At the thematic session №3 “Renewable energy sources: Memorandum implementation and investment climate” there was talk about mediation and lessons learned, implementation of the Memorandum of Understanding. Next steps on RES investment opportunities (balancing, forecasting), the constitutional process against RES and the forecast when there will be a recovery after the crisis.

The speakers of the thematic session №3 were: Dirk Buschle, Deputy Director of Energy Community Secretariat; Oleksandr Martyniuk, Acting Director General to the Directorate of the Electricity Complex and Electricity Market Development of the Ministry of Energy of Ukraine; Vitaliy Zaichenko, Director of Management of the United Energy System of Ukraine, Chief Dispatcher of PJSC NPC Ukrenergo; Kostiantyn Petrykovets, Director of SE “Guaranteed Buyer”; Olga Yeriomina, Associate Director, Senior Banker Energy EMEA, Sustainable Ifrastructure Group , EBRD in Ukraine; Magnus Johansen, VP Business Development of NBT; Māris Kunickis, CEO of DTEK Renewables. Yuri Kubrushko, EUEA Board Member, Managing Partner of IMEPOWER, moderated the session.

According to Dirk Buschle, Deputy Director of Energy Community Secretariat, the result of the mediation is not only the Memorandum, but also the Law, which sets out agreements under which existing investors have agreed to lower expected returns, including some projects planned for the future, as well as guarantees that the Guaranteed Buyer will be able to meet its obligations in the future. And this is not an easy question, because the provision of these obligations must come from various sources – from raising tariffs for transmission system operators to budget revision. Mr. Buschle also noted that in the mediation process, we aimed not only to reach agreements, but also to determine the role that in-depth energy reform will play in RES production, in order to reduce the risks that current RES investors face in Ukraine. This may be too ambitious a goal, but it is really necessary to reform the whole sector in parallel with the mediation process, so that in the next two years the RES sector and the electricity generation sector as a whole are ready for major changes. It’s time to move on to auctions. I believe that this is not just a plan for the future, but that energy producers should now go directly to the market and receive compensation for the energy produced instead of depending on one state-owned company with too many commitments and expectations. The model that exists today will always be more volatile than the open market.

According to Oleksandr Martyniuk, acting Director General to the Directorate of the Electricity Complex and Electricity Market Development of the Ministry of Energy of Ukraine, in a few months of summer, the Ministry of Energy managed to achieve significant results and stabilize the situation in the RES sector. Firstly, have signed a Memorandum, unique document of understanding between the state and investors in RES. Mr. Martyniuk also noted that in the conditions of Corona crisis Ukraine didn’t go on compulsory reduction of the green tariff. The President signed a law implementing the provisions of the memorandum as soon as possible.
Due to the upgrade of the PSO system, it was possible to improve the level of settlements between the “Guaranteed Buyer” and RES electricity producers. But we started with 5% and in a few months came out at 63-65%.

Kostiantyn Petrykovets, Director of SE “Guaranteed Buyer”, said that as of August 1, RES producers were paid UAH 7.6 billion, and the debt is UAH 22.4 billion. This is the debt that, according to the Memorandum, must be paid during the 4th quarter of this year and during the 4 quarters of next year evenly. The total deficit for the implementation of the Memorandum by the end of the year is UAH 18.8 billion.

Magnus Johansen, General Director of NBT in Ukraine, drew the following analogy. If we visualize the RES market of Ukraine as a car, the Government and regulators will be the driver, the EU – the passenger-navigator, and the engine is we, the energy producers, the investors, together with the EBRD and other financial institutions. It is important that depending on what fuel the driver fills the car, the speed of the car changes. And if you look at the last few years, first there was high-quality fuel, then they tried to spoil it, but later the new Government began to detoxify the fuel, including through the Memorandum. At present, the Memorandum has not been fully implemented, and this affects the operation of the engine.
When we signed the Memorandum and voluntarily agreed to reduce the profitability of the business, we believed that the “fuel poisoning” was over and we could return to developing new projects. We are still determined to continue working, but we are concerned about the implementation of the Memorandum.

Māris Kunickis, CEO of DTEK Renewables, said that we all spent a lot of time and effort to get the Memorandum signed, the law was passed and the market began to operate stably. Everyone expected that after that we would be able to continue investing, develop projects and the industry in accordance with the Strategy for the development of the industry in general and green energy in particular. But, unfortunately, a month after the entry into force of the Law, we see that not everything is happening according to the Memorandum. When we signed the Memorandum, we agreed to reduce the current tariff by 15 and 7.5% depending on the type of generation. Which is unprecedented in Europe. We did it voluntarily, realizing that the state is committed to 100% payment. And the payment of current obligations for us is now a factor of survival, because we have obligations to the financial institutions that provided us with funds to implement projects. These are loans that need to be repaid and interest paid. And we cannot agreed with the position that 50% of debt repayment is already a satisfactory indicator. This is not stabilization. This 50% will not allow us to develop the industry and develop new projects. We already see today that the Memorandum and the Law are not being implemented. We participate in the working group of the Ministry of Energy, where the same data on debt were presented. Currently, there are no funds to repay the debt by the end of the year. And this can not be called market stabilization. “The devil is in the details,” and we see that the Memorandum has been signed, the Law has been passed, but there is no clear calculation and understanding of how to balance the system. We need to see that it is possible to repay 40% of the debt by the end of the year. Let me remind you that we are being watched by international institutions and the international market. There are many proposals at the moment, but it is not clear when and where the funds will come from so that the industry can continue to operate. We look forward to the Government taking concrete steps to overcome the crisis. And we are not talking about the Ministry of Energy, but about the Government as a whole, because we are talking about a set of measures.

Ukraine has a very high potential for renewable energy – both strong winds and strong solar radiation. But in the current situation it is impossible to realize this potential without risks for investors.

Yuri Kubrushko, EUEA Board Member, Managing Partner of IMEPOWER, and moderator of the session noted that about a year ago, we faced delays in payments from the “Guaranteed Buyer” for electricity from RES. At first these were small delays, but since October last year the problem has been growing. After some time, the Government began negotiations with investors. This led to a mediation process with the Energy Community Secretariat. And it was a rather intense and complex process. After 6 months of mediation, we have reached certain results – a Memorandum of Understanding, which was signed between investors and the Government. The law was passed, but after a month and a half the adoption of the issue remains very sensitive.

On the one hand, we see some positive developments regarding payments from the “Guaranteed Buyer”. They amounted to about 60% in August, and more than 50% in September. This is a great achievement, given that from March to July this amount was at 10%. But we are still far from 100%. Most players in the RES market are puzzled. There is no clear picture of where we are heading. Therefore, the Memorandum and the new Law did not solve the problem.

Mr. Kubrushko summed up the session with the words: let’s continue to work on the implementation of all that we have, so that we can restore bankability of the sector, and provide a basis for the development of future projects and auctions.

Speakers presentations:

Web-page of Energy Day:

Watch thematic session #3: