Ukrainian Draft Law on Extension of pre-PPAs for Wind Projects, Lifting Restrictions on CPPAs, CfDs, GOs, Net Billing and Other Updates

Please find below information on recent legislative initiatives and updates which could be of interest for investors in renewable energy sources and energy projects in Ukraine.

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On 28 April 2023 the Draft Law No. 9011-д On Introduction of changes to certain laws of Ukraine as to recovery of the energy safety and green transformation of the energy system of Ukraine (the “New Draft Law”) authored by 15 members of the parliament. The new Draft Law is aimed at replacing earlier registered draft laws on of guarantees of origin for (the “GOs”) for producers of electricity from renewable energy sources (the “RES Producers”) and net billing and introduce numerous other amendments to the Ukrainian legislation as a compromise solution after discussions between members of the parliament between themselves as well as with public and private stakeholders.

The New Draft Law was passed in the first reading by the Ukrainian parliament on 2 May 2023 and currently being prepared by the parliamentary committee for the second hearing.

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The New Draft Law provides for the following key changes according to the areas of changes.?

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Extension of technical conditions and pre-PPAs for eligible wind projects

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1.????Pre-PPAs for wind projects eligible to be implemented under “green” tariff (the “GT”) are to be extended for one year although the industry asked about 2-year extension, at least (there is a possibility that during preparation of the New Draft Law for the second hearing the term will be increased to 3-yer extension).

2.????At the same time, according to the Draft Law No. 5322 dated 01.04.2022 envisaging implementation of the REMIT regulation, which is prepared by the profile committee for the second hearing in the Parliament, it is planned that GT will be reduced to 7.4 Eurocent per kWh from 8.82 Eurocent for wind farms commissioned by 31.12.2023. This would be definitely an adverse change for the industry.

Certain important changes to the GT mechanism and its operation

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1.????The government may envisage in the state budget expenditures to support RES Producers, in particular, for the purpose of the GT payments on the basis of calculations from the National Energy and Utilities Services Commission (the “Regulator”). If the government envisages in the respective annual state budget cots to support RES Producers, the Regulator reflects such costs while establishing the transmission tariff. Apparently, unless the discussed budget expenditures are envisaged, the Regulator shall establish the transmission tariff to cover expected support for RES Producers in full.

2.????Repairs of RES power plants damaged during the period of the martial law and re-entry of RES Producers to the balancing group of the State Enterprise “Guaranteed Buyer” (the “GB”) should not affect the amount of GT established during commissioning or auction price.

3.????RES producers with the GT may exit GB’s balancing group only in case of execution for the service of increase the share of RES (basically CfD, and for the purpose of this analysis it will be named CfD) on the basis of the standard form to be adopted by the Regulator for the term of the GT with simultaneous suspension of PPA under GT.

4.????It appears that the basis to calculate payments under CfD will be the average bigger of the average price as determined by the New Draft Law and the respective secondary legislation. If the average market price exceeds the auction price, the difference shall be paid by the producer to the GB.

5.????Switching from one to another form of support does not affect the rate of established GT.

6.????RES Producer exiting from the GB’s balancing group is entitled to return to it and PPA under GT will be resumed with simultaneous suspension of the CfD;

7.????The guarantee of GT payments and auction price are expressly applied to RES power plants included to GB’s balancing group while RES producers under CfD are getting the guarantee of payments under them.

8.????The decreasing coefficient for GT of solar power plants up to 1 MW in the amount of 0.4 will apply to solar power plants up to 1 MW commissioned as well as expedited decrease of for installations of households starting with 1 January 2024. There will be also additional requirements to be eligible to GT for households (availability of real estate and registration of any person in the respective real estate).

9.????The RES producers with the GT or auction support may enter into financial PPAs if they withdraw from the GB’s balancing group as well as sell GOs under such financial PPAs.

10.?Any consumer is entitled to install and operate generation or storage installation solely for own use without obtaining a license and obtain GOs for produced electricity.

11.?RES Producers under GT may at its request may exit from the GB’s balancing group and sell electricity in the market with obtaining the difference between the market price and GT on the basis of CfD (the same approach applicable to the producers under the auction price).

