On March 01, 2024 the Cabinet of Ministers of Ukraine (CMU) approved the Resolution No. 232 ("Resolution") that details the the auction model for the sale of "green" electricity as part of stimulation programme of "green" energy production. The adoption of this Resolution signifies a move towards a more advanced and competitive framework for supporting renewable energy, aimed at reducing the cost of green electricity.
To effectively introduce the presented novelties, it is essential to first establish the context:
1) The auction model also referred to as "demand auctions" or "procurement auctions," involves the government issuing a call for tenders to procure a specified capacity of electricity generated from renewable sources."
2) Project developers, who participate in the auction, typically submit a proposal specifying a price per unit for electricity applicable for them to realize the project.
3) A power purchase agreement. The auctioneer evaluates the bids based on price and additional criteria, then enters into a power purchase agreement with the successful bidder.
4) Advantages of the auction model:
- Flexibility;
- The potential for genuine price discovery;
- The capacity to provide greater certainty regarding price and quantity;
- The ability to ensure commitments and maintain transparency.
5) Disadvantages of the auction model:
- Relatively high transaction costs associated with the necessary administrative procedures to participate in the auction, which may act as potential barriers for small and new entrants, potentially diminishing competition;
- The risk of underbuilding and project delays.
6) For an auction model to be successful, it should guarantee:
- Heightened competition among bidders to drive prices lower;
- Participation to be restricted to bidders who possess the capability to execute projects at the agreed price within the specified timeframe, while also contributing to broader development objectives.
Revisiting the changes in Ukrainian green energy policy, the Resolution introduces a contract-for-difference (CfD) mechanism for auction winners allocated renewable energy support quotas, replacing the previous fixed tariff system.
Furthermore, the auction participation requirements for Renewable Energy Sources (RES) investors are streamlined. Specifically, the necessity to submit applications no longer requires the possession of a land plot and the technical conditions for connection. As highlighted in the advantages section, it enhances the flexibility of the auction process by allowing the integration of energy storage facilities and the use of designated land plots or structures.
Additionally, The Resolution reduces the duration of the agreement between the auction winner and the guaranteed buyer from the previous twenty years to a more standard European term of twelve years, reflecting a commitment to ensuring price and quantity certainty.
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