On 8 December 2011, the President signed an amendment to Art. 17-1 of the Law on Power Industry (the “Law”), aimed to give a better understanding of the impact of a so called ‘local content requirement’ on renewable energy projects.
The local content requirement (the “LCR”) was introduced in 2009 along with the Ukrainian feed-in tariff system (the “Green Tariff”) to ensure that production and sale of electricity produced from alternative energy sources under the preferential price is also beneficial for national manufacturers of goods, equipment and various service providers. The LCR makes producers of electricity from renewable energy sources eligible for the Green Tariff only if a certain share of materials, works and/or services of Ukrainian origin is used to construct a power plant.
The enactment of LCR is scheduled for 1st January 2012, however, it was previously unclear whether all projects will be affected by this requirement or only new ones. The adopted amendments clarified that the LCR will apply only to those power plants, construction of which will be commenced after 1 January 2012. Apart from that, the LCR rates remained unchanged:
- 15% for power plants commissioned before 1 January 2013;
- 30% for power plants commissioned after 1 January 2014 but before 1 January 2015; and
- 50% for power plants commissioned after 1 January 2015.
Under Ukrainian law the construction may be commenced after either: (i) registration of a declaration on commencement of the construction works (for lower and less complex I-III categories of the construction complexity), or (ii) obtaining of a construction permit (for IV-V categories).
It has also been clarified that in addition to the above LCR provisions, solar power plants commissioned after 1 January 2013 and 1 January 2014 will enjoy the Green Tariff only if respectively 30% and 50% of raw and other materials used in the solar modules installed at such plants are of Ukrainian origin.
- The Law itself does not provide any guidelines for proving the power plant’s compliance with the LCR. Instead, the Law contains references to two separate procedures that are to be adopted by the National Electricity Regulatory Commission (the “NERC”) and the Cabinet of Ministers of Ukraine: NERC is yet to regulate the procedure for calculation of the share of raw and other materials, works and/or services of Ukrainian origin. This procedure already exists in draft form prepared by NERC but still requires substantial improvement.
- The other procedure to be adopted by the Cabinet of Ministers should govern the issuance of certificates of origin to confirm Ukrainian “descent” of the goods.