FIT in Ukraine

Green tariff was officially entered in Ukraine in 2009. The main obligation of the state was to buy back all amount of electric power, generated with the use of renewable energy sources (RES), and also relatively high price rate for this kind of electricity.

Green tariff is a solution to provide energy independence of Ukraine. One of aims of the tariff’s acceptance was to direct national energy development not only into traditional sources sector with the use of expensive fossil sources (hydrocarbons) of foreign origin, but also to stimulate active extension of alternative energy segment, using renewable, virtually inexhaustible energy sources. Transition to RES technologies is the substantial step towards energy independence of our country.

Advantages of green tariff are based on three fundamental factors:

  • Producers of clean electricity receive assured connection to general electric grid.
  • Long-term contract is signed, which implies obligatory purchase of all electric power generated with the use of renewable sources.
  • Special step-up coefficient is used in cost calculations on electricity bought back by the state.
  • Electricity payments from RES are pegged to the euro.

Law on green tariff

Making amendments in Law of Ukraine «On electrical energy» in June 2015 substantially improved investment climate in the field of alternative energy. Alternative energy market received the effective instrument that substantially simplified business operations on green tariff and considerably increased its attractiveness:

  • Effectiveness of green tariff is defined till 1 January 2030. Average capital investments recoupment period is 5-8 years (depends on photovoltaic station type, its power, location etc.), so solar energy is becoming attractive for investments.
  • Green tariff is nominated in EURO currency with quarterly updates.
  • Process of connection to general electrical grid is considerably simplified.
  • Obligatory provision about «local constituent» is revoked, that simplified the process of effective equipment choice and selection. The usage of domestically produced (made in Ukraine) equipment allows to increase green tariff rate up to 10%.

Green tariff for solar power-stations

Today’s rates on green tariff, used for solar power-stations, are one of the highest in Europe, that allows to forecast stable development and further implementation of projects on building of solar power-stations in our country. As the best argument to the point it is possible to consider that more and more foreign investors begin to invest in Ukrainian solar energy.

It is necessary to mention that nowadays two different directions are into parallel development in the country, namely industrial solar power-stations and home solar power-stations. Green tariff for industrial photovoltaic stations (enterprises) is installed at lower level and has a bit more difficult registration procedure, compared to the same for private individuals. This is due to the fact that, on one hand, that the state simplifies green tariff registration for the public in order to additionally stimulate development of small private solar power-stations.

On the other hand, high-power equipment for solar power-stations is substantially cheaper per 1 МW, than technologically similar one, but less powerful equipment for 10-30 kW private projects. So this allows to get very attractive rates on return of investments even with lower green tariff and slightly more difficult procedure of its registration.

Green tariff for commercial solar PV power plants

At present, Ukraine has developed a rather favorable legal environment for the development of solar energy industry. The «green» tariff is an effective mechanism that stimulates the attraction of investments into renewable energy technologies. The State guarantees that the entire amount of electricity produced from renewable energy sources will be redeemed on the «green» tariff. In this case, payments for electricity produced in the first place with those manufacturers which use alternative (renewable) energy sources.

Electricity is purchased by Wholesale Electricity Market of Ukraine in the face of «Energorynok» state enterprise. Payments on the «green» tariff provide the local component, i.e. projects in its composition should have defined share of the cost of services and materials of Ukrainian origin. The law allows to set a «green» tariff for the individual queues of starting complexes and power plants from renewable sources. The State guarantees the permanent  incentives for investors, compared to the current ones at the time of commissioning of the facility renewable energy.

State support system through an auction mechanism

Since July 2019 in Ukraine, the auction system has been launched for the distribution of quotas of state support for the production of electricity. Previously, any investor who built a power plant using renewable energy sources (sun, wind, biogas, etc.) had the right to sell its electricity to the state-owned enterprise Energorynok at a green rate that is much higher than usual.

For example, operators of solar power plants built in 2017-2019, receive about 15 eurocents for each kilowatt-hour of electricity sold. Since the establishment of the green tariff, this price for each investor is fixed in euros until 2030 and varies according to currency fluctuations.

This mechanism was introduced in order to attract investment in the renewable energy of the country. Investors were interested in currency risk insurance and the possibility of guaranteed sale of electricity in order to settle accounts with creditors.

In recent years, the cost of technologies in the field of renewable energy has decreased significantly. For example, the cost of solar panels only in 2018 decreased by 35%. This, in turn, reduces the cost of projects.

Moreover, extremely high green tariff created risks for the industry to “default” when the state could not fulfill its own guarantees of buying out too expensive electricity. As the example with Spain shows, this situation leads to numerous investment arbitrations and an outflow of investments.

How will the auctions work

Now, quotas of state support for renewable energy will be played out among investors in open auctions. The initial price at the auction will be determined in law by the size of the green tariff, from which participants will start to play short.

The winner of the auction, who offered the minimum selling price of 1 kilowatt hour of electricity, receives state support (the right to sell electricity to a guaranteed buyer at the price set at the auction) for a period of 20 years from the date of commissioning of generating capacity.

For powerful wind and solar power plants, such auctions will be the only way to get state support. Investors of other renewable energy projects will be able to choose: to compete at auctions for 20-year support, or to go through the usual procedure for obtaining a green tariff until 2030

For powerful wind (with an installed capacity of more than 5 MW) and solar (more than 1 MW) of power plants, such auctions will be the only opportunity to receive government support. Investors of other renewable energy projects will be able to choose: to compete at auctions for 20-year support, or to go through the usual procedure for obtaining a green tariff until 2030.

In addition, by the end of 2019, any investor, regardless the capacity of his power plant, can still secure the right to receive a green tariff without participating in the auction:

– by December 31, 2019 to complete the construction of the power plant and receive a certificate or declaration of its readiness for operation; or

– conclude an electricity purchase and sale agreement at the “green” tariff with the branch “Guaranteed Buyer” of the SE “Energorynok” (the so-called Pre-PPA, or the Preliminary power purchase agreement) in accordance with art. 71 of the Law “On the market of electric energy.” After the conclusion of such an agreement, the investor will have 2-3 years to complete the construction of the power plant in order to obtain a green tariff without participating in the auction.

In this context, it should be remembered that the exemption from auctions will be provided by the Pre-PPA contracts concluded under art. 71 of the Law “On the market of electric energy.” This is extremely important because the corresponding draft model agreement was adopted by the NKREKP on April 26 and will come into force on July 1, 2019.

Any other Pre-PPA agreements already entered with the state enterprise Energorynok in the previous edition do not, under the new law, guarantee a “green” tariff without participation in the auction. Therefore, investors who are guided by such documents should consider re-issuing them.