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20.04.2018

NEW CONCEPT OF INTRODUCTION OF COMPETITIVE PRICING MECHANISMS FOR ELECTRICITY FROM RES

On 19 April 2018 there was a round table “On Concept of Introduction of Competitive Pricing Mechanisms for Electricity from Renewable Energy Sources and Proposals Submitted to It”. This was a continuation of the discussions begun on 13 March 2018 by the Verkhovna Rada Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety.

In his opening speech, deputy chairman of the Verkhovna Rada Committee on Fuel and Energy, Nuclear Policy and Nuclear Safety, MP Alexander Dombrovsky, stressed that “green” energy remained a priority for Ukraine. Taking into account modern European tendencies and in order to prevent negative experience in the development of “green” generation in certain EU countries, “a discussion has been initiated in Ukraine to find the tools and mechanisms for both investor and consumer to move forward under clear and stable rules."

As a result of the round table the renewed Concept of Introduction of Competitive Mechanisms of Price Formation for Electricity from RES (the “Concept”) was published at the parliamentary committee’s web site, available in Ukrainian at http://kompek.rada.gov.ua/fsview/73550.html.

The key ideas of the Concept as of 19 April 2018 are as follows:

  • There will be annual all-Ukrainian and special quotas which would not change within the specific period;
  • Annual quotas will be determined based on division of capacity necessary in 2035 by the amount of years (there could be some deviations as determined by the government);
  • There will be quotas for specific RES the overall quota (solar and wind separately);
  • Cap for bidding in the auction will be “green” tariffs under the applicable laws;
  • The only criteria for the winner is the offered tariff;
  • Full liability for imbalances after appearance of the liquid intraday market- in 1 year after intraday market starts functioning;
  • There would be guaranteed output of electricity to the grid;
  • Auctions are mandatory for solar starting with 10 MW and for wind starting with 20 MW;
  • Term of support 15 years after commissioning;
  • The guaranteed buyer (a special legal entity to buy electricity from RES under new electricity market legislation) shall be responsible for administration of auctions;
  • Investors which sign pre-PPA by 1 July 2019 will be eligible to the current support if the power plant is build during the period of pre-PPA;
  • Reduction of “green” tariff for solar by 30% and for wind (in line with current legislation) by 10% starting with 1 January 2020.
  • The amount of a bank guarantee for the auction calculated as the power plant capacity multiplied by the first price proposal of the participant and multiplied by 20%;
  • If the auction winner delays construction of the power plant, it shall be entitled to extension for 1 year provided that the amount under the guaranteed is increased 5 times;
  • The form of the tariff would be tariff and later the contract for the difference between the tariff and price in the market;
  • Pre-PPA shall be for 3 years and shall be confirmation of the tariff;
  • The auctions shall be implemented starting with 1 July 2019;
  • Regardless of the capacity, investors may participate in the auctions to get a longer period of support under PPA (15 years);
  • No transition period is envisaged and no extension of the current “green” tariff;
  • Simplified procedure for installations up to 500 kW;
  • Increase of bonus for local component (up to 15%).

To some extent, the parliamentary committee took into account proposals and comments from the market players. However, it appears that market players have not fully agreed on all ideas of the Concept and don’t have a uniform approach towards its certain ideas and most likely the draft law will deviate to some extent from the ideas of the current Concept. Discussions will be continued to achieve a balanced position of the market players, and only then a bill on Introduction of pricing mechanisms for electricity from RES and transfer to auction models will be drafted.