The Association “European-Ukrainian Energy Agency” (EUEA) uniting well known international and domestic investors with a total investment in the renewable energy sector of Ukraine of more than EUR 3.5 billion in construction of more than 2.7 GW of renewable power plants using sun, wind, and biomass, appealed to the Prime Minister of Ukraine Denys Shmygal to clarify its position on stabilizing the situation in the field of RES.
The renewable energy sector has been one of the biggest FDI success stories in Ukraine. Importantly, our members have also attracted the world’s leading international financial institutions and banks to provide financing for these projects, including the European Bank for Reconstruction and Development, U.S. International Development Finance Corporation (DFC, formerly OPIC), Denmark’s IFU, France’s Proparco, Black Sea Trade and Development Bank, Finland’s Finnfund, Sweden’s Swedfund, FMO, Nordic Environment Finance Corporation, GIEK and others. Attracting less costly and longer-term sources of funding from international financial institutions is a crucial factor in achieving lower pricing for any future projects in the Ukrainian energy sector.
Unfortunately, since the introduction of the new electricity market model in July 2019, the state authorities of Ukraine have made numerous statements and have taken specific actions that threaten to put our investments in jeopardy. These include calling for retroactive changes to the regulatory framework for the renewable energy sector. In addition, renewable energy producers have been experiencing material payment delays from the state enterprise Guaranteed Buyer with less than 10% of money received for the electricity delivered since March 2020. These issues raise significant concerns about Ukraine’s attractiveness as a destination for foreign direct investments, not only for energy sector, but across all economic sectors.
We understand that the Ukrainian energy market has been in a state of economic distress due to poor implementation of new electricity market model, continuous inaction on the side of the Regulator and lately due to impact from COVID-19. We are ready to support you in stabilizing the financial situation of the Guaranteed Buyer through the voluntary restructuring of feed-in-tariffs (FIT), thereby ensuring a smooth and successful transition to renewable energy auctions. We look forward to achieving a compromise and to signing a memorandum that would respect investors’ rights and would foresee the steps to support a comprehensive reform of the electricity market.
At the same time, we would like to highlight certain principles and key parameters of such a restructuring, which are of critical importance for each of us:
- Mediation. The right process to find and implement a compromise solution remains the mediation process managed by the Energy Community Secretariat. We would appreciate if the mediator (Energy Community Secretariat), as well as observers (EBRD and EU Delegation), are included in all meetings, discussions, and document exchange.
- Voluntary participation. FIT restructuring should be voluntary. We believe that our members and other market participants will have a natural desire to join the restructuring framework if it allows securing improved PPA with a stabilization clause and cap for the cost of imbalances.
- Small power plants. There should be no changes in the regulatory framework for renewable power plants with the installed capacity of less than 1 MW as we want to ensure that individual investors as well as small Ukrainian businessmen are not affected by the current crisis.
- Curtailment compensation. Renewable power plants will receive full curtailment compensation as currently provided for by the Electricity Market Law.
- Payment discipline from the Guaranteed Buyer. The State must ensure by the end of 2020 the repayment of arrears that have accrued since the beginning of the year within an agreed time period and the timely payment of future receivables. This should be achieved with the proper financing of the Guaranteed Buyer via the TSO transmission tariff or other sources. Any further delay of payments would require negotiation of special terms. All current monthly payments from the Guaranteed Buyer to renewable power plants should be performed in full and timely manner starting 01 July 2020.
- FIT restructuring for WPPs and SPPs commissioned in 2017-2019:
- Solar: FIT reduction by 15% for SPPs with installed capacity exceeding 10 MW (12.5% – for SPPs with a capacity of below or equal to 10 MW) with the 2-year extension of the power purchase agreement (PPA);
- Wind: FIT reduction by 7.5% for WPPs with the 2-year extension of PPA.
