UKRAINE RENEWABLE ENERGY NEWSLETTER ISSUE # July In This Issue. I. Legal and Regulatory Developments. II.

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1 IMEPOWER View The first modern wind farm in Ukraine (Novoazovskiy wind farm) was commissioned in July 25 MW are already in operation out of MW planned. IMEPOWER recent study shows that there are more than MW of wind farms under development in Ukraine with only several projects, accounting for MW of installed capacity, being at advanced development stages and having chances to receive construction permit and attract financing in New local content requirement (LCR) rules came in force in July and give developers comfort zone until January 2014, when they will have to comply with 50% LCR for all renewable projects. Starting January 2013 LCR will be already 2013 that can become a challenge for some renewable projects. Window of opportunity for building solar power plants using imported solar panels will close on January 2013 when specific 30% LCR for solar modules will come in force. Construction of new power transmission lines financed by the state will help Active Solar to connect its solar power plants to the grid, while the issue of grid connection for many large wind projects and potential congestion in the southern part of Ukraine remains on agenda. TSO should start preparation of respective master plan in the fall of 2011 with financial support from the EBRD that hopefully will bring full clarity to the issue of grid connection of renewable power plants. In This Issue I. Legal and Regulatory Developments 1.1. President signed the Law on changes to the Article 17-1 of the Law On the Power Sector 1.2. NERC has issued a license for electricity production to the solar power plant Omao Solar 1.3. Presentation of the national project Energy of Nature 1.4. State financing and preferences for renewable energy and energy efficiency projects in Ukraine has approved another 123 green investment projects 1.6. NERC has adjusted the green tariff for renewable energy producers for July 2011 II. Investment News 2.1. DTEK will construct two wind parks in Donetsk and Zaporizhzhya regions 2.2. Green electricity generation for 5 months of Ukraine plans construction of six transmission lines using funds of the State Program on Energy Efficiency for State Property Fund has sold two small hydropower plants in Poltava oblast 2.5. Opening of Novoazovsky wind park III. Commercial and Economic Developments 3.1. Ukrainian interest rates 3.2. Ukrainian exchange rates

2 Legal and Regulatory Developments PRESIDENT SIGNED THE LAW ON CHANGES TO THE ARTICLE 17-1 OF THE LAW ON THE POWER SECTOR On 07 July 2011 the Law 8231 On Introducing Changes to the Article 17-1 of the Law of Ukraine On the Power Sector was signed by the President of Ukraine. In accordance with the new Law, the general local content requirement (LCR) has been lowered (from 30%) to 15% starting 01 January It will then increase up to 30% starting 01 January 2013 and up to 50% starting 01 January In addition, there is specific LCR for solar energy projects - starting 01 January 2013 the solar modules used in such projects will have to be made from 30% Ukrainian raw materials and supplies (50% - starting 01 January 2014). The Law of Ukraine On the Power Sector (provisions of the original Article 17-1) The Law of Ukraine On Introducing Changes to Article 17-1 of the Law of Ukraine On the Power Sector Local content requirement (LCR) of raw materials, capital assets, works and services of the Ukrainian origin in the cost of construction of power plants that generate electricity using alternative energy sources from January 1 st 2012 not less than 30% from January 1 st not less than 15% from January 1 st 2014 not less than 50% from January 1 st 2013 not less than 30% from January 1 st 2014 not less than 50% An additional requirement for solar energy projects: the LCR of the solar modules used in such projects from January 1 st 2012 not less than 30% from January 1 st 2013 not less than 30% from January 1 st 2014 not less than 50% NERC HAS ISSUED A LICENSE FOR ELECTRICITY PRODUCTION TO THE SOLAR POWER PLANT OMAO SOLAR On 07 July 2011 the National Electricity Regulatory Commission of Ukraine (NERC) decided to issue a license for electricity production to Omao Solar for a 20-years period. The power plant is located near Okhotnikovo (Saki region of Crimea) on a land plot leased for a 49-years term. The capacity of the power plant is 20 MW. At present, its connection to the power grid is being performed. The payback period of the project on power plant s construction, considering the sale of electricity under the green tariff, is estimated at about 7 years. PRESENTATION OF THE NATIONAL PROJECT ENERGY OF NATURE On 21 June 2011 the national project Energy of Nature was presented. It is called to bring the structure of electricity generation in Ukraine in compliance with European standards, e.g. to increase it from current 0.04% up to 3% of the total electricity production by The State Agency for Investment and Management of National Projects (the Agency) started to select alternative energy projects for the Energy of Nature national project. Main criteria for applicants will be the scale of project, long-term forecast for electricity generation, absence of negative impact on the environment, possibility of connection of power plants to power networks, financial ability of the applicant to develop a power plant project. The Energy of Nature national project will run until 2014, mostly in the southern regions of Ukraine, focusing on wind, solar and small hydro power generation projects that will be selected.

