Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

Pursuant to the Law of Ukraine On Alternative Energy Sources, renewable energy sources are defined as renewable non-fossil energy sources - namely, solar, wind, aerothermal, geothermal, hydrothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment gas and biogas.

Moreover, according to the law, renewable energy sources include secondary energy resources, such as blast furnace and coke oven gas, methane gas from coal beds and waste to energy conversion technologies. However, the feed-in (green) tariff is not applicable to these energy sources.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The following legislative acts make up the principal legal framework regulating electricity market activities:

  • the Law of Ukraine On Electricity Market No. 2019-VIII dated 13 April 2017 is the principal law regulating relations in the electricity market;
  • the Law of Ukraine On Alternative Energy Sources No. 555-IV dated 20 February 2003 is a special legislative act regulating the renewable energy itself and sets tariff rates and premiums;
  • a number of legislative acts adopted by the NEURC:
    • the Transmission System Code (Resolution of the NEURC No. 309 dated 14 March 2018);
    • the Distribution Systems Code (Resolution of the NEURC No. 310 dated 14 March 2018);
    • the Market Rules (Resolution of the NEURC No. 307 dated 14 March 2018);
    • the Code of Commercial Metering of Electricity (Resolution of the NEURC No. 311 dated 14 March 2018);
    • the Day-Ahead Market Rules and the Intraday Market Rules (Resolution of the NEURC No. 308 dated 14 March 2018);
    • the Retail Electricity Market Rules (Resolution of the NEURC No. 312 dated 14 March 2018); and
    • the Procedure for the Power Purchase under the Feed-in (Green) Tariff (Resolution of the NEURC No. 641 dated 26 April 2019). These legislative acts are the main secondary legal instruments applicable to the new electricity market functioning;
  • the Resolution of the NEURC On Approval of the Procedure for Setting, Reviewing and Terminating the ‘Green’ Tariff for Electricity for Business Entities and Private Households No. 1421 dated 2 November 2012 lays down the details in relation to the procedure for determining and setting the feed-in tariff; and
  • the Resolution of the NEURC On Approval of the Licensing Conditions for the Performance of Business Activities on the Generation of Electricity No. 309 dated 22 March 2017 establishes a list of documents to be submitted to obtain a licence for the performance of electricity generation activities and determines a list of requirements, conditions and rules that are binding during the performance of these activities.

Apart from the above-mentioned legislative acts, the orders, regulations, and rules adopted by the NEURC, the Ministry of Energy and Coal Industry of Ukraine, and the Energy Efficiency Agency for each specific area and type of energy facilities are also applicable to regulating activities in the renewable energy sector.

As for the ‘environmental attributes’, it should be noted that currently Ukrainian law does not define this concept.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

Renewable energy in Ukraine is promoted through fixing the main mechanisms of stimulating renewable energy producers at the legislative level. These are:

  • the feed-in (the green) tariff; and
  • ‘green’ auctions

Promotion through the feed-in tariff consists of the guaranteed obligation of the state to purchase the generated ‘clean’ electricity from its producers as well as establishing a significant number of additional benefits for such electricity producers.

A feed-in tariff is a special tariff for the purchase of electricity produced by electricity generating facilities, in particular by the commissioned construction units of power plants (launch complexes), from renewable energy sources (as regard hydropower, it is applicable only to hydropower plants up to 10MW).

Both industrial companies and private households may take advantage of the feed-in tariff.

At the same time, the feed-in tariff shall be set for each business entity generating electricity from renewable energy sources for each type of renewable energy, for each energy facility or for each construction unit of the power plant (launch complex).

The feed-in tariff for electricity produced by generating units of private households is set for each type of renewable energy source.

The feed-in tariff is fixed at the legislative level in euros until 31 December 2029. The NEURC converts the feed-in tariff into the Ukrainian national currency on a quarterly basis at the average official exchange rate of the National Bank of Ukraine. The feed-in tariff is paid on all electricity generated, excluding electricity generated for own needs.

The feed-in tariff rates vary depending on the date of the energy facility commissioning, including the construction unit of the power plant (launch complex) that generates electricity from renewable energy sources.

The data on the feed-in tariff rates are provided in euros in the table below.