- FIT restructuring for WPPs and SPPs commissioned in 2020-2022. Considering that this group of power plants was already impacted in 2020 by 25%/10% solar/wind FIT reduction based on the current law, we suggest to provide investors with the following choice:
- Option 1 – no FIT reduction; no PPA extension; no stabilization clause; no balancing cap; 50% balancing responsibility from 2021, 100% from 2022; 10% forecast tolerance margin for wind (5% for solar);
- Option 2 – minus 2.5% from 2020 FIT; no PPA extension; improved PPA with stabilization clause; 50% balancing responsibility from 2021, 100% from 2022; balancing cost cap of 3.6 EUR/MWh (multiplied by monthly electricity generation in MWh); 5%/10% forecast tolerance margin for solar/wind.
- Construction of new projects:
- Solar: pre-PPA cut-off date for solar shall be 01 July 2020 with potential extension by 1 month due to the quarantine;
- Wind: wind investors will complete active projects with until the end of 2022.
- Responsibility for imbalances:
- There should be no change in law regarding the forecast tolerance margin which shall remain at 10% (wind) and 5% (solar) without any limitations in time;
- Should the Government want to accelerate the responsibility for imbalances of RES producers, the monthly balancing cost needs to be capped at €3.6/MWh multiplied by the amount of electricity generation.
- Stabilization clause: the State should guarantee that the updated PPA will be governed by the laws and regulations which were in force on the effective dates of the original PPAs and that there shall be no further changes to the FIT support system, taxes, regulatory framework (including PPAs) or any other such changes that would negatively impact the revenues, costs, value and IRR of the RES facilities than will have been agreed in the current FIT restructuring. Such provisions should be an integral part of the legislation and should also be reflected in the PPA.
Comments of the EUEA members that did not support joint position:
“Dnipro Buhsky WES” Ltd cannot agree with the letter and would like you to specifically mention the following aspects:
Guaranteed Buyer needs to be made bankable until the end of the FIT period.
Article 7: Option 2 reads now:
- minus 2.5% from 2020 FIT; no PPA extension; improved PPA with stabilization clause; 50% balancing responsibility from 2021, 100% from 2022; balancing cost cap of 3.6 EUR/MWh (multiplied by monthly electricity generation in MWh);
- 5%/10% forecast tolerance margin for solar/wind;
We are unable to support this.
- On condition the Guaranteed Buyer is made bankable again by July 1st 2020 we could support:
- minus 2.5% from 2020 FIT; PPA extension of 3 years for WPP projects which should be carved out because they invested significant amounts of money and were prevented to start construction; improved PPA with stabilization clause; 50% balancing.
- responsibility from 2021, 100% from 2022; balancing cost cap of 3.6 EUR/MWh (multiplied by monthly electricity generation in MWh);
- 5%/10% forecast tolerance margin for solar/wind.
- On condition sector is bankable again by July 1st 2020 we could support:
- Commissioning from carved out WPP projects by 31/12/2022.
- In case sector is bankable after July 1st 2020 then the cut off date of 31/12/2022 should be extended by the period after which sector became bankable again.
“Irshanska Solar Power Plant” Ltd restructuring proposal:
- RES producers accept the terms of voluntary restructuring of “green” tariffs for any of the following options:
- For all electricity facilities that produce electricity from solar energy, the PPA period is extended by 2 years, and the “green” tariff is reduced by 5%;
- For all electricity facilities that produce electricity from solar energy, the PPA is extended by 3 years, and the “green” tariff is reduced by 7%.
2. RES producers accept the conditions for the introduction of financial responsibility for all errors in forecasting electricity production for RES producers in accordance with the legislation in force at the time of the PPA.
3. RES shall accept the conditions for limiting the terms of putting new renewable energy facilities into operation at a “green” tariff on the following terms:
- for SPP until April 1, 2021 – SPP put into operation after April 1, 2021 will have the right to receive state support by participating in auctions, and for SPP put into operation from January 1, 2021 to April 1, 2021 additional reduction of the established ” green “tariff by 5%.
- for WPP farms until December 31, 2021, and for wind farms put into operation from January 1, 2022 to December 31, 2022 – with an additional reduction of the “green” tariff set for this period by 5 percent.