On 10 June 2020 memorandum of understanding regarding regulation of problematic issues in the sphere of renewable energy in Ukraine (MOU) aimed resolving long term negotiations between the Government of Ukraine and business associations (Ukrainian Wind Energy Association (UWEA) & European-Ukrainian Energy Agency (EUEA)) representing renewable power producers (RPPs). The MOU has been signed by the Prime Minister of Ukraine, acting Minister of Energy and Environmental Protection of Ukraine, UWEA and EUEA. Ukrainian Association of Renewable Energy representing solar investors (UARE) refused to sign the MOU.

Below we provide our summary of the main provisions of the MOU and the Bill 3658:

1. SUMMARY OF THE MOU

1.1 Mandatory restructuring of the green tariff

The MOU envisages the following scenario for restructuring the green tariff support scheme for RPPs without prolonging green tariff support beyond 31 December 2029:

(a) 15% reduction for all SOLAR RPPs with capacity equal or more than 1MW commissioned between 1 July 2015 and 31 December 2019;

(b) 10% reduction for all SOLAR RPPs with capacity less than 1MW commissioned between 1 July 2015 and 31 December 2019; and

(c) 7.5% reduction for all WIND RPPs with a single turbine capacity equal or more than 2MW commissioned between 1 July 2015 and 31 December 2019;

(d) 2.5% reduction for all solar and wind RPPs commissioned after 1 January 2020.

(e) Furthermore, the MOU envisages that the green tariff for all RPPs commissioned before 30 June 2015 cannot exceed 21.97 eurocents per 1 kWh.

1.2 Commitments of Ukrainian authorities

According to the MOU, Ukrainian state authorities, among others, commit to the following:

(a) ensure re-payment of all outstanding debts of the State Enterprise “Guaranteed Buyer” (GB) that accrued after 1 January 2020 in relation to electricity generated by all RPPs by 31 December 2021 in the following order: 40% in the fourth quarter of 2020; and 15% in each quarter of 2021;

(b) ensure timely payments for electricity generated in the future by all RPPs starting from the month following the month in which the law implementing the agreements in the MOU will enter into force;

(c) revise the TSO tariff and usage by the TSO of other financial sources within one month after the law implementing the agreements stated in the MOU will enter into force in order to ensure that all GB payments towards RPPs by GB are made in a timely way;

(d) consider the amendment of the Electricity Market Law and the regulatory framework that will allow RPPs to leave the balancing group of the Guaranteed Buyer (with the right to join other balancing groups, become the party responsible for balancing or creating new balancing groups) and sell generated electricity freely on the electricity market with the possibility to obtain compensation for the difference between the price for which electricity generated by RPPs was sold on the electricity market and the rate of the green tariff established for such RPP

(e) make the maximum efforts to adopt the law implementing the agreements stated in the MOU before 1 August 2020;

(f) establish that the Ukrainian law will apply to the rights and obligations under the PPAs and Pre-PPAs executed by the RPPs only in its version as of the date of the entering into force of the law implementing the agreements in the MOU (in this way, the RPPs can challenge in court any later changes to the legislation that negatively affect them); and

(g) prepare and approve an amendment of the regulatory framework that will ensure payment of compensation for the performance of curtailment commands issued by the TSO to the RPPs within one month after the law prepared for implementation of agreements stated in the MOU will enter into force.

1.3 Other commitments of RPPs

In addition, RPPs will also agree to:

(a) establish 31 July 2020 as the deadline for the commissioning of solar RPPs that have executed Pre-PPAs before 31 December 2019 (deadlines for wind RPP commissioning will not be shortened and will remain in force under their pre-PPAs);

(b) take responsibility for imbalances for RPPs that are part of the balancing group of the GB in the following order:

     (i) 50%* starting from 1 January 2021; and

     (ii) 100%* starting from 1 January 2022.

     *until 31 December 2029, such RPPs will pay for imbalances only, if the deviation between   actual and forecasted generation will exceed 5% (for solar) or 10% (for wind).