Type

Capacity (kW)

Commissioning date

2019

2020

2021

2022

2023-2024

2025-2029

Ground-mounted solar installations

0.1502

0.1126

0.1088

0.1050

0.1012

0.0975

Roof- or facade-mounted solar installations

0.1637

0.1228

0.1185

0.1147

0.1104

0.1066

Wind power (capacity of individual wind turbines)

≤600

0.0582

0.0517

0.0506

0.0495

0.0490

0.0452

>600 - ≤2,000

0.0679

0.0603

0.0592

0.0582

0.0571

0.0528

>2,000

0.1018

0.0905

0.0792

Biomass, business entities

0.1239

Biogas, business entities

0.1239

Hydropower, business entities

≤200

0.1745

0.1572

0.1395

>200 - ≤1,000

0.1395

0.1255

0.1115

>1,000 - ≤10,000

0,1045

0.0942

0.0835

Geothermal power

0.1502

0.1352

0.1201

Roof- or facade-mounted solar installations, private households

≤50

0.1809

0.1626

0.1449

Wind power, private households

≤50

0.1163

0.1045

0.0932

Combined solar and wind power systems, private households

≤50

0.1637

0.1228

0.1066

Roof- or facade-mounted solar installations, private households or energy cooperatives

≤150

0.1637

0.1228

0.1066

Wind power, private households or energy cooperatives

≤150

0.1163

0.1045

0.0932

Combined solar and wind power systems, private households or energy cooperatives

≤150

0.1637

0.1228

0.1066

Biomass, households or energy cooperatives

≤150

0.1239

Biogas, households or energy cooperatives

≤150

0.1239

Hydropower, households or energy cooperatives

≤150

0.1745

0.1572

0.1395

Geothermal power, households or energy cooperatives

≤150

0.1502

0.1352

0.1201

Regarding the ‘green’ auctions, this is a novelty of the Ukrainian laws aimed at reducing the costs for consumers and the state for renewable energy development.

With effect from 1 January 2020, the promotion of companies intending to generate electricity from wind or solar energy will only be possible subject to their participation in the auctions for quota allocation and winning that auction. The capacity requirements for renewable energy facilities to participate in the auctions are as follows:

  • wind energy facilities with a capacity of more than 5MW. In this case, the limitation does not apply to facilities with one wind turbine, regardless of the installed capacity of such a wind turbine; and
  • solar energy facilities (solar power plants) with a capacity of more than 1MW.

Other business entities intending to generate electricity from renewable energy sources, regardless of the facility’s installed capacity and the renewable energy source (except for blast furnace and coke-oven gas, and in case of hydropower use with only micro, mini and small hydro plants), may participate in the auctions voluntarily. At the same time, such business entities may not participate in the auctions for quota allocation for those energy-generating facilities, for which a feed-in tariff has been previously established or which have been granted support as a result of an auction.

The new support system advantage over the existing feed-in tariff system lies in the following aspects:

  • a longer support period (20 years after the renewable energy facility commissioning); and
  • guaranteed off-take of the electricity generated by the electricity producers at a price that depends on the auction results (auction price).

The auctions will be launched on 1 July 2019 and will be conducted until 31 December 2029. The auctions shall be held twice a year, but not later than 1 April and 1 October.

The existing feed-in tariff scheme is guaranteed until 2030 and applied to:

  • producers, already receiving the feed-in tariff, and economic entities that will construct and commission renewable energy facilities before 1 January 2020 (regardless of the installed capacity and renewable energy source);
  • economic entities, which will sign a preliminary power purchase agreement under a feed-in tariff with the guaranteed buyer before 31 December 2019 and will construct and commission the respective facilities within two years (for solar power plants) or three years (for facilities generating electricity from other renewable energy sources);
  • economic entities that will construct renewable energy facilities after 1 January 2020, where the installed capacity is less than the capacity for which the auctions are mandatory; and
  • electricity consumers, including energy cooperatives, having installed energy-generating installations with a capacity of up to 150KW and selling surplus electricity at a feed-in tariff rate once they use the energy for their own needs. In this case, the feed-in tariff for installations generating electricity from solar energy (except for combined systems) may be established only subject to installing them on buildings and roofs and/or facade structures.

A yearly quota (a capacity of renewable energy facilities for the respective year, within the limits of which the economic entities will be provided with state support) shall be allocated through the auctions. Every year, on 1 December at the latest, the Cabinet of Ministers of Ukraine shall establish the yearly quotas for the next five years, which should provide the market players with predictability in planning and implementing renewable energy projects.

The yearly quota shall be split as follows:

  • solar - not less than 15 per cent;
  • wind - not less than 15 per cent; and
  • other renewable energy sources - not less than 15 per cent.

