The Ukrainian energy sector is in a crisis state caused by a whole range of objective and subjective factors – from manual regulation of the electricity market and lobbyism of certain financial and political groups to a drop in consumption due to the “corona crisis”.

On 9th June at Kyiv International Convention Center Parkovy a joint press conference of the European-Ukrainian Energy Agency, the Ukrainian Wind Energy Association, and the Ukrainian Association of Renewable Energy, was held on the theme «Investment Collapse or Green Compromise – which way does Ukraine choose?». The participants in the press conference discussed the most pressing issues in the electric power industry, as well as the challenges and threats facing the country in the event of a unilateral revision of green tariffs by the state and the increase in the debt of the Guaranteed Buyer to investors in renewable energy sources (RES). For several months now, the difficult negotiation process between the government and investors in renewable energy has been going on, the prospects of which, from the point of view of reaching a compromise, seem unobvious.

Oleksandra Gumeniuk, EUEA directornoted that the mediation process managed by the Dispute Resolution Center of the Energy Community Secretariat started 6 months ago between industry associations (EUEA and UWEA, later joined by UARE) and the Government of Ukraine. The mediation process to stabilize the situation in the energy sector includes the following components – restructuring of FiTs, liability for imbalances, the financial situation of SE “Guaranteed Buyer” and improving the legal framework.

Since last September, the negotiation process with the Cabinet of Ministers has looked like an open dialogue, until at the end of November the Government presented a concept of a draft law on changing state support for green energy. It was then that investors saw that none of their proposals had been accepted, but the government’s concept was retrospective and posed huge risks and losses due to the loss of investment attractiveness of large infrastructure projects and possible arbitrage.

According to Oleksandra Humeniuk, the result of delayed negotiations is a delay in payments at “green” tariffs, which is unacceptable. She noted that investors have provided the government with a number of proposals to reach agreements to maintain Ukraine’s investment attractiveness and continue to upgrade its energy infrastructure. Investors, according to Humeniuk, insist on a meeting with the President of Ukraine for a final settlement of all disputes.

Alina Sviderska, the EUEA Board Member, Head of Government Relations and Business Development Manager in Ukraine at Scatec Solar, said that launching green projects in Ukraine is extremely expensive due to systemic corruption and bureaucracy – in other countries the cost of projects can be half as much. For example, anywhere in the world, it is not so expensive to connect to a network than in Ukraine. In turn, all such expenses are laid down in FiT, so they can only be compared by comparing risks at the same time. According to Alina Sviderska, the government’s refusal of its obligations to the green energy sector will undermine the credibility of Ukraine by potential investors in other sectors on the international scene.

Narek Harutyunyan, founder of Rengy Development, co-founder of the Ukrainian Association of Renewable Energy, pointed out that Ukraine needs to replace 10 GW of amortized generating capacity in the next 10 years. Since the path to nuclear generation is closed for private capital, a renewable energy development strategy was chosen. Mr. Harutyunyan noted that tax payments from the “green” energy sector over the past 10 years amounted to UAH UAH 93,6 billion, while subsidies from the state budget for the coal industry are comparable to this indicator and amounted to UAH 912 billion for the same period. Investors came to the renewable energy industry under state guarantees, having fulfilled the first plan for the development of the industry (achieving a share of renewable energy of 12% in the energy balance until 2020). However, the current government plans to force tariff cuts will be a serious blow to the renewable energy industry, not only worsen the investment climate but also stop the renewal of fixed assets in the energy sector, which necessitates the import of electricity. At the same time, investors who are systemic players with a long-term planning horizon are ready to compromise with the government and are even ready to save UAH 60 billion for the state over the next 10 years – however, the plan proposed by investors should be approved by the government. 

Igor Tynnyi, co-founder of the Ukrainian Association of Renewable Energynoted that high FiT caused primarily by significant risks of doing business in Ukraine. In addition, the cost of capital is expensive, and the possibility of investors restructuring commercial loans will be a necessary step in the event of tariff reduction, is limited due to the NBU Resolution No. 351, according to which banks need to form 100% reserves in case of loan restructuring for more than a year. At the same time, Mr. Tynnyi notes that a 15% FiT reduction could lead to a shortfall in budget revenues of EUR 250-300 million annually.

Through manual regulation of the electric energy market, Mr. Tynnyi points out, the money paid by consumers does not reach generation, but mainly remains in trading companies. In addition, through corruption schemes in the electricity market, state losses in 2019 amounted to at least 4 billion UAH. Mr. Tynnyi said that they are still trying to blame the “green” generation for all problems of the energy industry, which, unlike the traditional one, is devoid of the corruption component in fuel purchases and is the largest taxpayer among generations. The crisis in the energy sector is deepening, but no necessary decisions are being made to stabilize the situation in the electricity market, Tynnyi believes.

The press conference was moderated by Sergiy Yevtushenko, Managing Partner UDP Renewables, UWEA Member.

Despite the negative scenarios identified by investors in renewable energy sources in the absence of agreements with the Cabinet of Ministers of Ukraine, they express hope for the successful completion of the negotiation process, so that it will be possible to overcome the crisis in the electric power industry and avoid claims in international arbitrations.

You can view the recording of the press conference on the EUEA Facebook page by following the link: https://bit.ly/2AVqpLq.