The Ukrainian Ministry of Energy’s Vision on Renewables Development, Regulator’s and TSO’s Position re Renewables until 2030, Draft Law on Biomethane

Please find below certain updates regarding the renewable energy market in Ukraine.

Suggestions of the Ministry of Energy for further development of renewables in Ukraine

On 16 June 2021 the Ministry of Energy of Ukraine (the “Ministry”) arranged a meeting with representatives of renewable energy associations to discuss the current problems, solutions for them and further development of renewables, including auctions for quotas distribution. Information about the meeting is available at the Ministry’s website at https://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245548775&cat_id=35109.

The Ministry noted that despite the period when all payments to producers under “green” tariff were made timely and even partial payment of old debts were settled, new debts have accrued (the level of payments around 90%) due to the lack envisaged by law financing from the state budget.

As further steps for development renewables in Ukraine, the Ministry considers the following:

1. settlement of the current indebtedness and timely payments to the producers going forward (the use of financial instruments, such as “green” bonds, is considered);
2. form strategic targets and directions for development of the industry, in particular review of the energy strategy and national plan for renewables development until 2035;
3. launch of auctions for quotas distribution. Please note that the quotas for auctions have not been yet established and their amounts are still being considered. Thus, there is a high chance that auctions will not take place this year. Additionally, the Ministry is currently agreeing the amendments to the procedure for auctions with public stakeholders so it could take some time before they will be finally adopted. The Ministry also considers the auctions for construction new renewable energy facilities together with energy storage facilities;
4. introduction of  feed-in premium or contact for difference models for the producers allowing independent sale of electricity to the market, the draft law is still being elaborated;
5. improvement of the system of support for small distributed generation. It appears that there will be shift from feed-in tariff support to net billing or net metering;
6. establishment of the system for issuing guarantees of origin.

The Ukrainian Regulator approved report on evaluation of generation compliance in 2020

On 16 June 2021 National Commission on State Regulation in Energy and Utilities Spheres (the “Regulator”) approved the Report on evaluation of compliance (sufficiency) of generation facilities to cover forecast demand for electricity and securing necessary reserve in 2020 (the “Report”) prepared by PrJSC “NPC “Ukrenergo”.

According to the report, electricity generation from renewables in Ukraine doubled in 2020 compared to 2019 (from 3.5% to 7.39% in total mix). In the following three years the tendency will continue but the speed of growth will slow down (from 16% to 2.4% against the previous year). It is expected that in 2030 coal-fired power plants will decrease production by 12% and share of renewable in the energy mix will reach 21%.

In order to integrate renewables to the system it will be necessary in the nearest future to build:

1. at least 1 GW of high maneuvering facilities (most likely gas pikers). However, in order to achieve maximal production of electricity from renewables and avoid curtailments 2 GW of high maneuvring capacity will be needed;
2. at least 0.5 GW of energy storage facilities. If RES producers are not engaged in balancing and nuclear power plants are curtailed, the need for energy storage facilities may increase up to 2 GW.  

The Report suggests to establish quotas for new renewables facilities only after resolution of the issue with curtailment of the current RES producers and securing system safety as well as distribute such quotas only subject to obligation to build energy storage or high maneuvring facilities in the amount of 20% of the distributed quotas.   

The Draft Law On Biomethane

Please be informed that the group of members of the parliament, including the chairman of the parliamentary committee on energy and utilities Mr. Andrey Gerus and the chairman of its subcommittee Mr. Andriy Zhupanin, submitted the Draft Law No. 5464 dated 5 May 2021 On Introduction of Changes to Law of Ukraine On Alternative Types of Fuels as to Development of Biomethane Production (the “Draft Law”). The draft law is available at https://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=71839.

The Draft Law is aimed at introduction of definition of the term “biomethane” as well as legislative grounds for establishment and functioning the biomethane registry. The Draft Law is very important for development of the biomethane industry in Ukraine and the possibilities to export biomethane outside of the country.

Amongst key provisions of the Draft Law are the following:

1.   Term “biomethane” is defined as biogas which according to its physical and technical characteristics complies with the requirements of legislative acts to natural gas for injection to gas transmission and gas distribution systems or for the use as a motor fuel.

2.   The Cabinet of Ministers of Ukraine (the “CMU”) will be authorized to adopt the procedure on functioning of the biomethane registry. The registry will be administered by State Energy Efficiency and Energy Saving Agency (the “Agency”).

3.   Biomethane producers which intend to inject biomethane to gas transmission and gas distribution systems will be obligated to register in the biomethane registry.

4.   The guarantee of origin will be issued by the Agency via the biomethane registry. The guarantee of origin will be issued free of charge within 3 business days after entering the respective data by the producer into the registry.

5.   The producer may be denied to issue the guarantee of origin if the entry is incorrect as to the volume of injected biomethane (assume that the Agency will have the possibility to check the correctness of the entered data with the gas systems operators).

6.   The certificate of origin may be transferred, distributed or annulled

We cannot exclude that the discussed legislative changes and developments in the RES market will be considered adverse to investors to such extent so even more investors will be forced to initiate individual or collective (mass) claims via investment arbitration. Our firm held webinars on collective claims in arbitration and consider holding them to discuss the above mentioned and other developments as well as queries raised by interested investors. If you want to register for future webinars, please contact our PR Specialist Myroslava Tretiak via e-mail [email protected].

Please also note that we created our database of investors interested in potential claims against Ukraine, and if you or your contacts are interested to add our database for the purpose of possible mass claims against Ukraine, please do not hesitate to contact me.

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

Best,

Maksym