12.?Only the maximal volume of electricity to be produced by each installation as per info on the generating equipment in the license will be subject to purchase by the GB. The exceeding amount will be purchased at the value of imbalance for the respective hour.

13.?The operation of the GB’s balancing group will be regulated by the agreement on participation in GB’s balancing group entered into on the basis of the standard agreement to be established by the Regulator.

14.?The New Draft Law amends provisions on calculation of services rendered by the GB on the increase of RES share in the market to be covered from the transmission tariff payments as well as specify that income from sales of GOs, export and import of electricity etc. should be directed to cover payments to RES producers.

15.?RES producers are expressly allowed to export and import electricity from/to Ukraine.

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Lifting restrictions for PPAs of RES Producers without state support

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1.????The RES producers without established GT or auction price will not be obliged to sell electricity under bilateral PPAs (including corporate and utility PPAs as known in Europe) via special electronic auctions regulated by the procedure to be adopted by the CMU.

2.????The Regulator will not be entitled to set the maximal term of the PPAs for RES Producers without state support.

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Guarantees of origin

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1.????The New Draft Law introduced the term “register of guarantees of origin of electrical energy produced from renewable energy sources” (the “Register”), which is defined as electronic system securing formation of GOs, recording information on issuance, circulation and termination of GOs produced from RES and to provide information on them.

2.????GO itself will be defined as an electronic document produced by virtue of the Registry confirming that the determined quantity of electrical energy is produced from RES and establish its ecological value (amount of greenhouse gases avoided by production of electricity from RES) as well as confirming rights related to positive effect (forming a share in National Contribution of Ukraine in Greenhouse Gases Reduction from production of electricity from RES).

3.????Energy cooperatives will be expressly allowed to carry out energy storage activities.

4.????GOs shall be issued and circulate as per procedure established by the CMU (“GOs Procedure”). Proposals for the GOs Procedures are prepared by the Regulator and submitted via the Ministry of Energy to the CMU.

5.????The Regulator is an authorized agency on issuance and circulation of GOs related to electricity produced in Ukraine and secure the Registry functioning.

6.????GOs may be issued for the actual volume electricity fed to the grid or used for own consumption for the operational period (to be determined by the GOs Procedure) by virtue of the Registry on the basis of commercial metering data.

7.????Information in the Registry will be public.

8.????In addition to the Registry, the Regulator shall administer the registry on RES installations for production of electricity information from which shall be the part of the Registry.

9.????More details on functioning of the Registry, circulation of GOs etc. shall be in GOs procedure;

10.?GOs shall be contain the following information:

10.1.???????????????type of RES;

10.2.???????????????beginning and final date of the operational period;

10.3.???????????????location, installed capacity and characteristics of the RES installations;

10.4.???????????????availability and type of state support;

10.5.???????????????commissioning date of RES installations;

10.6.???????????????date and country of issuance;

10.7.???????????????environmental value (positive effect);

10.8.???????????????unique identification number.

11.?GOs are issued to confirm production of electricity in MWh. Only one GO may be issued for each produced volume of electricity.

12.?GOs are formed automatically in the Registry on the basis of information of the commercial metering.

13.?term of the GO constitutes 12 months and after expiry of this term the GO may circulate.

14.?The RES producers which are entitled to GOs are subject to inspections by the Regulator and the generation installations of the consumer by the respective system operator. In case of inaccuracy of submitted data to the Registry (use of non-RES or incorrect portion of RES), the respective RES installations are excluded from the Registry.

15.?All RES producers are entitled to obtain GOs and freely transfer GOs until the expiry date, except for RES producers under GT or auction price, which GOs are automatically transferred to GB, and GOs of prosumers with GT, which shall be automatically transferred to the respective universal services supplier which buys electricity from them at the established GT. GB and universal services suppliers are entitled to sell GOs and use respective proceeds for payments for electricity to RES Producers.

16.?GOs are to be used to disclose to end users information about shares of various energy sources in electricity acquired by the supplier or produced at its installations. Procedure to be established by the Regulator.

17.?Used GO is not subject to further transfer.

