Despite the sensitive political, economic and financial situation in Ukraine, alternative (renewable) energy is still among the priorities for government reforms and for investments as one of most important factors for reduction of Ukraine’s dependence on suppliers of imported traditional energy and for establishing the energy security.
Having set its course towards European integration as a member of the Energy Community, Ukraine has undertaken obligations to implement the respective European regulations in the green energy sector. In compliance with Directive 2009/28/EC of the European Parliament and of the Council as of 23 April 2009 on the promotion of using the green energy, Ukraine undertook to increase its gross final consumption of energy from renewable sources to 11% of the overall energy balance. According to the expectations stipulated in EU Association Agreement and the draft Energy Strategy of Ukraine until 2035, the above-mentioned figure would be further increased up to 20%. Taking into account that this figure would hardly reach even few percents now, further development of the green energy sector without considerable investments is rather impossible. In these circumstances, it would be reasonable to expect enjoying further deregulation, tax liberalization and other mechanisms of government support for attraction more investments to the green energy sector. However, what do we see instead?
Recently, the green energy sector has faced new challenges increasing fiscal pressure. This is mainly the result of the steps taken by the Ukrainian state.
First, at the turn of the year, the Cabinet Ministry of Ukraine (the “CMU”) cancelled tax exemption preferences for such goods as imported energy-saving materials, equipment and components. On 29 December 2014, the CMU abolished the Regulation of CMU No. 444 as of 14 May 2008 providing for the list of materials whose import was exempt from import duties.
Second, the National Commission for State Energy and Public Utilities Regulation has decreased the "green" tariff, at which the Ukrainian state company “Energorynok" buys the alternative electric energy unsold at contractual prices, already twice during this year. For the first time it was reduced on 31 January 2015 by 20% for solar power stations, and by 10% for other procedures of generating energy from renewable sources. For the second time, it was reduced quite recently, on 27 February 2015, by 55% for solar power stations and by 50% for all other alternative energy generation procedures. Formally, this measure is in line with the CMU Resolution of 14 January 2015 providing for temporary extraordinary measures in the electricity market. However, it would hardly be positively estimated by a business that considers entering the Ukrainian market of alternative energy. Any reduction of the "green" tariff should be substantiated by scientific research and should take into account the specific aspects of individual segments of the alternative energy sector, such as the economic payback period, the value of equipment, the development of technological infrastructure, etc. The above-mentioned does not look like a well-argued measure welcoming new investors.
Third, it is becoming increasingly commonplace to talk about increasing the “local content” providing that the “green” tariff may be set only for those energy generation facilities which are made up of Ukrainian materials and works at 30%-50% depending on the commissioning date of the energy generation facility pursuant to the Law “On Electric Energy”. The "local content" requirement is one of the most controversial and criticized issues. The companies often complain that they are not able to comply with the “local content” requirement, as the respective materials and equipment are not produced in Ukraine in a sufficient amount. It also violates the provisions of Directive 2009/28/EC and Article 7 of the Treaty on establishment of the Energy Community prohibiting discriminatory treatment as evidenced by the Opening Letter of the Energy Community Secretariat dated 02 October 2014. In this context, the approach provided by Draft Law No. 2010 “On Amendments to Several Laws of Ukraine to Ensure Competitive Conditions for Electricity Generation from Alternative Energy Sources” dated 03 February 2015, according to which the “local content” requirement shall be cancelled and surcharge to the “green” tariff for facilities constructed with the use of Ukrainian materials shall be established, appears to be more reasonable.
Along with all the above-mentioned things, the general problematic issues related to the procedure for obtaining licenses, for calculating the precise amount of "green" tariff, allotting land plots for construction, obtaining title to land, performing construction works, etc., which considerably affect the green energy sector, still remain unsettled.
To sum up, all this may undermine the reputation of Ukraine, which could be accused of deteriorating its investment climate and failing to comply with its obligations under the Energy Community and the EU Association on increasing the capacity share of renewable energy in the overall energy balance. All this can lead to investors' lawsuits against Ukraine, suspension of further development of alternative energy projects, and, as a consequence, an increase in the energy dependence on traditional energy suppliers. That is why the latest government measures should be reconsidered. The public policy requires a balanced approach toward reform and guarantees of investors' rights in order to increase the investment attractiveness of the alternative energy sector of Ukraine making it profitable for both the state and business.