To protect competition in the auctions:

  • the capacity, for which the auction participants are granted support, may not exceed 80 per cent of the total capacity proposed by all the auction participants for quota allocation with regard to the relevant type of renewable energy technologies;
  • an auction participant, individually or jointly with other participants with whom they have the same ultimate beneficial owner, may be awarded with no more than 25 per cent of the yearly quota;
  • the procedure for conducting the auctions should provide for a mechanism of protecting competition in the event that during the auction it is established that competition is insufficient.

To ensure a fair competition among bidders, the law prescribes that bidders have to submit an irrevocable bank guarantee to participate in the auction and an additional bank guarantee on top in the case of winning the auction as a performance bond to secure the obligations under the contract concluded with the guaranteed buyer.

The bank guarantee amount to participate in the auction shall be €5 per 1KW of the facility capacity, for which the business entity intends to obtain support. In this case, the facility capacity, for which the business entity intends to obtain support, may not exceed the facility capacity to be connected to the grid in accordance with the connection agreement.

The additional bank guarantee shall be €15 per 1KW of capacity, in relation to which the auction winner guarantees the performance of the obligations to the guaranteed buyer.

The use of equipment of Ukrainian origin by investors is stimulated by the relevant premium to the feed-in tariff (throughout all the term of its validity), if the electricity objects are commissioned by 31 December 2024.

Therefore, if equipment of Ukrainian origin is used at least on the level of 30 per cent, the premium to the feed-in tariff shall be 5 per cent. If equipment of Ukrainian origin is used at least on the level of 50 per cent, the premium to the feed-in tariff shall be 10 per cent.

The level of use of equipment of Ukrainian origin at power plants generating electricity from alternative energy sources is defined as the sum of respective percentage of specific items of equipment. The Law of Ukraine On Alternative Energy Sources provides an exhaustive list of equipment for each type of alternative energy source that qualifies for the feed-in tariff premium. The Ukrainian origin of equipment shall be confirmed by the appropriate certificate issued by the Ukrainian Chamber of Commerce.

However, such a premium to the feed-in tariff is not applicable to electricity objects of private households.

Furthermore, the law provides that the premium for the use of equipment of the Ukrainian origin applies both to the feed-in tariff and to the auction price. Such a premium shall be credited in cash by the guaranteed buyer on a monthly basis when calculating the price of the guaranteed buyer’s service for ensuring an increase in electricity production from renewable energy sources.

In addition, Ukraine has certain international obligations, as it is a member of the European Energy Community. Moreover, on 5 December 2017, Ukraine acceded to the Statute of the International Renewable Energy Agency (IRENA).

Nevertheless, some tax benefits are still available for renewable energy producers. Thus, pursuant to the Tax Code of Ukraine, no VAT is applicable to transactions on import to the territory of Ukraine of:

  • equipment, functioning on the basis of alternative energy sources, energy saving equipment and materials, means of measuring, control and management of energy resources, equipment and materials for production of alternative types of fuels or electricity from renewable energy sources;
  • materials, equipment, components for manufacturing equipment, functioning on the basis of renewable energy sources; raw materials, equipment and components for production of alternative types of fuels or electricity from renewable energy sources; energy saving equipment and materials, products whose operation provides saving and rational use of energy resources; means of measuring, control and management of energy resources.

In addition, pursuant to the Customs Code of Ukraine, the above mentioned goods are exempt from import and export duties, provided that the taxpayer uses them for own production and that no identical goods with the same qualities are produced in Ukraine.

Nevertheless, this tax benefit, while being settled on paper, cannot be implemented in practice due to the failure of the Cabinet of Ministers of Ukraine to approve the list of such goods with specification of codes under the Ukrainian Classification of Foreign Economic Activity Products. However, this tax benefit applies only to the projects implemented within the framework of cooperation between the central executive authorities of Ukraine, the Ministry of Economy, Trade and Industry of Japan and the New Energy and Industrial Technology Development Organization.

Also, the Tax Code of Ukraine provides that any transactions concerning sale of electricity generated by qualified cogeneration units and / or from renewable energy sources are not subject to excise tax.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

The state policy for the development of renewable energy projects is established at the national level and does not depend on the construction region.

However, special construction conditions may be established by local urban development regulations (in the case of construction of renewable energy facilities for households or within cities).

