Green Tariff In Ukraine

Sayenko Kharenko


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Sayenko Kharenko enjoys a global reputation as a leading Ukrainian law firm with an internationally oriented full-service practice. Currently, we are one of the largest law firms in Kyiv, with over 100 lawyers, including 14 partners. The firm specialises in complex cross-border and local matters and regularly handle the largest and most challenging transactions involving Ukraine. Sayenko Kharenko has been named Law firm of the year: Russia, Ukraine and the CIS according to The Lawyer European Awards 2019 and Most Innovative Law Firm for Ukraine by IFLR European Awards 2019.
Foreign investors3 have invested around $3 billion4 into Ukraine's renewable energy market over several years, helping Ukraine toward a 25 percent benchmark for renewable energy by 2035
Ukraine Energy and Natural Resources
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Foreign investors3 have invested around $3 billion4 into Ukraine's renewable energy market over several years, helping Ukraine toward a 25 percent benchmark for renewable energy by 2035, and reducing its dependency on imported fuels.5 Many investors rely on funding provided by foreign funds and organizations (e.g., EBRD, IFC, FMO, NEFCO and SWEDFUND).

The quantity of green energy produced in Ukraine is constantly growing, most recently from 2 percent of total energy produced in 2018 to 4 percent in 2019. The renewables market is dominated by several big players, including DTEK Renewables (owned by an entity registered in the Netherlands), Vindkraft Ukraina (which has Swedish and Cypriot investors), and Chinese CNBM.6

Legislative framework:

Green tariff

A green tariff is currently the main incentive offered to foreign investors operating in Ukraine's renewable energy market. The promotion of renewable energy in Ukraine goes back to the introduction of a feed-in ("green" in Ukraine) tariff in a 2008 amendment to the 1997 Law of Ukraine "On the Electric Power Industry". The amendment gave producers of renewable energy7 the right to sell the energy to the state at the green tariff rate for the period from 2009 to the end of 2029. Currently, the green tariff is regulated by the 2003 Law of Ukraine "On Alternative Sources of Energy" and 2017 Law of Ukraine "On the Energy Market," which reinforce the government's obligation to maintain the green tariff until the end of 2029.

Green tariff rates are calculated as follows: the basic tariff (representing the retail tariff for consumers of the second voltage class fixed as of January 2009 (UAH 0.5846 per kWh)) multiplied by a green coefficient, whose amount depends on the type of energy produced and the capacity of the plant producing it.8 Green coefficients for new facilities are set to decrease gradually over time depending on the date of commission of the facility.9

The green tariff is linked to the euro (making it independent of the stability of the Ukrainian currency) and its rates are revised every three months based on the official currency exchange rates. It is among the highest in Europe and has been considered by investors as attractive. The payback period for renewable energy projects is currently assessed to be from three to five years (by state officials) and about seven years (by investors).10

To benefit from the green tariff, producers must participate in the electricity market and sign contracts with a state enterprise buying and selling electricity on a "day-ahead" basis (the Guaranteed Buyer). The electrical power is then sold by the Guaranteed Buyer on the wholesale market at the market price, and the difference between the green tariff price paid by the Guaranteed Buyer and the market price is compensated by another state enterprise, Transmission System Operator. This compensation is part of the electricity transmission tariff paid by the transmission system's end users.

The green tariff applies to those producers of renewable energy who either (a) commissioned (put into operation) their facilities by January 1, 2020 or (b) entered into a preliminary contract with the Guaranteed Buyer on the condition that the commissioning takes place within a certain fixed period following the signing of the contract (two years for solar energy projects and three years for all other sources of energy).11

Current Ukrainian legislation contains the following incentives guaranteed to producers of renewable energy:

  • the application of the same incentives for the production of renewable electricity that were in place on the date of commissioning of their facilities. Where there are legislative changes to such incentives, producers may choose the incentive package contained in the new legislation12
  • the guaranteed purchase, for the entire period of the application of the green tariff, of electricity at the green tariff prices in the volumes, and in accordance with the procedure, prescribed in Article 65 of the 2017 Law "On the Energy Market" and
  • timely payment of the green tariff in full and in cash.

Green auctions

For those renewable energy facilities which do not have contracts with the Guaranteed Buyer for the purchase of their energy at the green tariff rate, state support will be provided by way of so-called "green auctions." Green auctions will be required for all such wind facilities with a capacity exceeding 5 MW and solar facilities with a capacity exceeding 1 MW. All other types of renewable energy sources can participate in green auctions voluntarily. Green auctions have been introduced to reduce the costs of renewable energy for consumers. The winners of green auctions will receive state support in the form of a quota, i.e., a volume of electrical power which the state guarantees to buy from them at the winning price. The maximum winning price should not exceed the relevant green tariff rate.

The green auctions were planned to run from April 1, 2020, but have been postponed for an indefinite period of time.

