On November 29 2001 Ukraine's Parliament (the Verkhovna Rada) passed the Law of Ukraine on Alternative Sources of Energy, drafted by the Energy Ministry of Ukraine and the State Committee on Energy Conservation of Ukraine. This law establishes legal, economic and organizational principles for the utilization of alternative energy sources.
The basic principles underlying state policy with regard to alternative sources of energy are as follows:
- to increase the volume of output and consumption of energy produced from alternative sources;
- to ensure that environmental and human health and safety requirements are observed at alternative energy production facilities;
- to encourage technological development in this field, as well as the education and training of relevant experts;
- to supervise compliance with the requirements for the rational consumption and saving of energy produced from alternative sources; and
- to attract domestic and foreign investment, and provide support for entrepreneurial activity in this area.
The law defines 'alternative energy sources' as including the following:
- solar radiation;
- wind power;
- water power (from rivers and seas);
- bio power;
- geothermal energy; and
- other secondary energy resources which exist constantly or arise from time to time in the environment.
Under the law, 'energy produced from alternative sources' is defined as electric, thermal and mechanical energy which is produced at alternative energy facilities and which may be treated as a commodity designated for sale and purchase.
Operations in the alternative energy industry are regulated either directly by the Cabinet of Ministers of Ukraine or by a specially empowered central authority acting on its behalf. The regulator will be responsible for:
- granting permission to conduct activities in this industry;
- developing, approving and implementing rules and standards for the manufacture, transmission, consumption and conservation of energy produced from alternative sources;
- monitoring facilities' compliance with technical maintenance requirements;
- supervising the regime for energy transmission and consumption; and
- establishing tariffs for electric and thermal energy produced from alternative sources.
The development of alternative energy sources shall be financed by targeted increases in wholesale tariffs on electric and thermal energy, and from state and local budgets, among other things.
An increase in the production of energy from alternative sources will promote the preservation of traditional energy supplies and will thus reduce Ukraine's dependence on imports of energy supplies. However, the president of Ukraine has vetoed the law as, in his opinion, it does not provide an efficient mechanism for financing the development of the alternative energy industry. Given that a 0.75% targeted increase of the wholesale tariff was already introduced in June 2000 by the Law of Ukraine on Electric Power in order to finance wind power development, the further implementation of such increases would substantially raise the price of energy for end consumers.
In addition, the law exempts the import of alternative energy-related equipment and machinery (other than that subject to excise duty) from value added tax for companies that manufacture alternative energy devices. However, this exemption will require extensive revision of the tax-related laws and state budget for 2002.
Despite these deficiencies, the law, when enacted, will undoubtedly promote the development of Ukraine's alternative energy industry.
For further information on this topic please contact Igor Svechkar or Gennady Molchanov at Shevchenko, Didkovskiy & Partners by telephone (+380 44 230 6000) or by fax (+380 44 230 6001) or by email ([email protected]).