Update regarding Discussion of Memorandum of Understanding between the Ukrainian government and RES Producers and Investors and Curtailment Matters

Please find below important updates for the Ukrainian RES sector.

Update regarding MoU Discussions

Please be informed that in accordance with information at the website of Cabinet of Ministers of Ukraine (the “CMU”), on 26 May 2020 the Prime Minister Denys Shmyhal and the Acting Minister of the Ministry of Energy and Environmental Protection of Ukraine (the “Ministry”) Olga Buslavets met again with RES investors and producers. Information about the meeting is available at the CMU’s site at https://www.kmu.gov.ua/news/denis-shmigal-proviv-zustrich-z-virobnikami-zelenoyi-elektroenergiyi?fbclid=IwAR1PLIFykKZ0BkWLVuUMYl5sZR2wBxoKe7lzrPnshhB6JeioorjnbJfN9fw. In accordance with unofficial information, the government suggested stricter conditions than earlier discussed with the Ministry. According to information in the press (please see at the link https://biz.censor.net.ua/news/3197548/stali_izvestny_ocherednye_usloviya_memoranduma_s_zelenymi_minus_15_dlya_ses_minus_75_dlya_ves_dokument), the following cuts of “green” tariff (the “GT”) and conditions for restructuring GT for solar power plants (SPPs) and wind power plants (WPPs) were discussed with/suggested by the Ministry before the meeting on 26 May 2020:

1.    Cut for SPPs and WPPs commissioned before 2020

1.1.  SPPs – 15%;

1.2.  WPPs – 7,5%.

2.    Overall cap for all SPPs (affect SPPs commissioned before 2017 and effectively cut their GT)

2.1.  22 eurocents per kWh;

3.    Cuts for SPPs and WPPs commissioned in 2020 and afterwards:

3.1.  SPPs – 2,5%;

3.2.  WPPs – 2,5%.

4.    Deadline for commissioning projects under pre-PPAs

4.1.  SPPs – 30 June 2020;

4.2.   WPPs – 31 December 2022.

5.    Expedited introduction liability for imbalances

5.1.  2021 – 50%;

5.2.  2022 – 100%.

6.    Possible extensions of GT scheme of support (beyond 2019)

6.1.  1 year;

6.2.  2 years.

 Again, according to unofficial information at the meeting on 26 May 2020 the government suggested stricter conditions thane ones described above so please do not consider such conditions as final or agreed at some stage between the participants to negotiations. We cannot exclude final conditions will be 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 last and this week and plan to hold them on 1 June 2020 at 13.00 Kyiv time (in Russian/Ukrainian only), Monday to discuss the update on MoU discussions and certain queries raised by interested investors. If you want to register for the webinar, please contact our PR Specialist Myroslava Tretiak via e-mail [email protected].

Please note that market players already started coordinate their activity and unite in fighting their rights. In particular, investors in approximately 1 GW united to protect their interests and already made public statement in this regard (see more information in Ukrainian at https://nv.ua/ukr/biz/markets/zeleniy-tarif-vlasniki-ses-shcho-buduyutsya-zvernulisya-do-prezidenta-i-prem-yera-novini-ukrajini-50090994.html).  

Draft Resolution on Compensation for Curtailments

National Commission On State Regulation in the Sphere of Energy and Utilities (the “Regulator”) approved on 27 May 2020 the Draft Resolution on Amendments to Rules of the Market (the “Draft Resolution”) for the purpose of placing at its website and obtaining comments and suggestions (the decision is available in Ukrainian at https://www.nerc.gov.ua/?news=10211 and the text of the Draft Resolution is available at https://www.nerc.gov.ua/data/filearch/Materialy_zasidan/2020/traven/27.05.2020/p60_27-05-20.pdf).

In accordance with the available text of Draft Resolution, the Regulator suggests the following:

1.    PrJSC “Ukrenergo” (the “TSO”) will be responsible to compensate for electricity curtailment via mechanism of the balancing market.

2.    The mechanism of dispatching limitations envisage the participation of RES producers in the balancing market where they will submit applications only for unloading for the product “activation for RES producers” at the price of 0.01 UAH/MWh. At the same time, the activation applications shall equal to the difference between the planed output for the following hour and power capacity of so called “etalon group”, if the installed capacity does not exceed 10 MW, or otherwise equals to 0. If these requirements are not fulfilled by RES producers, the TSO will not compensate RES producer curtailed electricity.

3.    Afterwards, the value of curtailed electricity shall be compensated at GT established for the respective RES producer or auction price via subaccount UA-1.

4.    The amount of compensation is suggested to be calculated in accordance with the special Methodology for Determination of the Volume of Curtailed Electricity which envisages 2 methods for calculation:

4.1.  the etalon method applicable for RES Producers more than 10 MW (based on data of commercial metering of the etalon generating installation which may not exceed 10% from the installed capacity of the RES producer; the etalon generating installation is the one or several operating installations (inverters or wind turbines) with a separate metering point;

4.2.  calculation method envisaging that the volume of curtailed electricity is compensated only on the basis of data for previous periods.

Please note that the Draft Resolution is not final and subject to discussions

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

Have a healthy and happy weekend!

Best,

Maksym