"GOLD RUSH"

IN UKRAINE'S GREEN EN­ERGY

Kyiv Post Legal Quarterly - - Contents -

Why has in­vest­ing in re­new­able en­ergy be­come pop­u­lar in Ukraine and what an in­vestor should be aware of when plan­ning such an in­vest­ment?

Over the last four years, re­new­able en­ergy projects, such as so­lar, wind, hy­dro and oth­ers, have de­vel­oped very quickly in Ukraine, ir­re­spec­tive of the in­vestor cli­mate or other con­cerns. The sec­tor has wit­nessed sig­nif­i­cant growth from small- scale to large- scale re­new­able projects, most re­mark­ably wind and so­lar projects. Not­with­stand­ing the com­pli­cated per­mis­sion process, de­vel­op­ers have gen­er­ally been suc­cess­ful in bring­ing the re­new­able en­ergy projects to com­ple­tion.

Since the green tar­iff was in­tro­duced in 2009, the le­gal frame­work ap­pli­ca­ble to re­new­ables in Ukraine has evolved sig­nif­i­cantly and now forms an at­trac­tive foun­da­tion for in­vest­ing in this sec­tor. The fol­low­ing sum­ma­rizes cer­tain key el­e­ments of the cur­rent reg­u­la­tory regime.

1. The green tar­iff's "min­i­mum floor" is set out in a EUR equiv­a­lent and is guar­an­teed by law. The ac­tual value of the green tar­iff (which can­not be lower than the "min­i­mum floor") is sub­ject to the reg­u­la­tor's quar­terly re­view. The pro­ducer will ben­e­fit from the green tar­iff granted at the time of com­mis­sion­ing the rel­e­vant pro­duc­tion fa­cil­i­ties (e. g., a wind farm or a so­lar plant) un­til 1 Jan­uary 2030.

How­ever, a new sup­port sys­tem for green tar­iff pay­ments, based on auc­tions, is be­ing ex­plored by the reg­u­la­tor and dis­cussed by the mar­ket par­tic­i­pants. Such new auc­tion- based sys­tem will ap­ply to so­lar power plants hav­ing an in­stalled ca­pac­ity ex­ceed­ing 10 MW and to wind power plants hav­ing an in­stalled ca­pac­ity ex­ceed­ing 20 MW. Sub­ject to the adop­tion of the rel­e­vant leg­is­la­tion, auc­tions are ex­pected to be in­tro­duced in 2020. 2. Pos­si­bil­ity of con­clud­ing a "pre- con­struc-

tion" power pur­chase

agree­ment ("PPA") en­cour­ages the de­vel­op­ment and sup­ports the fi­nanc­ing of the project.

The pre- con­struc­tion PPA pro­vides a num­ber of con­di­tions that must be sat­is­fied to en­sure its ef­fec­tive­ness. Such con­di­tions in­clude ob­tain­ing an elec­tric­ity gen­er­a­tion li­cense and green tar­iff; be­com­ing a mem­ber of the whole­sale elec­tric­ity mar­ket; and tak­ing the nec­es­sary steps to in­stall and op­er­ate the com­mer­cial me­ter­ing equip­ment.

To be el­i­gi­ble for green tar­iff, the de­vel­oper has to com­mis­sion the project within three years from the date of reg­is­ter­ing a dec­la­ra­tion on com­mence­ment of the con­struc­tion works or ob­tain­ing a per­mit for car­ry­ing out the con­struc­tion works (as ap­pli­ca­ble). Should the de­vel­oper fail to do so, the pre- PPA will cease to be ef­fec­tive (the pro­vi­sions re­ferred to in this para­graph will be ef­fec­tive from 19 July 2019). 3. The model PPA has been re­cently im

proved to en­able in­ter­na­tional mar­kets stan­dard se­cu­rity ar­range­ments as well as set­tle­ment of dis­putes by in­ter­na­tional ar­bi­tra­tion. In ad­di­tion, the model PPA con­tains pro­tec­tion clauses against changes in the law. A PPA would re­main in ef­fect for the pe­riod of ef­fec­tive­ness of the green tar­iff, i.e., un­til 1 Jan­uary 2030.

Such im­prove­ments of the model PPA help to in­crease the "bank­a­bil­ity" of the PPA, mean­ing that the PPA sat­is­fies cer­tain cri­te­ria en­abling the banks-lenders to fi­nance the project. 4. Since 2015 there is no lo­cal con­tent re­quire­ment.

A pre­mium added to the green tar­iff en­cour­ages de­vel­op­ers to use equip­ment of Ukrainian ori­gin, pro­vided that the re­new­able en­ergy pro­duc­tion fa­cil­i­ties are com­mis­sioned be­tween 1 July 2015 and 31 De­cem­ber 2024.

If at least 30% of the equip­ment used is of Ukrainian ori­gin, the pre­mium added to the green tar­iff will be 5%. If at least 50% of the equip­ment used is of Ukrainian ori­gin, the pre­mium will be 10%. The pre­mium added to the green tar­iff is ef­fec­tive for the same pe­riod as the green tar­iff it­self.

En­hanced le­gal frame­work for in­vest­ing in the green en­ergy projects in Ukraine opens lu­cra­tive op­por­tu­ni­ties for do­mes­tic and for­eign busi­nesses. With a proper le­gal sup­port and guid­ance, such op­por­tu­ni­ties will surely turn into suc­cess­ful and prof­itable un­der­tak­ings.

Vic­to­ria Ischenko, As­so­ci­ate

Ihor Olekhov, Part­ner

Ser­hiy Chorny, Man­ag­ing Part­ner

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