confirming the registration of such rights (not provided in the case of the auctions with land plots);

3.4.3. copy of the grid connection agreement (not provided in the case of the auctions with the land plots);

3.4.4. excerpt from the Unified State Registry of Legal Entities, Private Entrepreneurs and Civic Formations;

3.4.5. copies of documents providing information about managing bodies of the participant and its composition (charter, minutes, orders, etc.);

3.4.6. information about persons connected with the participation by control relations;

3.4.7. in case of technically neutral auctions, certificate on a type of renewable energy source in respect of which the participant plans to obtain state support.  

3.5.   The guaranteed buyer may terminate the auction before its completion in case of cancellation or amendment in the CMU resolution on establishment of annual quotas and schedule of auctions for the respective year or unforeseeable technical or software breakdowns which render impossible to carry out the auction. After termination of the auction, the guaranteed buyer shall publish a new announcement on auctions.

4.     Administration of an auction

4.1.   Auctions shall be carried out in the electronic trading system in the interactive online regime and only participants which submitted closed proposals may participate (shall be not less than two applications; otherwise the system will not activate the relevant module and the auction will not take place).

4.2.    After activation of the module, each auction participant will have 15 minutes to get familiar with information about the auctions and then the system automatically announces the beginning of the auction.

4.3.   Each participant will have 15 minutes from the moment of the auctions beginning to renew its proposal and reduce the suggested price as to each RES object.

5.     Determination of an auction winner

5.1.   The only criteria to determine the auction winner is the proposed price (including, a renewed price).

5.2.   The electronic system ranges participants based on the price (if the price proposal is the same, the priority is given to the price proposal submitted (renewed) earlier).

5.3.   The protocol on the results of the auction is formed automatically and published in the electronic form by the electronic trading system and cover names of participants, their range based on the suggested prices and information about RES objects.

5.4.   The guaranteed buyer will have 10 business days after the date of the publication of the protocol on results of the auction to check documents submitted for the auction by all participants of the auction and if there are available grounds to reject signing the protocol, the guaranteed buyer executes and publishes acts in respect of each disqualified participant and general act regarding the auction at large. The grounds for rejections are as follows: (i) a participant submitted incomplete package of documents or information, (ii) a participant submitted false information in provided documents and information or its content is not line with the Procedure and laws (the Procedure contains non-exhaustive list of such incompliances), (iii)  information about ultimate beneficial owners have not been disclosed, and (iv)  a participant together with related persons have obtained more than 25% of the annual quota. This provision on post-auction disqualification of participants is probably the most problematic in the entire Procedure because creates risks of abuse on the side of the guaranteed buyer and uncertainty regarding the results of the auctions. The current market players would probably prefer the qualification of participants before the auction starts. 

5.5.   Based on the general act regarding the auction executed by the guaranteed buyer the electronic trading system forms a new protocol ranging remaining participants and protocols determining winners (based on the same principles as discussed above). However, the winners may not obtain more than 80% of the total auctioned capacity proposed by all qualified participants during the auction.

5.6.   The guaranteed buyer signs the protocol on the results of the auction within 2 business days after its automatic publication by the system.

6.     Execution and publication of the power purchase agreement (the PPA) in the trading system

6.1.   The auction winner shall sign the protocol on the results of the auction and enter into the PPA with the guaranteed buyer within 15 business days from the date of the new protocol formation by the system.

6.2.   In order to sign the PPA the auction winner shall provide the following documents within 10 business days from the date of the new protocol formation by the system:

6.2.1. certified copies of documents submitted in the electronic trading system;

6.2.2. certified copy of the charter;

6.2.3. certified copy of documents confirming powers of its signatory;

6.2.4. specimen of the person signing the PPA;

6.2.5. bank guarantee of the winner in favour of the guaranteed buyer;

6.2.6. copies of the document confirming payment of the reward to the operator of the electronic platform;

6.2.7. if the winner if a company with foreign investments under Ukrainian laws (at least 10% of its charter capital is owned by a foreign company), it may also submit an application opting for arbitration under ICC rules in Paris.

6.3.     The guaranteed buyer shall review submitted documents and sign PPA within 5 business days.

6.4.   If the winner refuses to sign PPA or fails to provide relevant documents, the guaranteed buyer will execute an act in the electronic trading system and the electronic system will re-distribute the quota subject to the rules and restrictions discussed above and form the new protocol on the results of the auctions. The new winners, subject to confirmation of the latter of such status within 5 business days after the expiration of 30 business days term after the auction, will have a right to enter into the PPA and sign the new protocol in accordance with the procedure discussed for the winners above. 

7.     Provision and return of a bank guarantee

7.1.   The irrevocable bank guarantee shall be submitted for each power plant or part thereof submitted to the auction in the amount of 5 euro per 1 kW for the term not less than 50 business days after the auction date as indicated in the announcement.

7.2.   The bank guarantee shall be returned to the participants who did not win the auction within 30 business days after the auction completion and to the winners of the auction within 5 business days after the date of the PPA publication in the electronic trading system.

7.3.   The winner of the auction shall provide before the execution of the PPA a bank guarantee for 15 euros per 1 kW of the respective capacity for the term not less than 10 business days after the construction period as envisaged by the PPA. The term for construction of the power plant may be extended subject to provision of the additional bank guarantee in the amount of 30 euros per 1 kW of the expected capacity (for the term not less than 10 business days after the expiry of the additional term for construction period as provided by the amendment to the PP).

7.4.   The bank guarantee shall be returned within 10 business days subject to provision of the certificate on commissioning of the power plant or part thereof or registered declaration on readiness of the power plant or part thereof for operation as provided by laws.

7.5.   If the respective certificate on commissioning or the registered declaration has not been provided within the terms for construction under the PPA, the PPA shall be invalid and the guaranteed buyer may enforce the bank guarantee. 

8.     Requirements to banks issuing bank guarantees.

8.1.   It appears that only banks form the State Register of Banks may issue bank guarantees for the purpose of the auction and if bank guarantees issued by non-resident banks such bank guarantees shall be advised to a beneficiary by an eligible local bank.

8.2.   There are certain ranking requirements established to the banks or their parent companies (such as not less than uaA national ranking or not less than A- international ranking (Fitch Ratings, Moody's Investors Service, Standard & Poors).

9.     Amount of and procedure for payment of remuneration to operators of electronic platforms

9.1.   Auctions winners shall pay remuneration to operators of electronic platforms for 0,8 euro for each kW before the execution of the PPA.

10.  Other issues related to an auction

10.1.              In case of an auction with land plots, the winner of the auction obtains from the guaranteed buyer a copy of the respective decision of state authority, self-governing authority, etc. as to the respective land plot as well as the draft grid connection agreement. The winner submits the respective request to the respective system operator to enter into the grid connection agreement and the respective system operator may not refuse to enter into the grid connection agreement with the winner. The procedure is not fully reconciled with relevant grid codes and possibly relevant changes to the grid codes will be necessary. The winner also makes the respective submission to the respective landowners and the respective landowners shall enter into the agreement on transfer of ownership in the land plot or granting the land plot into use as per the conditions of the auction. The execution of the relevant agreement shall occur within 30 business days after the winner compensates costs incurred by the landowner regarding the land allocation (if such requirement was initially established). Again, the procedure is not fully reconciled with the land code and other legislative acts and further changes to such legislative acts might be required to make it operational.

10.2.              The section also contains various information on closing an auction and reporting its results as well as further steps of winners of the auctions with land plots.

 

This information does not constitute legal advice and is merely the opinion of the author.