Ukrainian renewable energy experts raise the alarm as Ukraine may remain without wind energy if Verkhovna Rada of Ukraine adopts the Law on Amendment of the Law of Ukraine on the Electric Sector (concerning stimulation of electricity production from alternative energy sources) #10183 taking into account the proposals of parliamentarians submitted after the bill was passed in the first reading.
Such conclusion is based on the fact that the rule of local content contained in the current edition of the Law of Ukraine on the Electricity Sector is not affordable even now for the great majority of renewable power construction projects. Thus, in order to obtain the green tariff for electricity produced by a wind power plant (WPP), one needs to use 30% of Ukrainian project components (equipment, works, etc.) in construction of a WPP and 50% after 2014 as required by the law.
It is not possible to achieve such ratio without the use of the turbines manufactured by Ukrainian-German Joint Venture Fuhrlaender Wind Technology LLC, whose German partner (Fuhrlaender) has recently declared the start of bankruptcy procedures.
Even if Fuhrlaender Wind Technology LLC works at full capacity, it will not be able to provide even for the small part of all the equipment needed in the market. Another problem is the cost. If a company becomes a monopolist in a market, such company is obviously able to and will push up prices as high as it deems advantageous for itself, the experts explain.
We are in the situation in which, if the local content of a WPP is, for example, 48%, such power plant cannot claim to receive the green tariff and it will actually receive about one half of the price for its electricity as compared with a WPP the cost of which includes 50% or more of local content and such project will obviously not have the possibility for implementation. It is an extreme risk which is very hard to overcome for projects which have the duration of several years. Instead of the “black-and-white” approach, we believe that Ukraine should employ balanced and progressive approach based on the international experience, with some decrease of the green tariff for projects with the lesser local content and the higher tariff for projects where the local content is larger. That could serve as a bonus for the developers who make efforts to invest more intensively in the Ukrainian production, said Loic Lerminiaux, Director of the Western-Crimean Wind Park.
According to EUEA Board Member Peter Justin O’Brien, the Wind Working Group supports sustainable development of the renewable energy business in Ukraine and believes it is important to find the right balance for the green electricity tariff rate and the local content so as not to exclude high-class international equipment manufacturers and not to deter investors from project funding. The current version of the draft law with the proposed additions may reduce to zero more than 4 billion euro of investment in the sector. “It is necessary to create the local content mechanism which would not act as a barrier to entry into the Ukrainian wind power sector for investors and financial institutions. We think that the local content in the equipment and works should not exceed 30% and the application mechanism should be comprehensible and acceptable not only to the Ukrainian but also to the international producers”, he said.
This emphasizes that the rule of local content is not the best practice for Ukraine and for its new wind energy sector and other renewable energy projects, which should be taken into account when making amendments to the Law of Ukraine on the Electricity Sector (concerning stimulation of electricity production from alternative energy sources) #10183. In general, the local content contradicts the principles of WTO and Free Trade Agreement currently negotiated by the European Union. The international organizations which carry out their activity in Ukraine do not consider restriction of the competition in the developing market a right choice either.
EUEA also established the Wind Working Group, which unites key independent European project developers. The purpose of such working group is to support development of the sector, which already suffers from constant market fluctuations and risks of legislative changes although it has not started to develop actively yet. “Indeed, when we summarize the activity of just a part of companies represented in EUEA, we can talk about the projects with the total installed capacity of almost 3,000 MW, EUR 4.5 billion of investments, payment of future taxes to the amount of EUR 4.7 billion for the period of green tariff validity and creation of 3,000 temporary and 500 permanent jobs. And, which is not less important, during development and operation of the projects, the socially active European business would invest EUR 25 million in the local social infrastructure”, says Elena Rybak, Director of EUEA.
The Wind Working Group has also proposed its assistance to Verknovna Rada Committee for Fuel and Energy Complex and it hopes for cooperation in the process of introducing changes to the legislation in order to continue the optimization and improvement of the existing framework for achievement of the highest efficiency and further incentives for private investments in this sector.