Current issues

In 2019, the government declared that the green tariff had become too burdensome financially and started discussing a possible decrease of the green tariff rates. The situation has led to mediation proceedings, primarily between large investors and the government, under the auspices of the ECT Secretariat. Meanwhile, the Ukrainian energy regulator13 reduced the transmission tariff rate from September 2019, causing a drop in the level of compensation which the Guaranteed Buyer would otherwise contribute toward payment of the green tariff. The amount remaining due in payment of the green tariff to producers continued to grow in 2020.14

In early 2020, it was announced that the Ukrainian energy sector was in crisis due, in particular, to a fall in energy consumption following a slowdown in industrial production, a warm winter in 2019-2020 and then the COVID-19 lockdown.

On May 4, 2020, the Ukrainian government set up an Anti-Crisis Energy Taskforce chaired by the prime minister with, among others, the following tasks and goals: conclusion of a memorandum with investors to reduce the green tariff rates, prohibition of the construction of new wind and solar power plants, and a switch to the system of green auctions.

On May 18, 2020 the acting Minister of Energy and Environmental Protection confirmed that the government's aim was to reduce the green tariff rates without extending the period of their payment beyond 2030 and to introduce other measures which would effectively decrease the profitability of green energy.15 No legislative changes to the original green tariff regime have been made so far.

Memorandum of Understanding

It seems that one of the goals of the Anti-Crisis Energy Taskforce is close to materializing. On June 10, 2020, the Cabinet of Ministers of Ukraine and the acting Minister of Energy and Environmental

Protection signed a draft Memorandum of Understanding on the Settlement of Problematic Issues in the Renewable Energy Sector (the MoU). On the same day, the MoU was conditionally16 signed by the European-Ukrainian Energy Agency and Ukrainian Wind Energy Association, which reportedly combine 90 percent of renewable energy producers in Ukraine.17

The text of the MoU is not publicly available yet, but we understand from publications and other sources that its aim is, inter alia, to resolve issues between renewable energy producers and the state in relation to potential changes in the renewables regime.18

The MoU is envisaged as the basis for legislative changes, with the parties' specific commitments only coming into force when the respective legislative amendments come into force. It is therefore primarily an expression of the intentions of the signatories rather than a legally enforceable document.

The MoU is still due to be signed by (i) the National Energy and Utilities Regulatory Commission, (ii) other state authorities, who are not named in the MoU, (iii) the Ukrainian Association of Renewable Energy, and (iv) renewable energy producers, who again are not named. The MoU shall enter into force on the date of signature by the "state authorities" and "renewable energy producers" – given the vague and potentially long list of possible signatories required it might be hard to establish when this has happened.

We understand that under the MoU renewable energy producers agree, among other matters, to the following terms for the restructuring of the green tariff:

  • for all power facilities commissioned from January 1, 2020, a decrease in green tariff rates by 2.5 percent
  • for facilities commissioned from July 1, 2015 to December 31, 2019, a decrease in green tariff rates by 15 percent (above 1 MW) and 10 percent (under 1 MW) for solar facilities, and by 7.5 percent for wind energy facilities with individual units having a capacity above 2 MW
  • for all power facilities commissioned by July 1, 2015, a cap on the green tariff rate will apply at the level of the green tariff rate for solar ground-based facilities with installed capacity exceeding 10 MW commissioned by March 31, 2013, reduced by 15 percent and
  • no prolongation of the application of the green tariff to compensate for the above reductions.

Solar energy producers also agree to accept July 31, 2020 as the cut-off date for the commissioning of new facilities entitled to benefit from the green tariff rates.

In return, the government commits:

  • to amend the legislation to restructure the green tariff as per the above terms – such amendments are expected by August 1, 2020
  • to ensure repayment by the end of 2021 of the amounts owed to producers by the Guaranteed Buyer (in accordance with the schedule set out in the MoU), as well as full and timely payments in the future, after the adoption of the respective legislative amendments and
  • to fix and approve annual quotas to be awarded by way of green auctions.

It is important to note that, under the MoU, the renewables producers do not waive their right to initiate investment arbitration proceedings against the state. The contents of the MoU pose a number of questions. One of the fundamental questions is whether the government's commitments under the MoU extend to all renewable energy producers, including those who do not sign the MoU. We expect this to be the case given that, as explained above, most of the rights and obligations of the parties to the MoU only come into force when the respective legislative changes come into force.

Overall, the MoU can serve as potential evidence of the signatories' understanding and intentions at a certain point in time, and can be invoked for dispute settlement purposes. What if no compromise is reached with investors? Ukraine is a party to the Energy Charter Treaty (ECT) and to more than 65 bilateral investment treaties (BITs), which guarantee protection of foreign investors and their investments and provide for the liability of Ukraine if the required standards of protection are breached. If it fails to achieve a compromise with foreign investors, Ukraine may face investment arbitration claims. If this were to happen, lessons from other states which have encountered similar challenges may be particularly valuable.

