Ukraine's Parliament to consider the draft law on auctions in the second reading

On 27 February 2019, the Parliament's Committee on Energy and Fuel Complex, Nuclear Policy and Nuclear Safety (the "Committee") considered and approved amendments to draft law No. 8449-д contemplating the introduction of renewable energy auctions in Ukraine (the "Draft Law") to be submitted to the Parliament for its second reading in March 2019. The full official text of the Draft Law to be submitted for the second reading has not yet been published. Based on the Committee's discussions, the following key provisions are expected to be included in the Draft Law for the second reading.

(a) Timing, quotas and thresholds. Auctions will be launched from January 2020, and will be conducted twice each year. Auctions will be required for all wind projects with a capacity exceeding 5MW, and for solar projects with a capacity exceeding 1MW. This is considerably lower than those thresholds contemplated by the Draft Law in the first reading (20MW for wind and 10MW for solar from 2020, with subsequent decreases).

A 15% quota will be introduced for each (i) solar, (ii) wind and, cumulatively, (iii) other types of renewable energy sources, while the remaining quota will be allocated amongst different sources by the Government. The Draft Law in the first reading did not establish any fixed quotas, leaving that to be decided by the Government. Fixed quotas aim to provide more certainty to investors planning new projects in Ukraine.

(b) The "cut-off" date for signing "pre-PPA" to obtain the feed-in tariff. The "cut-off" date for signing "pre-PPAs" (preliminary power purchase agreements) so as to be eligible for the feed-in tariff (the "FiT") is 31 December 2019. To sign the "pre-PPA", it will be necessary to submit сertain documents, including confirmation of the producer's land rights, a construction permit, as well as a grid connection agreement.

(c) Support term. A power purchase agreement concluded through an auction procedure will be valid for 20 years. The energy regulator should approve the new form of a power purchase agreement for use in the auction procedure within three (3) months following the enactment of the law.

(d) Feed-in tariff. The FiT support mechanism will continue to be in effect until 2030 for eligible projects, and will not be extended. No retroactive changes of the FiT will apply to projects already operating under the FiT.

Certain changes of the FiT rate will be introduced in the Draft Law in the second reading compared with the version in the first reading. Namely, the FiT for wind will be reduced from 2020 by approx. 10%, and then from 2025 as provided for by current legislation. There will be no interim reductions of the FiT for wind in 2021-2023, as contemplated by the first reading of the Draft Law.

The FiT for biomass and biogas will remain at the current level and will not be reduced from 2020.

The FiT reduction for solar is maintained as provided for by the first reading of the Draft Law. Compared with the FiT in 2019 taken as the general reference basis, the FiT for solar will be reduced by 25% from 2020, and then by 2.5% annually during the subsequent three-year period.

(e) Limited term of technical conditions. The term of validity of technical conditions ("TU") for grid connection will be limited. Two (2) years will be allowed for solar, and three (3) years for other types of renewable energy projects. The term for existing TUs will be counted from the effective date of the new law on auctions.

The Draft Law for the second reading is expected to essentially follow the provisions passed in the first reading in terms of pre-qualification requirements to bidders, bank guarantee, auction pricing, local content bonus and producers' responsibility for imbalances. To read an overview of the Draft Law approved in the first reading please follow the link: https://redcliffe-partners.com/en/publication/ukraines-parliament-to-consider-the-draft-law-on-auctions/

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