Bill 3658 was approved before the first reading by the Committee on Energy and Utilities of Verkhovna Rada of Ukraine on June 25, 2020, while alternative Bill 3658-1 was not supported.

 

What’s next…

Bill 3658 will be in the session hall of the Verkhovna Rada of Ukraine for the first reading probably next week, a further 10 days for amendments and proposals and a second reading may take place in the week beginning 13 July 2020. However, until then we can expect anything, and it is impossible to predict whether the Bill will be voted in the Verkhovna Rada of Ukraine and what its appearance will be after the amendments between the first and second readings.

 

Key changes in legislation …

As of June 25, the key changes regarding the terms of the state mechanism for supporting renewable energy relate to the following:

 

For solar energy:

– for facilities commissioned before June 30, 2015, the maximum cost of the green tariff does not exceed 220 Euro per 1 MW / year,

– for facilities commissioned for the period from July 1, 2015 to December 31, 2019, inclusive, a reduction of the “green” tariff by 15%, with a capacity of 1 or more MW, and by 10% for those with a capacity of up to 1 MW.

– for facilities put into operation from January 1, 2020, a reduction of the “green” tariff by 2.5% regardless of capacity.

– for facilities put into operation from August 1, 2020, reduction of the “green” tariff by 60%, with a capacity from 1 MW.

 

For wind energy:

– for facilities put into operation in the period from July 1, 2015 to December 31, 2019 inclusive, a reduction of the “green” tariff by 7.5%.

– for facilities put into operation from January 1, 2020, a reduction of the “green” tariff by 2.5% regardless of capacity

 

The amount of liability for RES imbalances:

– up to 1 MW: from January 1, 2021: 10% (+ 10% every year), and from January 1, 2030: 100%.

– from 1 MW: from 01.01.2021: 50% from 01.01.2022: 100% Permitted error in forecasting until 31.12.2029: solar power plants – 5%, wind power plants – 10%.

 

The bill also has a stabilization clause:

The state guarantees the invariability of the revised “green” tariffs. The rights and obligations of RES producers are subject to the legislation in force on the date of entry into force of the law. Amendments to the Law “On the regime of foreign investment” are envisaged regarding the invariability of the legislation to the rights and obligations of RES producers with foreign investments.

 

What are the expectations from the approved Bill 3658…

The bill was initiated by the Prime Minister of Ukraine, which is based on the key points of the Memorandum of Understanding signed between the Government and industry associations uniting investors/producers of RES. It was not easy to accept the deteriorating conditions for the RES sector, but this step was taken solely to encourage the Ukrainian authorities to fulfill a number of responsibilities (which are in fact already provided by current legislation, but have not been fulfilled before).

 

Among the responsibilities taken by the state that can stabilize the situation in the RES sector are the following:

Public authorities shall ensure full and timely current payment of electricity from the month following the month in which the Law enters into force. This commitment will be implemented through the other actions listed below.

 

The National Commission for State Regulation of Energy and Utilities (NEURC) to review the tariff of NPC “Ukrenergo” for the service of electricity transmission and to consider the use of other financial revenues – within one month after the entry into force of the Law. According to the Law of Ukraine “On the Electricity Market”, the source of compensation for the “green” tariff is the tariff for electricity transmission of the Transmission System Operator NPC “Ukrenergo”. Yes, this mechanism may be imperfect, but as of today we have just such a mechanism that needs to be implemented, but it is also necessary to work out in the future ways to optimize further compensation for the “green” tariff. And we should remind, the longer NEURC will delay with approval of the new tariff, the higher it can be. How will increasing Ukrenergo’s tariff may impact the final price of electricity for non-household consumers you can read here: https://cutt.ly/7iv7ihX

 

Update the annual forecast balance of electricity in order to further adjust the NEURC tariff for the transmission service and take into account the cost of the service to increase the share of electricity production from RES.

 

40 percent of the debt – 2020 (IV quarter) 60 percent of the debt – 2021 (quarterly). It is known that the debt to RES producers currently amounts to about UAH 16 billion, so the Memorandum provides clear terms of repayment of this debt. It should be noted that the first versions of the Memorandum provided the repayment of the debt only at the end of 2021, but as a result of negotiations, a detailed repayment schedule was drawn up.

 

Define and approve annual quotas – within 2 months from the date of entry into force of the Law adopted for the implementation of the Memorandum. Considering that this issue is crucial for all RES market participants in terms of participation / non-participation in auctions, this item was included in the Memorandum.

 

Review the price restrictions that apply to the Guaranteed Buyer in the day-ahead market for price requests for the sale of electricity of RES producers. Currently, price restrictions have been lifted only for the quarantine period, but such a measure will contribute to the formation of market relations in the electricity market and the positioning of RES as a full market participant.

 

Analyze and agree on a plan to improve the technology of weather forecasting and forecasting electricity production from RES. These measures have long been in need of implementation and should ensure the optimization of TSO commands to limit RES generation.

 

Conduct tenders for the construction of generating capacity and the implementation of demand management measures. Adopt regulations on the implementation, promotion of balancing and energy storage systems. Considering that according to the approved Report on the assessment of compliance (adequacy) of generating capacity to meet the projected demand for electricity and provide the necessary reserve in 2020, in 2021 should be built 4 GW of balancing and energy storage systems. As of today, the mechanism is not clear enough to guarantee a return on investment, which hinders the construction of such facilities and needs urgent improvement.

 

Full compensation to RES producers for limiting the production of electricity from renewable sources through the implementation of the Transmission System Operator’s command.

 

One important aspect that has not been addressed through mediation…

 

Although the European-Ukrainian Energy Agency, on the basis of an internal majority vote in favor, signed a Memorandum, there is one important aspect (related to the extension of the Electricity Purchase Agreements for 2 years for solar power plants commissioned in 2015-2019, which face a 15% reduction in the “green” tariff), which has not been resolved through mediation and is not reflected in the Memorandum of Understanding, the Memorandum of Understanding represents a compromise between the state and a large share of renewable energy investors.

 

According to Dirk Buschle, mediator of the dispute resolution: “The Ministry of Energy, together with other investors, should continue and not weaken efforts to include as much investor coverage as possible in the Memorandum. This is the best way to provide support to those undergoing tariff restructuring and to avoid lengthy lawsuits against Ukraine.” Link to the original text of the quote:https://cutt.ly/Liv7WYf