The Memorandum on the reduction of the feed-in tariff signed by the Government and renewable energy industry associations

On 10 June, the long-awaited Memorandum of Understanding on the Settlement of Problematic Issues of the Ukrainian Renewable Energy Sector (the "MoU") was signed by the Prime Minister of Ukraine, the acting Minister of Energy and representatives of major renewable energy associations UWEA (Ukrainian Wind Energy Association) and EUEA (European-Ukrainian Energy Association).

The MoU accommodates the arrangements reached by the public stakeholders and the above industry associations with respect to the restructuring (reduction) of the feed-in support mechanism (the "FiT"). Also addressed are certain matters relative to the financial sustainability and liquidity of the electricity market, stabilisation of the legal regime for renewables as well as the launch of the support mechanism for renewables through auctions.

The MoU represents the outcome following the lengthy negotiation process facilitated through the mediation of the Energy Community Secretariat. It is expected that other associations and public bodies will also sign, or accede to, the MoU, including, amongst others, the National Energy and Utilities Regulatory Commission and the Parliamentary Energy and Utilities Committee.

The Government and other authorities committed to taking best endeavours to adopt relevant changes to the Law of Ukraine "On the Electricity Market" (the "Restructuring Law") and other legislative changes before 1 August 2020 with the aim of implementing the arrangements encompassed in the MoU.

The official final text of the MoU has not been published yet. Based on the public information and the text of the MoU provided to us by the above associations, the key points of the MoU relate to the following:

a) Reduction of the FiT. The producers agreed that the FiT rates will be reduced as follows: 

Commissioning date

FiT reduction

01.07.2015 – 31.12.2019

Solar

Wind

≥ 1 MW

<1 MW

7.5%*

15%

10%

From 1.01.2020

2.5% (irrespective of installed capacity)

Before 01.07.2015

The FiT is capped at the level of the FiT for ground solar of >10 MW commissioned before 31.03.2013, decreased by 15%

* exсept where the installed unit capacity of a wind turbine is less than 2 MW.

The mechanism of implementation of the above changes to the FiT has not been specified in the MoU, and remains to be elaborated in the implementing legislation.

b) The term of the FiT. The term of the FiT will not be extended, although this option has been previously discussed for restructured projects. Hence, the FiT will continue to apply until 31 December 2029 as contemplated by current legislation, as will the term of validity of the power purchase agreements (the "PPA").

c) "Cut-off" date. The "cut-off" date for the commissioning (putting into operation) of solar power projects under construction with the signed so-called "pre-PPA" (preliminary power purchase agreements) in order to be eligible for the FiT is set for 31 July 2020. Projects commissioned after the "cut-off" date will not be eligible for the FiT, but can obtain support through the fixed auction price under a 20-year PPA in auctions, or sell electricity in other market segments (day-ahead market, intraday market and others). 

There is no cut-off date for wind, and so it can be commissioned during the regular term of three (3) years following the signing of the pre-PPA as contemplated by current legislation.

d) Balancing responsibility. Balancing responsibility of producers will be introduced as follows: 

  • 50% from 1 January 2021; and
  • 100% from 1 January 2022,

subject to tolerance margins of 10% for wind and 5% for solar.

It is also contemplated that producers will be able not only to participate in the offtakerˈs balancing group as provided by current legislation, but also to create their own balancing groups or to designate other balance responsible party.

e) Settlements with producers. The state authorities will ensure timely payments for electricity produced under the FiT beginning from the month following the adoption of the Restructuring Law. The indebtedness accrued by the offtaker to renewable energy producers since 1 January 2020 should be paid, with 40% payable in Q4 2020 and the remainder payable until the end of 2021 in the quarterly instalments of 15%. 

f) Compensation of curtailment. The state authorities will elaborate on the legislation required to implement the mechanism of compensation of curtailment of electricity production within one (1) month following the adoption of the Restructuring Law. 

g) Stabilisation clause. The express stabilisation clause will be included in the Law of Ukraine "On the Regime of Foreign Investment", "Electricity Market" and other relevant laws to guarantee that rights and obligations of parties to PPAs will be governed by legislation effective as of the date of enactment of the Restructuring Law, taking account of the amendments made in order to implement the MoU. The signatory state authorities will pledge not to adopt measures resulting in a deterioration of the economic activity of producers (including through levying taxes or duties, imposition of penalties, subsequent reductions of the FiT etc.). 

h) Renewable energy auctions. The government will adopt the quotas for the renewable energy auctions within two (2) months following the adoption of the Restructuring Law. The first auctions will be carried out until the end of 2020. It has been clarified that the commissioning of projects which obtain support through the auction mechanism will have to be additionally certified by an act on the provisions of grid connection services signed by the producer and the grid company. There is no similar requirement for the commissioning of projects under the FiT, and so the mechanical completion of a power plant certified by the relevant commissioning act continues to suffice as official evidence of commissioning.

The MoU is not intended to create any legally binding obligations on its parties, and is rather a framework political arrangement. It is open for the accession of other producers or their associations. It remains to be seen what will be the final text of the MoU and how relevant changes will be reflected in implementing legislation and supporting practice.

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