Renewable energy in Ukraine: trends to expect in 2019

The
alternative energy industry is one of the fastest growing and most attractive
sectors for investment in Ukraine. This can be explained, inter alia, by the favorable geographical conditions in Ukraine,
where solar radiation is more intense than, for example, in Germany. The wind
speed in this Eastern European country makes it possible to develop large-scale
wind projects. Moreover, Ukraine has a huge potential in electricity production
from biogas, which, in some cases, is already partially being successfully
implemented.

The favorable legal framework, which, thanks to the international organizations support, is gradually becoming more investor-friendly and thus is in line with global trends, plays a significant role in the foreign investment attraction to Ukraine. The successful development of the renewable energy sector over the past year is an undeniable proof of that.

One of the drivers of growth recorded in recent years is primarily the feed-in tariff, fixed in EUR. Thanks to government subsidization of the industry in the initial phase, Ukraine has succeeded in creating a renewable energy market with foreign investors having a decent market share. It is now expected that the feed-in tariffs will be partially replaced by auctions: the respective bill should create the basis for conducting “green” auctions.

Current State of Play in the Industry

A substantial increase in the number of commissioned renewable energy projects has been observed over the last 2-3 years and especially over the past year. In 2018, the total installed renewable energy capacity almost tripled, reaching over 2,100 MW (excluding the facilities in the Crimean peninsula).

The total capacity of projects completed in 2018, mostly in the field of solar, wind and biogas energy, reached approx. 745 MW. Most of these projects were implemented by foreign investors or with foreign investors’ participation. Thus, international banks play an important role in financing renewable energy projects in Ukraine.

Plans to construct large-scale solar and wind energy projects in the Chernobyl Exclusion Zone are a great opportunity for foreign investors and are now in the process of implementation. The first 1 MW solar power plant has already been commissioned with the participation of a German company.

This year, a higher growth rate is expected for alternative energy projects, as many investors intend to complete their projects by the end of 2019 and connect them to the grid in order to obtain the lucrative feed-in tariffs in a timely manner.

Feed-in Tariff Rates: Main Attraction for Investors

For many years, Ukraine has been trying to financially stimulate the power generation from renewable energy sources. This resulted in regulations on feed-in-tariff for renewable energy sourced electricity, i.e., the state’s guaranteed obligation to buy “green” power generated by electricity producers from renewable energy sources.

The feed-in tariff is fixed in EUR until 2030. However, it is paid in the national currency, i.e. in UAH. All generated power, except for electricity for personal use, shall be paid for at the feed-in tariff rates (except for blast furnace and coke-oven gas and hydropower plants with a capacity of up to 10 MW).

In Ukraine, it is the obligation of the so-called “guaranteed buyer” to off-take “green” electricity generated under the feed-in tariff, regardless of the installed capacity or feed-in volume.

The feed-in tariff amount depends on the date of electricity generating facility commissioning. The feed-in tariffs applicable to different renewable energy sources are shown in the table represented below (in EUR):

Premium to Feed-in Tariff

A relevant premium shall be added to the feed-in tariff throughout the entire period of feed-in tariff to encourage the investors to use equipment of the Ukrainian origin, provided that the electricity generating facilities are commissioned by 31 December 2024. It is worth noting that in the early 2019, a new PV panel factory started its operation in Ukraine. Its manufacturing capacity will initially be 200 MW per year and shall have been doubled by the end of the year.

If the level of use of the Ukrainian origin equipment is at least 30%, the premium to the feed-in tariff shall be 5%. If the Ukrainian origin equipment is used at the level of at least 30%, the premium to the feed-in tariff shall increase to 10%.

Nevertheless, it should be noted that the premium to the feed-in tariff does not apply to private households installations.

Private Households: a Popular Trend

According to the State Energy Efficiency and Energy Saving Agency of Ukraine, the rise of solar panels installed by private households is still a trend in the Ukrainian renewable energy sector.

The laws provide that private households may set up renewable energy installations with a capacity of up to 30 kW and sell solar or wind generated electricity under the feed-in tariff in the amount exceeding the monthly consumption of electricity by such households.

What trends are expected in 2019?

In December 2018, the Ukrainian parliament passed a law providing for exemption from import VAT on importation of equipment used for the renewable energy facilities construction. This law shall apply to certain goods according to the goods subcategories under the Ukrainian Classification of Goods for Foreign Economic Activity. This temporary tax exemption shall be valid until 31 December 2022.

The same law also provides for a considerable simplification of land allocation for renewable energy facilities. Now, it will be sufficient if the existing land plot is designated as “lands of industry, transport, communications, energy, defense and other purposes”. These amendments will greatly simplify the renewable energy plants construction by reducing the local authorities involvement in the required documents preparation, and this, in turn, will considerably shorten the time it takes to start the renewable energy facilities construction. This will allow the timely construction and commissioning of the so-called “ready to build” solar projects in Ukraine by the end of 2019, as well as obtaining the feed-in tariff.

This year, the renewable energy sector support by the Ukrainian state is expected to be changed or modified. In particular, Ukraine introduces auctions for renewable energy installations subject to exceeding certain capacity thresholds. At the end of December 2018, the Ukrainian Parliament adopted at first reading a bill stating that a state support to green electricity producers shall be provided on a competitive basis, namely through the auctions and tenders introduction.

Auctions for the quotas allocation are planned to be introduced from 1 January 2020. The advantage of the new subsidy system over the existing feed-in tariff system lies, inter alia, in a longer support period (20 years after the renewable energy installation commissioning) and in guaranteed off-take of all generated “green” electricity at an auction price.

The capacity requirements for renewable energy installations to take part in auctions include:

•   in 2020 – wind energy facilities with a capacity exceeding 20 MW and facilities producing electricity from other renewable energy sources with a capacity of over 10 MW;
•   in 2021 and 2022 – wind energy facilities with a capacity exceeding 20 MW and facilities producing electricity from other renewable energy sources with a capacity of over 5 MW;
• starting from 2023 – all wind energy facilities with a capacity exceeding 3 MW (except those with one wind turbine) and facilities producing electricity from other renewable energy sources with a capacity of over 1 MW.

Moreover, the bill on “green” auctions provides for a number of other important changes. In particular, the bill specifies which renewable energy facilities will be still eligible for feed-in tariff after their commissioning after 2020 and under what conditions. Many amendments are most likely to be made before the bill is passed, and such amendments should certainly be taken into account by foreign investors.