Ukraine Is on the Way to Stabilizing the Situation in the RES Sector

Passing the Law consolidating agreements between the Government and "green" investors is one of the steps towards stabilizing the renewable energy sector in Ukraine.

Global deepening of the crisis in the energy markets encourages countries to implement economic recovery programs, take stimulating measures to support the energy sector, in particular, renewable energy producers. In the crisis, the RES sector is almost the only one that has shown growth, as indicates the International Energy Agency (IEA) in its reportafor May 2020. It has also predicted the resilience of the RES sector to market fluctuations in 2021. Utilizing the competitive advantages of renewable energy underpins economic development and job creation, as well as the reduction of harmful emissions and the introduction of innovative technologies.

Ukraine is part of global processes and proves its commitment to the "green" trend by pursuing energy transition and reforming the energy sector according to European standards.

Because of that, achieving a compromise with investors in "green" energy was crucial to avoid incrementing indebtedness before renewable energy producers, which could inevitably lead to the bankruptcy of enterprises and numerous lawsuits against the Guaranteed Buyer and the state of Ukraine.

One of the urgent steps towards stabilizing the RES sector was passing in the second reading the Lawb (Registration No. 3658), which was developed by the Energy Ministry to implement the Memorandum of Understanding on the settlement of problematic issues in the field of renewable energy (dated 10.06.2020, signed by two relevant industry associations). The Law, specifically, envisages the mechanism of restructuring the feed-in tariffs, increasing the responsibility of renewable energy producers for imbalances, improving the auction support system for RES.

The Law was adopted with certain amendments, including:

  • Terminating the rule on the tax legislation invariability for the renewable energy sector, this would allow introducing an excise tax on “green” energy, which may be of concern to renewable energy market players.
  • Possible reimbursement of the debts before renewable energy producers at the expense of the budget (up to 20% of the volume of marketable products).
  • Certain terms and conditions for “green” metallurgy enterprises i.e. the tariff for electricity transmission will not include the cost of Transmission system operator — TSO (Ukrenergo) for payments under the green tariff.

Other provisions of the Law provide as follows:

  • Reducing feed-in tariffs by 15% from 1 July 2020 (retroactively) for solar farms of a capacity exceeding 1 MW and by 10% for solar farms of capacity under 1 MW (commissioned between 1 July 2015 and 31 December 2019); for wind farms — by 7.5%; solar and wind farms — by 2.5% (commissioned on 1 January 2020); no extension of PPA.
  • Cut off date for new solar stations on 1 August 2020; the "green" tariff rate cuts by 50%.
  • Reducing feed-in marginal tariffs up to 52% for facilities commissioned before 1 July 2015;
  • Liability for imbalances: 50% in 2021 and 100% beginning 2022; allowable forecasting error — 10% for wind farms, 5% — for solar farms.
  • Transmission system operator (TSO) shall be determined to take responsibility for reimbursing the "green" generation curtailment in accordance with the methodology to be approved by the Regulator;
  • Improving the auctions procedure for renewable energy projects.

The Law provision regarding the development of distributed generation is particularly noteworthy as it guarantees the sustainable development of smart communities and increases the number of prosumers.

Despite the fact, that the provisions of the Law appear to be quite balanced, there is a number of investors, i.e. the owners of solar facilities, who are not ready to accept the agreed reduction of tariffs and can resort to arbitration. There are also concerns that the Government is not doing enough to involve several investors who, under the terms of the Law, could undermine the financial viability of their projects.

Passing the Law shall be a positive sign for market participants and stakeholders, as it would ensure the state obligation to fully and timely pay green energy producers and reimburse their unpaid amount (as of July 2020 it makes roughly $648 million).

It is worth noting that some other recently adopted legislative documents will help to resolve the debt issue, namely:

  • Draft Law (Registration №2386) “On measures aimed at repaying debts incurred on the wholesale electricity market” (dated 14.07.2020), aiming at the settlement of the issue of accounts payable and receivable formed on the wholesale electricity market before 01.07. 2019.
  • Resolution of the National Commission for State Regulation of Energy and Utilities dated July 11, 2020, increasing the electricity transmission services tariff for TSO (Ukrenergo) to UAH 240.23/MWh as well as dispatching tariff to UAH 24.75/ MWh (excluding VAT).