In addition, the following matters fall within the competence of local self-government bodies and executive authorities:

  • approval of the issues related to locating energy facilities on the territory controlled by them, taking into account the local community interests;
  • participation in the drawing up of plans for the electricity distribution systems development on the territory controlled by them;
  • participation in the development and implementation of a system of measures related to the electricity-generating facilities operation in the event of an emergency situation in the Ukrainian United Energy Systems.
Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

Among the changes adopted in 2018-2019, the following are worth mentioning:

  • the Law On Electricity Market No. 2019-VIII dated 13 April 2017 regulating electricity market activities, construction and connection of the electricity-generating facilities to the grid. The Law takes effect in stages and, according to the plan, will come into full force on 1 July 2020;
  • the Law On the Regulation of Urban Development Activities No. 3038-VI dated 17 February 2011 underwent changes regarding technical conditions. Since the introduction of the ‘green’ auctions, the new technical conditions for renewable energy facilities shall have the following validity periods: for solar power facilities - no more than two years after the date of issue, regardless of the change of the principal; for facilities generating electricity from other renewable energy sources - no more than three years after the date of issue, regardless of the change of the principal. The technical conditions already issued shall be valid: for solar power facilities - no more than until 22 May 2021; for facilities generating electricity from other renewable energy sources - no more than until 22 May 2022. In case the principal is a business entity awarded state support through an auction, the technical conditions for a renewable energy facility granted to this business entity shall be valid for the duration of the obligation to construct and commission the respective renewable energy facility;
  • the Law On Amendments to Certain Laws of Ukraine on Ensuring Competitive Conditions for Electricity Production from Renewable Energy Sources No. 2712-VIII dated 25 April 2019, introducing the ‘green’ auctions and changing the feed-in tariff rates;
  • the Resolution of the NEURC No. 641 dated 26 April 2019, approving statutory acts regulating the activities of the guaranteed buyer and the purchase of electricity at the feed-in tariff prices. This Resolution approved the Procedure for Electricity Purchase at the Feed-in Tariff Prices, the Methodology for the Guaranteed Buyer Cost Estimation, the Model Power Purchase Agreement under the Feed-in Tariff between the guaranteed buyer and the business entity generating electricity from renewable energy sources, the Model Agreement on the Provision of Services to increase the share of renewable energy in electricity generation. The Resolution came into force on 1 July 2019. This Resolution also repealed the Resolution of the NEURC No. 1314 dated 11 October 2012 On Approving the Model Agreements with Producers Generating Electricity from Renewable Energy Sources; and
  • a number of legislative acts adopted by the NEURC:
    • the Transmission System Code (Resolution of the NEURC No. 309 dated 14 March 2018);
    • the Distribution Systems Code (Resolution of the NEURC No. 310 dated 14 March 2018);
    • the Market Rules (Resolution of the NEURC No. 307 dated 14 March 2018);
    • the Code of Commercial Metering of Electricity (Resolution of the NEURC No. 311 dated 14 March 2018);
    • the Day-Ahead Market Rules and the Intraday Market Rules (Resolution of the NEURC No. 308 dated 14 March 2018); and
    • the Retail Electricity Market Rules (Resolution of the NEURC No. 312 dated 14 March 2018).

On 18 April 2018, the Transmission System Code, the Code of Commercial Metering of Electricity, the Distribution Systems Code, and the Retail Electricity Market Rules were officially published in the Uriadovy Kurier governmental newspaper and came into force on 19 April 2018.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

The legal framework applicable to disputes includes the Law On the Electricity Market, the Codes of Ukraine, in particular the Code of Administrative Procedure, the Commercial Code, the Civil Code and the Land Code, as well as antitrust laws.

Furthermore, the Verkhovna Rada of Ukraine is currently developing the Draft Law On the Energy Ombudsman. According to the Draft Law, it is planned to appoint an authorised person to be responsible for the protection of consumer rights in the energy market.

Complaints and disputes between electricity market participants are handled by the Regulator - the NEURC. The Regulator shall, within the specified time limit, adopt decisions binding on the market participants they relate to. Such decisions must be published on the Regulator’s official website, except those parts of the decisions which contain the confidential information. At the same time, the Regulator’s decisions may be challenged in court.

To resolve these issues, the NEURC developed and adopted the Resolution On Approval of the Rules for Considering Consumer Inquiries regarding the Actions of Business Entities Operating in the Energy and/or Public Utilities Sectors and Dispute Settlement. This regulation determines the priority actions to be taken by the entities and the order of consideration of disputes between market participants.

In addition, according to the model agreement with Energorynok, in case the producer is a foreign investment company, any disputes arising out of or in connection with the agreement shall be resolved in arbitration under the Arbitration Rules of the International Chamber of Commerce (ICS) or, with the consent of the producer, in the Commercial Court of Ukraine. The arbitral tribunal is to consist of three arbitrators appointed in accordance with the aforesaid Arbitration Rules. The place of arbitration shall be Paris, France. The language of arbitration shall be English. The governing law of the agreement shall be the substantive law of Ukraine.