3 STATE FINANCING AND PREFERENCES FOR RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECTS IN 2011 In 2011, the state budget provides 910 million UAH for the implementation of measures of the Energy Efficiency Program for in such areas as: rehabilitation of buildings, introduction of accumulation heating, cogeneration technologies, heat pumps, transfer of boiler houses to alternative fuels, construction of power grids to connect facilities, which generate electric power using renewable energy sources. The State provides a number of preferences for the enterprises that implement energy efficiency projects, namely: 1) Funds that investors put into the development of their own production facilities and increasing their energy efficiency are not subject to income tax; 2) Imported energy-saving equipment and technologies required for the production of biofuels and power generation using renewable energy sources are exempt from customs duty and VAT. A list of energy-saving materials, equipment and components exempt from customs duty and VAT has more than 300 titles; 3) The procedure for compensation from the state budget of the interest rate on loans attracted to implement energy efficiency measures, including energy efficiency projects, is approved. Compensation will be provided on a competitive basis. 4) Wind potential study and identification of priority areas for the location of wind power plants; 5) Studies of current condition of small hydropower plants are performed at the expense of the budget funds; 6) Reconstruction and construction of power grids to connect "alternative" power facilities are accomplished at the expense of the budget funds incorporated into the State Target Program on Energy Efficiency and the Development of Renewable Energy Resources. UKRAINE HAS APPROVED ANOTHER 123 GREEN INVESTMENT PROJECTS During the first half of 2011, the Prime Minister of Ukraine Mykola Azarov has approved 123 projects on heating rehabilitation of social budget-financed objects, aimed at reduction of emission of greenhouse gases. These projects will be financed with the funds received from the sale of carbon emission quotas to Japan. The cost of approved projects is about 215 million UAH. The estimated reduction in the amount of greenhouse gases emissions is of 17 thousand tonnes of CO2- equivalent. Since 2010, 363 such projects have been and are being implemented (864 million UAH and 44 thousand CO2-equivalents). One of them was commissioned in February 2011 at the Clinical Hospital of Veterans and Invalids of War Actions in Simferopol. Another 12 sites are to be completed in the near future. NERC ADJUSTED THE GREEN TARIFF FOR RENEWABLE ENERGY PRODUCERS FOR JULY 2011 On 30 June 2011 the NERC approved the green tariff for July 2011 using the NBU UAH/EUR rate of at the following level: for wind plants with installed capacity of more than 2 MW UAH/MWh, for small hydro plants UAH/MWh, for biomass UAH/MWh, for ground objects of solar power UAH/MWh and for solar power objects mounted (up to 100 kw) and on facades (regardless of capacity) UAH/MWh. Thus, the green tariff increased in UAH nomination due to an increase of the NBU UAH/EUR rate.

