Ukraine: The Draft Law On Renewable Energy Auctions Has Been Presented By Ukraine's Parliament Energy Committee

Last Updated: 11 June 2018
Article by Svitlana Teush

Today, on 7 June 2018, members of the parliament energy committee have presented draft law No. 8449 which envisages amendments to the laws of Ukraine on the competitive conditions of power production from renewable energy sources. Effectively, the draft law is aimed at introducing renewable energy (RES) auctions in Ukraine, and is based on the auction concept previously developed by this committee. To read more on the concepts please click here.

According to the committee members, this draft is expected to be passed into law by the end of this year following public consultations and consideration at the parliament. At the time of this writing, the text of this draft law has not been available yet. The main points of today's presentation are set out below.

a. Quotas. Auctions will be based on the quota approach, and, according to the presenters, will essentially follow the Dutch auction pattern. The general annual state quota will be established by the Cabinet of Ministers (the government), and will be based on a mixture of factors driven by the Energy Strategy of Ukraine, Ukraine's international undertakings, the 10-year development plan of the electricity transmission system, as well as the generation adequacy (sufficiency) assessment report prepared by the transmission system operator (TSO). 

The government may also introduce special auctions which can be based on the regional quotas, be technologically neutral or subject to any other criteria or terms as may be set as appropriate by the government.

b. Timing. Auctions will be introduced beginning from 2020, and will be carried out twice a year, before May and October. This will be in parallel to the introduction of the new state support mechanism - contracts for difference - discussed in item i. below. 

Auctions will be held until the end of 2029. This way, the state support mechanism will be maintained until 2053 (if, eg, a producer wins an auction in 2029, following which it signs a pre-PPA for 3 years, and then signs a "main" PPA for 20 years). This is a much longer term of the state support than the current term of 2030 during which the FiT applies. 

c. Eligibility. Auctions will be required for wind power plants with 20 MW or more, and for solar power plants with 10 MW or more, of installed capacity. Auctions will be optional for power plants with smaller installed capacity; these can opt for either the feed-in tariff (FiT) or auctions. Auctions will not be required for renewable energy sources other than solar and wind.

d. Exemption from auctions. If a pre-PPA is signed before 1 July 2019 and a plant is commissioned during the term of validity of a pre-PPA (three years), this plant would still qualify for the FiT under the law effective as at the signing date, regardless of any further changes in law (and it would not be subject to auctions).

e. Auction lots. The lots each with an installed capacity not exceeding 1 MW will be offered for an auction. The starting price will be determined under the procedure to be established by the government.

f. Bank guarantee. To be admitted to an auction, a participant should provide the irrevocable bank guarantee in the amount of USD 50,000 per 1 MW. The bank guarantee will be returned if a bid is not successful. In the event of a successful bid, the bank guarantee will be returned provided that a project is comissioned on time, namely: within three years as from the PPA signing date. This term can be extended for one year subject to producer providing an additional irrevocable bank guarantee in the double amount. If a producer refuses to sign a PPA following an action or fails to achieve timely commissioning, the bank guarantee is called upon in favor of the offtaker (the Guaranteed Buyer). A relevant obligation of a producer to ensure timely commissioning should be included in a power purchase agreement concluded following an auction.

g. Evaluation criteria. The only evaluation criterion in an auction will be the lowest price offered by a bidder, at which it agrees to sell power to the offtaker. The maximum price cannot exceed the FiT rate.

h. PPA. Based on the outcome of an action, a PPA will be signed with a successful bidder for the term of 20 years counted from the date of plant commissioning. The offtaker will be under the statutory obligation to sign a PPA with a winner, and it cannot refuse PPA signing. 

i. CfDs. The state support will take the form of contracts for difference (CfD) on which basis a producer will be compensated for difference between the auction price and the market price at the day-ahead market (DAM).

j. Forms of contract. The standard (mandatory) forms of a PPA concluded following an auction and CfDs will be adopted by the energy regulator following the approval of Ukraine's antitrust authority (the Antimonopoly Committe of Ukraine) and consultations with the Energy Community Secretariat.

k. Improved procedure for awarding the FiT. Notably, a separate decision of the energy regulator will no longer be required in order to establish the FiT for a producer, as is currently the case. This will save the need for a producer to formally apply to the energy regulator for obtaining its decision on establishing the FiT for such producer. Instead, the offtaker will include the FiT at signing a PPA based on the calculation algorithms already set out in law.

A simplified procedure for concluding PPAs will apply to power plants with an installed capacity of up to 500 kW, which is currently valid only for household power plants with an installed capacity not exceeding 30 kW.

l. Bonus for local equipment. An additional bonus (15% surcharge on top of the FiT or the auction price) will be introduced for projects where a producer uses at least 70% of local equipment. This is in addition to the existing bonus of 5% for projects using at least 30% (and not more than 50%), or 10% bonus for projects using at least 50% of local equipment.

m. FiT reduction for solar power. A FiT for new solar power plants will be reduced by 30% as from 1 January 2020 against a 10% reduction foreseen by laws currently in effect. No further changes are foreseen for wind, except that it remains subject to a 10% adjustment of the FiT from 1 January 2020 as is already provided for by law.

n. Responsibility for imbalances. The full responsibility for imbalances of renewable energy producers which obtain state support (eg, as the FiT or CfDs) will be introduced from 1 January following the year in which the intraday market is considered fully liquid. Such decision on considering the market fully liquid should be taken by the energy regulator following the approval of Ukraine's antitrust authority.

o. Secondary legislation. The government should approve the procedure of carrying out auctions and adopt other secondary legislation required to bring the auction system in action.

p. No retroactivity. Changes should not have a retroactive effect for ongoing projects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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