The Ukrainian Offtaker for RES Producers Settled Part of the 2020 Debt, Amendments to the Model PPA and FIT Establishment Procedure

Please find below brief update on certain developments in the RES sector of Ukraine.

The Guaranteed Buyer Paid Part of Debts of 2020 Owed to RES Producers

In accordance with information at the website of the State Enterprise “Guaranteed Buyer” (the “GB”) paid UAH 0,9 bln on 4 February 2021 and UAH 2,23 bln on 12 February 2021 to producers of electricity from renewable energy sources (the “RES Producers”) in to cover debts incurred to them in 2020. As result, electricity produced in March 2020 was paid in full as well as 21% of electricity produced in April 2020. 

Please note that the same amounts of funds were wired to State Enterprise “NNEC “Energoatom” on the same dates.

As informed earlier, on 6 January 2021 PrJSC “Ukrenergo” (the “Ukrenergo”) entered into three loan agreements with state banks “Oschadbank”, “Ukreximbank” and “Ukrgazbank” for the total amount of UAH 10.25 bln.  in order to settle indebtedness with the GB in accordance with Ukrenergo’s site (info available in Ukrainian at https://ua.energy/zagalni-novyny/ukrenergo-pidpysalo-try-kredytnyh-dogovory-dlya-pogashennya-zaborgovanosti-pered-garantovanym-pokuptsem/?fbclid=IwAR1KMlhhqXOr-mhats3O8JFdPRDV920cX2zSALh4kq4jQ3Maa2utw3u5hZo ). The indebtedness incurred within 8 months of 2020 due to the absence in the tariff structure of sufficient funds to finance PSO obligations of Ukrenergo. According to Ukrenergo these loans, will help to defer the increase of transmission tariffs for consumers and fix the negative result of Ukrenergo’s financial activity in 2020.

Market players expected that the proceeds under the loan agreements would be used by the GB to fully repay indebtedness to RES Producers incurred before 1 August 2020 as required by Memorandum of understanding on resolution of problematic issues in renewables sector (MoU) between the Ukrainian state authorities and RES Producers and investors producers dated 10 June 2020. As per the MoU, the debts owed to RES producers shall be repaid until 31 December 2021 in accordance with the following schedule:

1.1.  40% in the fourth quarter of 2020;

1.2.  15% during each quarter of 2021.

Nonetheless, on 16 January 2020 National Commission On State Regulation in the Sphere of Energy and Utilities (the “Regulator”) issued recommendations (in Ukrainian “nastanova”) on settlement of indebtedness in the electricity market which recommended the GB to use payments obtained from Ukrenergo (from borrowed funds) to pay at least 50% debts to State Enterprise “NNEC “Energoatom”.  The prime minister of Ukraine also mentioned similar suggestions during one of the interviews. It seems that the GB decided to follow these recommendations despite of objects from RES producers, investors and lenders that 100% of such payments should go to the RES producers. If it keeps following these recommendations, the proceeds from Ukrenergo’s loan will cover only up to 20% of 2020 debt.

The Acting Minister of Energy Yuriy Vitrenko and CEO of Ukrenergo Volodymyr Kudrytskyy recently made public statements that further payments to RES Producers will be covered based on “green” bonds to be issued by Ukrenergo. Even though this mechanism should work, it will take considerable time to implement it.

Amendments to the PPA with RES Producers and Purchase of Electricity from RES Producers and Imbalances Charges

On 15 January 2021 the Regulator adopted Resolution No. 46 (the “Resolution No. 46”) which took effect on 16 January 2021  (certain provisions will take effect on 1 April 2021) and amended, inter alia, Procedure on purchase by the GB of electricity produced from alternative energy sources (the “Procedure”) and Model (standard) agreement on purchase and sale of electricity under “green” tariff (GT) (the “Model PPA”) which were adopted by Resolution of the Regulator No. 641 dated 26 April 2019.

Amongst changes introduced by Resolution No. 46, I would like to highlight the following:

1.    The list of documents to be submitted for entering into the agreement on purchase and sale of electricity under “green” tariff with a RES producer (the “PPA”) after obtaining the GT was expanded to cover documents requested by the GB in the past even without legally established requirements, namely list of metering points, single line diagram for placing metering points, copies of technical conditions for connection of the power plant, application on a choice to select a dispute resolution process, information about representatives of the producers and specimen of their signatures. Provision of list of metering points and single line diagram for placing metering points are expressly set out as conditions for taking effect by provisions of the PPA related to the GB’s obligation to purchase electricity and shall be annexed to the PPA.

2.    The GB got a right to terminate the PPA unilaterally if facts of submitting inaccurate data in documents or information for the execution of the PPA if such facts are discovered and confirmed in the procedure established by law. Probably, the Regulator meant that such facts should be confirmed by the court. Please note that the Model Agreement does not mention that the facts of inaccuracy shall be established before the GB may terminate the PPA. Thus, there is a risk that the GB may abuse this right at some point. It should be noted that neither the Procedure nor the Model Agreement stipulates what inaccuracies may be grounds for termination, and thus any mistake may be a ground for such termination.

3.    Starting with 1 April 2021 RES Producers will be able to adjust the hourly forecast of the electricity production not later than 55 minutes before the respective settlement period instead of 2 hours and 45 minutes, which we have now. This amendment will improve the accuracy of forecast and decrease possible imbalances compared to the current regulation.

4.    The procedure for payments for electricity under GT has been amended as well as corrections to the procedure for calculation and payment of imbalances were introduced, in particular formula for its calculation. Please note that RES Producers shall pay the imbalances charges within three business days after obtaining acceptance certificates on transfer and acceptance signed by the GB. If the RES Producer fails to pay them, it will lose membership in the balancing group of the GB and will be included to the balancing group only after submission of documents confirming payment of imbalances charges. The GB shall give its consent within three business days. In accordance with the GB’s website, the deadline for paying January 2021 imbalance charges is 17 February 2021.

5.    The RES producers shall return the part of the advance payment exceeding the value of electricity produced during the settlement period within four business days of the acceptance certificates signed by the RES producers. 

Amendments to the Procedure for GT Establishment for Pre-PPA Projects

On 3 February 2021 the Regulator adopted Resolution No. 138 (the “Resolution No. 138”) amending Resolution No. 1817 dated 30 August 2019 On Approval of the Procedure for Establishment, Review and Termination of “Green” Tariff for Electricity for Business Entities, Consumers, in Particular Energy Cooperatives, and Private Households, Generating Installations of which Produce Electricity from Alternative Energy Sources (the “GT Procedure”) which took effect on 4 February 2021.

Most of the changes in the Resolution No. 138 bring the GT Procedure in line with the effective laws in respect of terminology and practice of the Regulator.

The key change the market players shall be aware of is the restriction for those producers who executed so-called pre-PPA (PPA before construction of the project by 31 December 2019). Such RES Producers will not be allowed to deviate from the following technical and economic indicators submitted during execution of the pre-PPA:

1. increase the maximal (forecast) load for the power plant taking account its allowed connection capacity; and
2. divide their projects into launching complexes and/or lines for solar power plants up to 1 MW and for wind power plants up to 5 MW.

It appears that during implementation of the projects under the pre-PPA the RES Producers will be allowed to change land and construction documentation without losing a right to the GT, which is extremely important for pending wind projects.

Despite these positive developments, we cannot exclude that recent legislative changes and developments in the RES market will be considered adverse to investors to such extent so they 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