The amendments to the Law of Ukraine "On Alternative Energy Sources" (the "Law") introduced a new incentive system for green energy producers – starting from 2020, instead of receiving the fixed feed-in tariff the green producers will compete at green auctions.
Eligible participants
The changes will not affect the plants that have received the feed-in tariff, and will only apply to the solar plants exceeding 1 MW in capacity and the wind plants exceeding 5 MW in capacity, except for 3-turbine wind plants regardless of their capacity, in each case commissioned after 31 December 2019. The solar and wind plants having lower capacity, and all other green plants may opt between receiving the fixed feed-in tariff and participating in green auctions.
Auction system
The auctions shall be held twice a year, not later than 01 April and 01 October.
The auctions are meant to distribute between the green energy producers parts of an annual capacity quota, which shall be defined by the Cabinet of Ministers of Ukraine (the "CMU") not later than 01 December each year for the next 5 years.
If the annual quota is divided into sections, the solar and the wind energy section may not be less than 15% of the entire annual quota. The CMU may opt for technologically neutral actions, where all green produces shall compete for the entire quota regardless of their energy source.
The Law also provides for possible project auctions, for which, apart from the feed-in tariff, the CMU will offer the land plots suitable for construction of green plants together with the draft grid connection agreement and technical requirements for grid connection.
Participation in auctions
To participate in the action, the green energy producer shall submit among other documents (i) an irrevocable bank guarantee amounting to EUR 5 per 1 kW of plant capacity; (ii) a title document to the land plot; and (iii) a grid connection agreement.
The producer submits a sealed bid where it indicates the capacity of the plant (or its stage) and price quote for 1 kWh in eurocents, which may not exceed the fixed feed-in tariff for 1 kWh at the day of the auction.
The auction procedure provides for simultaneous opening of all participants' bids. All participants who offered the lowest prices within the designated quota are the winners and will receive the state support for the entire capacity of their plant indicated in the bid. The price for 1 kWh will be fixed in the power purchase agreement (the "PPA") both in EUR and UAH.
Signing PPA after auction
The auction winner and the guaranteed buyer shall enter into the PPA, which must contain a duty of the green energy producer to commission the solar plant within 2 years, and the wind plant – within 3 years from the date of the PPA.
If the auction winner refuses to enter into the PPA or is disqualified for violating the auction procedure, the guaranteed buyer may claim the guarantee. The auction winner who refused from signing the PPA is banned from participating in the auctions for 1 year.
Before signing the PPA the auction winner shall provide a performance bank guarantee for EUR 15 per 1 kW of capacity. If the winner fails to commission the solar or the wind plant within 2 or 3 years respectively, the PPA is terminated, and the guaranteed may claim the bank guarantee.
The winner may extend the term for commissioning the plant by one year by signing an amendment to the PPA and providing the additional bank guarantee for EUR 30 per 1 kW of its capacity.
The PPA is signed for the duration of 20 years starting from the day after the green energy producer obtains the document proving the plant's readiness for operation. Plants commissioned before 31 December 2024 qualify for 5% or 10% premium for use of Ukraine-manufactured machinery in them, which applies as addition to the auction price.
Procedure by CMU
On 10 October 2019, the CMU has published a draft procedure for holding the auctions. The draft procedure provides for a description of the auctioning process and defining the winner, contains a comprehensive list of documents to be submitted by participants, auction platform technicalities, etc.
The draft procedure also provides for certain issues not covered by the Law, in particular:
- the minimum number of participants for the auction – 2 producers;
- guidance for defining the winners when all participants bid the same price;
- option for the participants to lower their bids during the auctions while the other participant's bids remain closed; and
- a duty of the winners to pay a fee to the auction platform operator amounting to EUR 1 per 1 kW of winner's plant capacity, etc.
However, the draft procedure contains certain inconsistencies with other applicable laws, in particular concerning acquisition of land rights, does not provide for a procedure to challenge the auction results aside from litigation and contains other deficiencies. The procedure is expected to be approved before the auctions start, yet its final wording may be different from the published draft.
Further realization
The quotas for the upcoming years are to be approved before 01 December 2019, and the first auction shall be held before 01 April 2020. The producers intending to participate in the first auction are already getting prepared for the new reality when planning their investments into renewables, in particular by ensuring they have a document proving the title to the land and the grid connection agreement. Although it might seem like one of the predictable solutions for foreign investors and their financing partners, it is rather unlikely that the cumulative project auctions for grid connection, land and feed-in tariff would start in 2020. They are optional according to the Law, require thorough preparation by the local authorities and their procedure is not entirely uniform per the draft green auctions procedure.
Published: Kyiv Post, 8 November 2019
Authors: Alexander Borodkin, Tetiana Revutska