Letter to PM Oleksandr Dombrovskyi concerning Draft Law 8449-d

8449-д

Dear Mr. Oleksandr Dombrovskyi,

On behalf of European-Ukrainian Energy Agency (“EUEA”) and its members we would like to express gratitude for your hard work in developing a sustainable and transparent energy market for Ukraine. We support the introduction of a well-crafted auction scheme as it may allow for a more sustainable development of the renewable energy market (beneficial for business), while also allowing for lower energy production prices (beneficial for consumers).

We therefore hope this much-discussed scheme is soon to be implemented in Ukraine. Ref. the last Draft Law 8449-d, there however continue to remain one big risk that can jeopardize the sustainability of this auction program. EUEA, together with its members, would like to stress the following point:

According to the current registered Draft Law 8449-d, the proposed pre-qualification to bid for a project (EUR 5.000 + EUR 10.000) is historically low in global perspective. While the initial proposal by Mr. Lev Pidlisetskyi in Draft Law 8449 (a total of EUR 50.000) was more synchronized with what can be observed in other international markets, the most recent proposal seems mainly driven by local voices within Ukraine who do not take into account the tremendous risk this can have for the sustainability of the auction scheme. We believe the current proposal is so risky that it might limit any sustainable market development in Ukraine for the coming years.
As the low pre-qualification limit represent only around 1,5% of overall CAPEX of solar projects, this will most likely result in developers bidding for auction lots without knowing at what tariff the project is financially viable for the implementor. This we have seen in many markets around the world: The auction round is considered a success as the price bids are record-low, but 1-2-3 years after the projects are still not implemented as the auction bid prices are not considered sufficient to provide the necessary financial returns for the investor and lender.

Due to this large risk, we strongly urge you to consider increasing the bank guarantee and performance bond to levels more like what we see in other markets globally. Our proposal is a bid bond at EUR 25.000 to participate in the auction and a performance bond of EUR 15- 25.000 after winning the auction. Concluding, the general amount of bank guarantee, it will be
EUR 40.000-50.000. In sum, this will lead to more mature renewable energy market for Ukraine, as we have seen in
several markets around the world.

We thank you in advance for your time and taking this suggestion to the account.


With best regards,
Oleksandra Gumeniuk
Director of European-Ukrainian Energy Agency

Overview of Draft Law 8449-d: Click to download

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