1.4 Other changes envisaged in the MOU

The MOU also envisages other changes in relation to the renewables in Ukraine, in particular:

(a) The MOU touches briefly on the distribution of the support quota for RPPs through auctions by:

     (i) obliging Ukrainian state authorities to approve quotas for support of the RPPs within two             months after the law implementing the agreements stated in the MOU will enter into force             and to ensure performance of the auctions for distribution of the aforementioned quotas until   the end of 2020; and

     (ii) requiring the commissioning of the power generating facilities of the RPPs that have         obtained support on the basis of auctions for distribution of support quotas to also be confirmed by the Act on performance of interconnection executed with either the TSO or the       respective distribution system operator.

(b) The MOU cannot be interpreted as a waiver of any right or claim of any signatory under the MOU towards other signatories to the MOU, including a waiver from the right of court or arbitration recourse for protection of rights and interests.

(c) The MOU also establishes that if the law implementing the agreements stated in the MOU contains provisions that are contrary to the MOU, the MOU will be terminated.

2. IMPLEMENTING LAW

Although the MOU is a big step towards resolving problems in the market, it must be followed up by drafting and adoption of the legislation, as well as sub-legislative acts by the Regulator, before the issues are completely resolved at the legislative level.

One of such legislative acts is draft law No. 3658 “On amending of certain legislative acts of Ukraine regarding improvement of terms of support of renewable energy producers” (or the Implementing Law), which was registered in the Ukrainian parliament on 15 June 2020.

The Implementing Law covers majority of the provisions of the MOU regarding mandatory restructuring of the Green Tariff, commitments of the RPPs and partially commitments of Ukrainian authorities (regarding stability clause and the payments of compensation for the performance of curtailment commands issued by the TSO).

It should also be noted that the Implementing Law already contains certain differences from the MOU, including:

(a) The Implementing Law excludes eligibility of any wind RPPs with up to three wind turbines (irrespective of their capacity) for the Green tariff.

(b) New balancing responsibilities envisaged by the MOU are applicable only to RPPs with installed capacity exceeding 1MW.

(c) The Implementing Law removes the cut-off date of 31 July 2020 for solar RPPs, but proposes the following mandatory restructuring (without prolonging the Green Tariff support beyond 31 December 2029):

(i) 15% reduction for all SOLAR RPPs with capacity equal to or more than 1MW commissioned between 1 July 2015 and 31 December 2019;

(ii) 10% reduction for all SOLAR RPPs with capacity less than 1MW commissioned between 1 July 2015 and 31 December 2019;

(iii) 7.5% reduction for all WIND RPPs with a single turbine capacity equal or more than 2MW commissioned between 1 July 2015 and 31 December 2019;

(iv) 2.5% reduction for all WIND RPPs commissioned after 1 January 2020;

(v) 2.5% reduction for SOLAR RPPs with capacity less than 1MW commissioned after 1 January 2020;

(vi) 2.5% reduction for SOLAR RPPs with capacity equal to or more than 1MW between 1 January 2020 and 31 July 2020;

(vii) 60% reduction for SOLAR RPPs with capacity equal to or more than 1MW commissioned after 1 August 2020 (e.g. if solar RPP with capacity equal to or more than 1MW will be commissioned between 1 August 2020 and 31 December 2020, the green tariff will amount to 4.5 eurocents per kWh); and

(viii) reduction to 21.97 eurocents per 1 kWh for all RPPs commissioned before 30 June 2015 which green tariff exceeds the threshold of 21.97 eurocents per 1 kWh.

(d) Various changes to the auction procedure.

(e) Various changes related to compensation for curtailments.

The intent is to adopt the Implementing Law before the last session of Parliament which ends in mid-July until Parliament breaks for the summer vacation. According to the Ukrainian legislative procedure, the Implementing Law must be considered by the Energy Committee in Parliament (which is already scheduled for 25 June 2020, Thursday this week), after which it can be voted by Ukrainian parliament in the 1st reading.

At the moment, it is difficult to predict the outcome of the deliberations on the Implementing Law in the Parliament, but the Implementing Law may still be subject to large debate in the Parliament during its progress through voting stages.

Authors:

Vitaliy Radchenko, Partner, vitaliy.radchenko@cms-cmno.com

Anatolii Doludenko, Associate, anatolii.doludenko@cms-cmno.com

Maria Orlyk, Partner, maria.orlyk@cms-rrh.com

Sergiy Datsiv, Associate, sergiy.datsiv@cms-rrh.com