September 27, 2019_Report of the meeting of the Verkhovna Rada Committee on Energy and Utilities

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Report of the meeting of the Verkhovna Rada Committee on Energy and Utilities

September 27, 2019

September 27, 2019 Chairman of the Verkhovna Rada Committee on Energy and Utilities, Mr. Andriy Gerus invited market participants for an open discussion on possible changes to the state system of support for the generation of renewable energy sources in connection with complaints from the commercial sector, namely large enterprises about increased tariffs for electricity.

The Chairman noted the actions that are taking place in for the RES support policy, in particular, regarding the modification of the PSO in August. It should be noted that the NEURC managed to reduce the tariff for transmission of electricity by 37% during the adoption of the Cabinet of Ministers' Decree on the PSO mechanism in the electricity market for the second half of 2019. Gerus raised the problematic issue of the VAT exemption for the import of equipment for the construction of renewable energy objects, through which the state budget of Ukraine does not receive about 400 million UAH per a year, and that will trigger such a repeal next week.

                       

Finally, Andriy Gerus went over all the rumors going on the RES market, namely that the tariff would be reduced retrospectively, that the introduction of an additional excise duty, a target tax, and he completed the list of rumors with questions, to the participants of the meeting what they offere to reduce the final price for electricity.

Acting Chairman of the Board of Directors of PJSC "NEC Ukrenergo" - Vsevolod Kovalchuk, said that despite the reduction of the tariff by 37%, non-payments still continue for various reasons, and the total debt to Ukrenergo is 2 billion UAH. it will again lead to the risk failing to pay the green tariff to the producers. In his speech, V. Kovalchuk noted a number of technical problems, balancing and additional verification of the fulfillment of technical conditions by renewable energy producers. Summing up, he answered the question how the budget should be formed to compansate the green tariff. In his opinion. A good solution may be the model of Germany, where should pay for the green tariff the one from which the state wants to get rid. That is, if the state has a strategy of reducing the generation of coal power plants or reducing the generation of nuclear energy, then it is incumbent on them to pay the green tariff.

Maryna Petrov - EBRD, reminded that Ukraine is an importer of gas, oil, fuel for nuclear energy, coal, and that renewable energy sources are a key area of the country's energy independence, and spoke out against the retrospective change in green tariff.

Other participants also expressed and suggested their own ideas for reducing the final price for electricity, including:

- Raising the CO2 tax (environmental tax) and making it a target budget to offset green tariff payments;

- Reduce the green tariff (did not specify how much), but extend the payment period (until 2035)

- Introduce a local tax that will remain in the community budgets for their development (although this does not fill the budget of the SE “Guaranteed Buyer” for green tariff payments)

- Create a single price cap for all types of generation.

Oleksandra Gumeniuk - Director of EUEA, made proposals that were prepared jointly with EUEA members, which should reduce the final cost of electricity, namely:

  • Remove excise duty paid to the state budget from the value of sold electricity (it will save 7 bln UAH per a year)
  • Change subsidy scheme for residential consumers to direct subsidies that will reduce overall amount of subsidies (only vulnerable consumers will get compensation vs. current situation when all households enjoy low tariffs)
  • Anticorruption clean up of distribution system operators, which purchase services and equipment at inflated prices in non-transparent fasion from related companies, will reduce respective electricity distribution tariffs

Taking into account the completely different proposals with differences in economic incentives and impacts on the final tariff and IRR, Alina Sviderska, a representative of the Norwegian investor in solar energy Scatec Solar, proposed to create a working group where economic modeling of all these proposals could be made, to which the Chairman of the Committee reacted positively.

By Oleksandra Gumeniuk and all other participants was emphasized, that it should be borne in mind that the consequences of retrospective changes to the green tariff will be as follows:

  • Foreign investors will launch international arbitration proceedings against the state of Ukraine with claimed damages reaching billions of dollars
  • Damaged investment image of Ukraine will have domino impact on investments in other sectors of national economy (rule of law is equally important for investors in energy, agriculture or transport)
  • New auction-based renewable support system being currently implemented will be discredited from the beginning and will not bring expected reduction of tariffs for new projects
  • Ignoring position of IFIs on stability of renewable support system will undermine financing for the entire energy sector that remains heavily dependent on IFI loans and other international financing
  • Social development programs implemented by renewable investors in the regions of their presence will be cancelled
  • Negative impact on the Ukrainian construction industry where thousands of people are involved in construction or RES power plants

For reference: there is still a misconception, unfortunately, of some Parliament Members of the Committee on Energy and Utilities too, that only oligarchs are the beneficiaries of the green tariff, while the register of the guaranteed buyer has 454 business entities - renewable electricity generators with a total capacity of 4591 MW, of which more than 1000 MW are invested by global companies as Acciona, Akuo Energy, LongWing, NBT, Refraction, Saffelberg, Scatec Solar, United Green, etc., 756 MW - DTEK RES, 350 MW – Solar Power Stations by households, and all others are small and medium sized businesses, financinf of the projects comes from Ukrainian and foreign banks: EBRD, OPIC, NEFCO, BSTDB, PROPARCO, Chinese banks, German banks, etc.

In summary, it should be noted that, before making the final decisions, there is a need for substantial economic justification.

About EUEA:

Association "European-Ukrainian Energy Agency" (EUEA) brings together national and internationally known investors from Austria, Belgium, Great Britain, Norway, Spain, Switzerland, Turkey, Ukraine, USA and other countries that implement projects worth more than 1.5 billion Euros in Ukraine constructing power plants using of solar, wind and biomass/biogas.

EUEA member companies: Acciona, Avenston, Celynx AG, CES, DTEK, EDS Engineering, EMSOLT, Eurocape, GOLAW, Guris, Greenworx, iC consulenten, IMEPOWER, Indian Solar, Khmelnytsky Bio Power Plant, NBT AS, Scatec Solar, Schletter Group, Sinnalba group LLC, Smart Energy, Thermosystems, Ukraine Power Resources, Ukrwindinvestments, Volten, YEO Electrical & Automation.

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