Monitoring of the MoU Implementation

As of October 5, 2020, almost 4 months from the signing of the Memorandum of Understanding and 2 months from the entry into force of the Law of Ukraine №810-IX, on reducing “feed-in” tariffs for producers of electricity from renewable energy sources (RES). With this monitoring of the implementation of the Memorandum of Understanding, we plan to reveal not only the issue of payments to RES producers, but also to cover the state of implementation of other commitments made by the Government of Ukraine.

We have repeatedly emphasized that the problem of non-payment to RES producers – gave impetus to delve deeper into the problems of the energy sector and led to additional requirements to the Government of Ukraine for specific actions and measures to stabilize the industry and its recovery. Thus, when the Government of Ukraine imposed, after lengthy negotiations within the framework of mediation, strict conditions for tariff reduction, and which were partially agreed by the associations due to blackmail by non-payment, we took the opportunity to write in the Memorandum a list of measures (14 items) that the Ukrainian authorities are taking to implement. So below is a brief overview of each item and the state of its implementation.

There are three items in the status of “fulfilled”: registration and support of the Government Bill and its support during the hearings in the relevant committee of the Verkhovna Rada, and almost a month later the Law of Ukraine 810-IX was adopted by the majority of People’s Deputies in the Verkhovna Rada; granting the right to SE “Guaranteed Buyer” to sell electricity produced from RES at auctions under bilateral agreements and on October 5, 2020 pilot auctions took place, their effectiveness can be assessed after some time; The last paragraph of the Memorandum on improving the procedure for organizing and conducting auctions for the distribution of support quotas in the adopted Law 810-IX was also implemented.

The other 10 items are either incomplete or have no results at all and are in the process of implementation and 1 item is not monitored at the time.

The status of “unfulfilled” includes the following items:

• Stabilization clause, according to which RES producerswill have the right to file a lawsuit regarding changes in legislation that occurred after the entry into force of Law № 810-IX, which negatively affect the economic situation of investors, but the Law of Ukraine “On the Foreign Investment Mode” changed wording, and now it does not save from changes in tax legislation.
• 100% payment to RES producers,which were to take place on August 1, 2020. 100% of payments for August took place as of October 1, 2020, and for September the payment stopped at 27%. The forecast of monthly payments is 56% by the end of 2020.
• Repayment of the existing debtof UAH 22.4 billion accumulated for the period up to August 1, 2020 to RES producers. Debt payment, according to the Memorandum, will take place according to the following schedule: 40% in the 4th quarter of 2020; 15% percent quarterly during 2021. Unfortunately, there is currently no final decision on the sources for debt repayment. Issuance of bonds and attraction of credit funds from state-owned Ukrainian banks – under consideration. Loans from international financial institutions are impossible due to the fact that on September 17, 2020, the Verkhovna Rada rejected the government bill drafted by the Ministry of Finance to provide state guarantees for international lending to energy projects.
• Compensation to RES producers for forced generation restrictions.NEURC and other state bodies of Ukraine together with PJSC NPC Ukrenergo were to ensure the development and adoption of regulations necessary to determine the procedure for compensation for electricity not produced by RES producers as a result of execution of commands of the transmission system operator not later than one month after the entry into force of the Law. As of the end of the second month (exaggeration by 1 month) from the moment of entry into force of the Law, the draft compensation procedure has the status of an approved project and there is a public discussion. According to the draft Resolution, which is posted in the package of all documents on the website of NEURC, it is stated that the compensation will be for unproduced electricity by January 1, 2020, based on an agreement on settlement of imbalances between RES and TSO. EUEA members and other RES participants have long faithfully complied with the Transmission System Operator’s commands to limit RES generation of electricity, and are awaiting compensation, as according to the current Law of Ukraine “On the Electricity Market”, compensation for the restriction must be paid, as it is unearned income due to instability of the energy system.
• Increasing the tariff for electricity transmission services of PJSC NPC Ukrenergoto a sufficient level. The tariff has been raised, but to an insufficient level, which currently does not meet all the needs of the sector. The NEURC announced that from December 1 there will be an additional increase. It should be reminded that Ukrenergo’s tariff is one of the main sources for paying the “feed-in” tariff, in addition to it there are actually funds received from the sale of RES electricity on the day-ahead market by SE “Guaranteed Buyer”. Also, in the Law of Ukraine 810-IX, an additional source is intended to compensate 20% of the total “feed-in” tariff at the expense of the State budget, which is currently being worked on in the Verkhovna Rada.

Status in the process, ie there are no results, can get 4 items, in particular: the right of RES producers to leave the balancing group of the Guaranteed Buyer and freely sell electricity on the market without losing the right to compensation in the form of the difference between the established “feed-in” tariff and market price; mitigation of the conditions for restructuring credit agreements in Ukrainian banks by making changes to the regulatory environment by the National Bank of Ukraine, including; conducting tenders for the construction of generating capacity and the implementation of demand management measures, as well as the promotion of balancing and energy storage systems; approval of annual support quotas and ensuring auctions for the distribution of support quotas by the end of 2020.

Not relevant yet to monitor. Update the Ministry of Energy with its annual forecast electricity balance for the next reasonable adjustment by the NEURC of the tariff of TSO’s electricity transmission service in order to include to it the cost of the service to ensure an increase in the share of electricity production from renewable energy sources.

For this reason, on October 5, 2020, EUEA together with UWEA signed a letter to the Prime Minister of Ukraine to immediately respond to the status of implementation of agreements between associations and the Government of Ukraine, and take the necessary actions and measures to achieve 100% results.

It can be recalled that the Memorandum of Understanding between EUEA and UWEA, sectoral associations in renewable energy, and the Government of Ukraine represented by the Prime Minister of Ukraine, Acting Minister of Energy of Ukraine and NEURC, was signed on June 10, 2020 as a result of long-term mediation with the involvement of the Energy Community Secretariat as a mediator. Unfortunately, the mediation did not cover an important point other than the reduction of the “feed-in” tariff, the extension of its support, and caused a wave of dissatisfaction among participants in the RES sector.