4 Investment News DTEK WILL CONSTRUCT TWO WIND PARKS IN DONETSK AND ZAPORIZHZHYA REGIONS DTEK intends to complete by 2012 the procedure of land allotment for construction of wind parks Priazovsky and Mangush. Priazovsky wind park is planned to be constructed in the period from 2011 to 2015 and Mangush wind park from 2011 to Investments in construction of Priazovsky wind park will amount to 9 billion UAH and Mangush - 14 billion UAH. DTEK Priazovsky will consist of three platforms: Botievskaya, Primorskaya and Berdyanskaya. Total capacity of the wind park will be 500 MW, Botievskaya platform MW, Primorskaya and Berdyanskaya MW each. At present the company completed the procedure of land allotment and leased the land for construction of pilot wind power plant Botievskaya (Zaporizhzhya oblast). The design capacity of Mangush wind park (Donetsk oblast) is 700 MW. DTEK plans to invest 1.85 billion EUR in construction of two wind farms in Zaporizhzhya and Donetsk oblasts. The construction was scheduled to begin in 2011 and to be complete by GREEN ELECTRICITY GENERATION FOR 5 MONTHS OF 2011 According to the monthly report of the Association of Alternative Fuel and Energy Participants of Ukraine (AFEU), in January-May 2011 Ukrainian renewable energy companies produced million kwh of electricity that was sold to the state enterprise Energorynok at the green tariff. The share of renewable energy amounted to 0.34% of the total electricity sold at regulated tariff by power generating companies of Ukraine during the aforementioned period. Most of green electricity was generated by small hydropower facilities ( thousand kwh), followed by wind power plants ( thousand kwh) and biomass plants ( thousand kwh). The lowest amount of electricity was generated by the solar power plants ( thousand kwh). UKRAINE PLANS CONSTRUCTION OF SIX TRANSMISSION LINES USING FUNDS OF THE STATE PROGRAM ON ENERGY EFFICIENCY FOR Ukraine plans to construct overhead power lines using the funds foreseen in the State Targeted Program on Energy Efficiency and Renewable Energy Development for Relevant decision is stipulated by the Resolution of the Cabinet of Ministers No. 689 of June 29 regulating the use of budget funds in the framework of the target program. In particular, it is planned to construct 110 kv transmission lines Solar Power Plant Zapadnokrymskaya, Perovo Vodovod, Solar Power Plant Artsiz, 110 kv transmission lines to connect renewable energy facilities with Kiliya, Reni and Zaliznodorozhne substations and correspondent transformer yards. In addition, it is planned to switch the voltage of Simferopol-Sevastopol transmission line to 330 kv. Besides, it is planned using the state program's funds to perform a rehabilitation of buildings of state institutions, to introduce co-generation technologies at municipal heating enterprises, to transfer boiler houses to renewable types of fuel, to install heat pumps, heating storage systems at the state and municipal institutions.

5 STATE PROPERTY FUND HAS SOLD TWO SMALL HYDROPOWER PLANTS IN POLTAVA REGION The SPFU found a buyer for the assets of Veliko-Sorochinskaya HPP (Poltava oblast) and Shishatskaya HPP via an auction. The contracts have not been signed yet, therefore, the information about the buyer and the price is not disclosed. The initial selling price of Veliko-Sorochinskaya HPP was thousand UAH. The initial price of Shishatskaya HPP was 1,218 thousand UAH. The sale conditions included the requirements to retain the power generation business profile of the HPP during five years, to implement the HPP reconstruction works during three years, to install new equipment, in particular hydro generators, to prevent dismissal of employees, etc. OPENING OF NOVOAZOVSKY WIND PARK A celebratory opening of the wind park Novoazovsky took place on 11 July 2011 in Bezymiannoye village on the Azov Sea coast. Investment project on construction of 43 wind generators (Fuhrländer AG, Germany) with capacity of 2.5 MW each is being implemented in Bezymiannoye village. The project implementation period is The designed capacity of the wind power plant is MW. The project s cost is 1.8 billion UAH. At the moment, the construction of the first and second stages of the project has been completed - 10 wind turbines with total capacity of 25 MW were assembled. The construction of the third stage consisting of 13 wind turbines with total capacity of 32.5 MW has started.

6 Commercial and Economic Developments Source: National Bank of Ukraine

7 Source: National Bank of Ukraine Source: National Bank of Ukraine