On 3 December 2020, the Ministry of Energy of Ukraine (the “Ministry“) presented the long-awaited quotas and schedule of holding the first renewable energy auctions in Ukraine, due to be launched in 2021. This marks another important step on the way to implementing on a competitive basis the support mechanism for renewables in Ukraine. The general legal framework for renewable energy auctions was introduced following the adoption of law No 2712-VIII “On the Amendment of the Laws of Ukraine in Regard to Ensuring the Competitive Terms of Electricity Production from Renewable Energy Sources”, in May 2019. In December 2019, the Government approved the procedure of holding auctions. However, the quotas and schedule have not been approved, delaying the launch of auctions initially due in 2020. Once launched, auctions are expected to spur growth in the renewable energy industry, increase competition and reduce the cost of electricity.
a. Auction quotas and estimated indicators
The Ministry presented the quotas for 2021, as well as the estimated quota indicators for 2022-2025 (which can be further adjusted).
The proposed quotas are technology-specific and total 365 MW in 2021, including 155 MW for solar, 150 MW for wind and 60 MW for other renewable energy sources (“RES“) (including bioenergy and hydropower).
The estimated quota indicators proposed for 2022-2025 are as follows:
– 2022: the total of 420 MW, including 170 MW for each solar and wind, and 60 MW for other RES;
– 2023: the total of 470 MW, including 180 MW for solar, 190 MW for wind and 100 MW for other RES;
– 2024: the total of 520 MW, including 190 MW for solar, 210 MW for wind and 120 MW for other RES; and
– 2025: the total of 570 MW, including 200 MW for solar, 230 MW for wind and 140 MW for other RES.
b. Proposed auction schedule in 2021
The first auctions, as proposed by the Ministry, are due in June 2021, with 50 MW allocated for each solar and wind.
Subsequent auctions are due as follows:
– October 2021: 55 MW allocated for solar and 60 MW allocated for other RES (excluding solar and wind); and
– November 2021, with 50 MW allocated for solar and 100 MW allocated for wind.
The auction schedule for subsequent years will be approved annually, by 1 December of the year preceding the reporting year, as contemplated by law.
c. Auction support highlights
The key element of the new support mechanism is a power purchase agreement (the “PPA“) which is to be concluded by the auction winner with a single offtaker the State Enterprise “Guaranteed Buyer”). The auction price will be determined based on the lowest bid, and will be fixed for 20 years running from the date of connection of a project to the grid upon its commissioning. The price will be referenced to the Euro, which would help address the devaluation risk.
Auctions will be necessary in order to obtain the support for wind projects with a capacity exceeding 5MW, and for solar projects with a capacity exceeding 1MW. All other types of renewable energy sources may opt to participate in auctions.
In order to obtain support via auction, the auction winner would have to both commission and connect a project to the grid within two years for solar projects, or three years for other renewable energy projects, following the signing of the PPA.
To be admitted to an auction, a participant should submit the documents confirming its land rights and the grid connection agreement, information on its ultimate beneficial owners, management bodies and affiliated entities, as well as the bank guarantee.
The bidders are expected to propose their own projects. The Ministry has not designated any specific sites (land plots, rooftops or façades) which will be offered for auctions, although this option is potentially available under the law.
e. Next steps
The Government should consider and approve the auction quotas and schedule proposed by the Ministry. The auction announcement should be published by the State Enterprise “Guaranteed Buyer” within 30-60 days before holding the auction.
The Government should approve the tender terms for the procurement of demand management measures and system balancing technologies (including energy storage and fast start-up facilities), as well as develop appropriate incentives for investors and providers of the technologies required. There is a draft law on energy storage, which has to be passed to enable energy storage projects to be established in Ukraine.
The Ministry plans to announce tenders for the provision of technical assistance and advisory services to optimise future quotas with regards to the capacity of the power system and other parameters.
The above measures will help Ukraine’s power system integrate the growing generation capacity and afford larger quotas for future auctions.