For the purpose of this paper, we have chosen two countries hit by foreign investor claims following changes in respective legal frameworks, which were made in order to adapt to the financial strain caused by the success of their renewable energy incentives. First is Spain, which has had more cases brought against it than any other state, and most of which so far have been upheld by tribunals. Second is the Czech Republic, whose example is notable for the vast majority of cases being so far won by the state (there was only one finding of liability out of the seven concluded19 cases of which we are aware from public sources).

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3. Including from France, Germany, Luxembourg, Liechtenstein, Switzerland, Austria, Belgium, the United States, China, Norway, Denmark, Sweden, Spain, Turkey, Cyprus, Korea, the UK, Lithuania, Poland and Romania.

4. "Share of Foreign RES Investors to be More Than 30%, Investment Could Reach EUR 2.5 bln by Summer 2020 – Experts," Interfax-Ukraine, Ukraine News Agency, May 7, 2020, at By the end of 2019, almost $10 billion in total had been invested (including by local investors) in renewable energy ($6.2 billion in 2018-2019 alone), making it one of the top five sectors for investment in the Ukrainian economy; see Kozakevich, O., "Why Ukraine's once thriving renewable energy sector could be at dire risk of failure," Renewable Energy World, April 30, 2020, at

5. Id.

6. Zaika, B. "Kings of the Green Tariff: Top 10 of the Largest Investors into the Renewable Energy of Ukraine and the Beneficiaries of the 'Green' Tariff,", at , B. "Kings of the Green Tariff: Top 10 of the Largest Investors into the Renewable Energy of Ukraine and the Beneficiaries of the 'Green' Tariff,", at 27Hr7OUmFzdBlE0kwZD1-7nIPhSbd99jrU.

7. Includes geothermal, hydrothermal, aerothermal, solar, wind, wave, tidal energy, hydropower energy not exceeding 10 MW capacity, biomass and biogas.

8. In addition, a premium is paid in the amount of 5 percent to 10 percent of the applicable green tariff rate to those renewable energy facilities that use equipment of Ukrainian origin, with the percentage depending on the share of such use.

9. Initially, the law provided for three stages for decreasing the green coefficients for facilities commissioned in 2015, 2020 and 2025. However, due to financial concerns, the decrease scheduled for coefficients for some types of energy (e.g., PV energy) in 2013, 2015 and 2019 was moved forward by introducing additional stages, while applying the green coefficients to further types of energy facilities and slightly changing some coefficients.

10. See Zaika, B.,"Veto for Akhmetov. Zelensky Rejected a Memorandum With 'Green' Business: Two Scenarios," Liga News, May 26, 2020, at dlya-ahmetova-zelenskiy-vidhiliv-memorandumiz-zelenim-biznesom-dva-stsenarii.

11. The green tariff will also be applicable to wind energy facilities with less than 5 MW capacity, and solar energy facilities with less than 1 MW capacity, which were put into operation after January 1, 2020.

12. See Article 17-1 of the 1997 Law of Ukraine "On Electric Power Industry," and Article 9-1 of the 2003 Law of Ukraine "On Alternative Sources of Energy" ("The State shall guarantee that for economic entities producing electricity from alternative energy sources at commissioned electricity facilities, the procedure for stimulating the production of electricity from alternative energy sources established in accordance with the provisions of this Article on the date of commissioning of the facilities, including commissioning of the construction queues of power plants (start-up complexes), shall apply. In the event of legislation changes related to the procedure for stimulating the production of electricity from alternative energy sources, businesses may choose a new procedure for stimulation.").

13. National Commission Regulating the Spheres of Energy and Utilities.

14. According to the Guaranteed Buyer's website, as of May 25, 2020 the Guaranteed Buyer had covered only 33 percent of outstanding amounts payable to renewable energy producers ( as at June 4, 2020).

15. "The Ministry of Energy Plans to Agree to Reduce the 'Green Tariff' Without Extending the Payment Term – Buslavets," Business Censor, May 18, 2020, at

16. We do not know what those entities' conditions are.

17. "The Government Has Not Fully Agreed With Renewable Energy Investors – Shmygal," OilPoint, June 11, 2020, at

18. Government Signs Memorandum with Green Energy Producers, Communications Department of the Secretariat of the CMU, June 10, 2020 – official government portal at

19. Natland Investment Group N.V., Natland Group Limited, G.I.H.G. Limited, and Radiance Energy Holding S.A.R.L. v. The Czech Republic, PCA Case No. 2013-35, Partial Award, December 20, 2017. In the claim brought under the CyprusCzech Republic BIT, Czech Republic-Luxembourg BIT and Czech Republic-Netherlands BIT in 2013, the tribunal of Veijo Heiskanen, Gary Born and J. Christopher Thomas found the Czech Republic liable for a breach of the BITs' fair and equitable treatment provisions. The decision on quantum (calculation of damages) has yet to follow, and so it remains unclear whether there will be any negative financial consequences for the Czech Republic.

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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