18.?Recognition of GOs produced outside of Ukraine as well as termination of Ukrainian GOs outside of Ukraine shall be carried out on the basis of international treaties. If the Regulator does not recognize GO produced in a country of European Energy Community (the “EEC”), it shall inform the EEC secretariat.

19.?Mechanism of GOs for biomethane will expressly cover liquified or compressed biomethane.

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Changes to the auction system

1.????Instead of the obligation to pay auction price eligible RES Producers are entitled to get payments only under CfD (CfD for auction price and GT has almost the same regulation and key provisions are discussed above).

2.????The annual quotas for auctions may also establish:

2.1.??technical parameters of energy storage at RES installations;

2.2.??time intervals for which the support could be sought;

2.3.??load profiles;

2.4.??the caps of the auction prices for renewables (suggested by the Regulator);

2.5.??the share of the auction price which is fixed in EUR (but not less than 50%).

3.????The requirements to provide documents on land or grid connection agreements for participation in the auction are cancelled but they shall be provided within 6 months following the CfD execution which apparently is not a sufficient term.

4.????The auctions are planned to be implemented starting with 1 July 2023.

5.????The period for commissioning of power plants after entering into the CfD with the auction winner has been shortened for:

5.1.??solar power plants to 18 months (from present 2 years);

5.2.??wind and other RES power plants to 24 months (from present 3 years).

6.????The term of the support under CfD is 12 years instead of 20 years as per effective laws.

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Net billing

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1.????Mechanism on self-production according to which, there is a settlement based on value of the electricity output of electricity produced from alternative energy sources to the electrical network by generation installations of the consumers and value of consumption by them of electricity from the network (given the value of services on transmission and/or distribution of electrical energy), as well as possibility to accumulate funds within the period of accumulation (12 months).

2.????(i) RES installations up to 30 kW, (ii) small prosumers other than households with RES installations up to 50 kW and (iv) other consumers with RES installations or (v) third parties owning such installations connected to the network of consumers or their installations provided that the consumer buys 100% of their output are entitled to self-production scheme of support (on the basis of net billing principles). All other generating installations of consumers are entitled to the support if commissioned by the end of 2029.

3.????The capacity of installations is limited by the maximal allowed grid connection capacity of the prosumer.

4.????According to the proposed support scheme, the net billing agreement is executed between such prosumers and universal services suppliers or suppliers of electricity, in certain cases established by law on the basis of the template agreement approved by the Regulator.

5.????The net billing envisages settlements on the basis of hourly production and consumption taking account of distribution/transmission charges within a month.

6.????Prosumers other than households and small prosumers may feed to the grid only within 50% of allowed grid connection capacity of the respective prosumer.

7.????Households and small prosumers other than households will be entitled to sell electricity to universal services suppliers at the day ahead prices. Apparently, all other prosumers may enter into net billing agreement with power suppliers at freely agreed prices.

8.????The funds are not received by the prosumers for their use but accumulated at special account for settlements against the consumed electricity within the respective month and the amount of money accumulated at the special account could be claimed by households and small prosumers within March of each year. For all other prosumers, the actual payments to prosumers, if applicable, shall be made monthly.

9.????There would be special rules established by the Regulator for grid connection of 5 MW+ installations of prosumers (in the grid codes), sale and purchase of electricity etc.

10.?In addition, the New Draft Law envisages special state program to incentivize installations of distributed generation and storages to be approved by CMU.

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Aggregation

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1.????There will be a new market player – an aggregator which activity will be related to consolidating installations owned by other market players and designed for the consumption/production/storage of electricity in order to trade electricity or render respective services in the market (balancing and ancillary services).

2.????Aggregation shall be subject to licensing unless the market participant owns already license on the electricity market.

3.????Aggregator shall interact with other group participants on the basis of the agreement on participation in the aggregated group the template form of which is established by the Regulator.

4.????Aggregators shall be a party responsible for imbalances and prohibited to transmit or distribute electricity.

5.????Aggregators could buy and sell electricity as well as render balancing and ancillary services in the market.

6.????Each electrical installation could be only in one aggregated group and electrical installation of one aggregated group shall be deemed as one aggregated installation.

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This information does not constitute legal advice and is merely the opinion of the author.

Best regards,

Maksym