Therefore, the objective of the state is to demonstrate its trustworthiness and clear rules for investors. It is also essential to ensure the implementation of the adopted Law in order to:

  • Restore investors’ confidence in the industry;
  • Demonstrate a transparent and honest approach to lawmaking when the interests of the state and investors are at stake;
  • Adhere to declared course of the energy transition in accordance with the international obligations undertaken by our state (Ukraine has joined the Agreement establishing the European Energy Community; it is a party to the Energy Charter Treaty and bilateral agreements on promotion and mutual protection of investment);
  • Pursue the energy transition and reform of the energy sector in cooperation with European partners (e.g. launching the energy partnership between Ukraine and Germanyc).

 Overall, passing the Law is a big positive step forward, yet insufficient to stabilize the RES sector in Ukraine.

To ensure expanding the renewable energy sector, upgrading the electricity market model, and improving the investment environment the following actions should be urgent:

  • Stabilizing all segments of the electricity market, gradually removing the regulatory restrictions, avoiding administrative interference;
  • Eliminating cross-subsidies, resolving the issue of non-payment for electricity;
  • Transferring to financial PSO (public service obligations, which are imposed on state-owned companies to compensate for the electricity prices for households) in the new wholesale electricity market; eliminating PSO, allowing for all factors prevailing in the market;
  • Defining legislatively the vulnerable consumers to provide targeted subsidies to prevent tariff burden;
  • Upgrading the networks (infrastructure) in order to introduce smart grids (including incentive pricing for distribution companies to attract investment to improve the technical condition of networks and the quality of services);
  • Integrating the Unified energy system of Ukraine in ENTSOE to promote export and import supplies of electricity providing for the choice of suppliers to be able to get better quality services at competitive prices;
  • Ensuring sustainable economic development, as the energy transition strategy involves big investment.

a. Renewable energy market update. Outlook for 2020 and 2021. International Energy Agency. Global Energy Review 2020. The impacts of Covid 19 crisis on global energy demand and CO2 emissions.

b. Draft Law of Ukraine No.3658 dated 15 June 2020 “On inroduction of amendments to certain Laws of Ukraine on improving the support conditions for electricity  production from the  renewable energy sources”,

c. Official website of the Energy Ministry

Svitlana Chekunova

Leading Expert, Energy Programmes 

She focuses her research on international energy markets, energy security, global energy strategies and implications, energy efficiency, renewables, and environmental issues.

Professional Activity
Before joining Razumkov Centre, Ms. Chekunova was employed by Ukrainian state oil pipeline company (2001-2018), where she has held various positions in the departments of international project management, corporate governance, and strategic development. Among professional functions were: coordinating business dealings with global companies on essential projects such as commercializing the Odesa-Brody pipeline and starting operations of the Pivdenny marine oil terminal; liaising with foreign embassies, international financial institutions, and Ukrainian government authorities.

From 1996 to 2001 she worked at the Representative Office of Howard Energy International, LLC, an American company, as natural gas operations manager, where she was managing the gas sales operations and administering international contracts.

She had experience in the field of environmental protection (nuclear decontamination and water purification projects) at State ecological Centre at State University for Construction and Architecture in cooperation with the City University of New York.
In 1987–1996 she was a lecturer (English and German instruction applied to professional, business and technical requirements) at Kyiv State University of Construction and Architecture, volunteered to translate at various events of Communications and Youth Ministries.

Training Courses
Business and technical training (1996 through 2000) in New York, Groningen (the Netherlands) and Turkey (Howard Energy Offices in Ankara and Istanbul).

Master’s degree in International Business Management (2000) with a specialty in international economics from Kyiv National University for Economy, Bachelor’s degree in Linguistics, Kyiv National University (1987) with a concentration in English and German.