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

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1 IMEPOWER View During last months the progress has been observed with construction of wind and solar power plants. Wind Parks of Ukraine Ltd. remains the most active wind farm developer in Ukraine working in parallel on several projects in southern regions using Fuhrlander turbines. Second developer that succeeded to install the first turbine was Vindkraft Ukraine. It is worth noting that it was the first Vestas turbine that was installed in Ukraine with more turbines coming in the nearest years as Vestas has been chosen by DTEK as turbine supplier for the first wind power plant being built by DTEK. Active Solar is on good pace with commissioning its solar power plants and has set the regional record of 80 MW solar power plant after completion Okhotnikovo solar park. In general, it is worth noting that strong local developers relying on own financial resources and local political support are winning the race by commissioning their RES plants ahead of competitors. Encouraging sample of Vindkraft Ukraine shows that international developers also have chances for success. There have not been major developments with commissioning of biomass or small hydro power plants, while many projects are underway. Unfortunately, the President has vetoed the Law introducing green tariffs for biogas plants that makes questionable the economics of relevant projects. We hope that this story is not over yet and this decision can be revised next year. In This Issue I. Legal and Regulatory Developments 1.1. The Parliament adopted amendments to the Law On the Power Sector concerning local content requirement 1.2. The President vetoed the Law introducing the green tariff for biogas plants 1.3. The President reorganized the National Electricity Regulatory Commission 1.4. Wind park Ochakivsky received a license for electricity production 1.5. The NERC revised green tariffs for renewable energy producers in November and December 2011 II. Investment News 2.1. Voskhod Solar plans to construct solar power plants with total capacity up to 300 MW in Mykolaiv oblast 2.2. Activ Solar completed construction of 80 MW Okhotnikovo solar park 2.3. Activ Solar increased the capacity of Perovo solar power plant up to 40 MW 2.4. Kvazar looks for at least EUR 9 million from investor 2.5. Ekotechnik Praha intends to construct solar power plants in Ukraine in Rengy Development plans to build 50 MW solar power plants in Vinnytsia oblast 2.7. Development of renewable power projects by Wind Parks of Ukraine Ltd Fuhrlander will start assembling wind turbines at Kramatorsk by the end of the year 2.9. Vindkraft Ukraine installed the first wind turbine in Kherson oblast Ukraine will construct transmission lines using EU funds to connect renewable energy facilities DTEK has chosen Vestas as technical partner for construction of Botiyevsky wind power plant British company ETHA TECH plans to build a waste recycling plant in Mykolaiv III. Commercial and Economic Developments 3.1. Ukrainian interest rates 3.2. Ukrainian exchange rates

2 Legal and Regulatory Developments THE PARLIAMENT ADOPTED AMENDMENTS TO THE LAW ON THE POWER SECTOR CONCERNING LOCAL CONTENT REQUIREMENT The Law on Amendments to the Article 17.1 of the Law On the Power Sector (concerning the share of components of the Ukrainian origin in the cost of construction of power facilities) states that the share of raw materials, materials, main assets, works and services of the Ukrainian origin in the construction cost of power facilities that generate electricity from alternative (renewable) energy sources, the construction of which is initiated after 01 January 2012 and which are commissioned before 01 January 2013, should be at least 15%; for power facilities, the construction of which is initiated after 01 January 2012 and which are commissioned after 01 January at least 30%; for power facilities, the construction of which is initiated after 01 January 2012 and which are commissioned after 01 January 2014 at least 50%. Additionally, for solar power facilities commissioned after 01 January 2013 the share of materials and raw materials of the Ukrainian origin in the production cost of solar modules should be at least 30%, and after 01 January 2014 at least 50%. The procedure for determining the share of raw materials, materials, main assets, works and services of the Ukrainian origin in the construction cost shall be approved by the National Electricity Regulatory Commission (NERC). The procedure for issuing certificates confirming the Ukrainian origin of goods for the purposes of this Law shall be approved by the Cabinet of Ministers. The Law shall come into force from 01 January It is our understanding that newly approved amendments will allow renewable power facilities, the construction of which has been initiated before 01 January 2012, to avoid necessity of complying with the local content requirement. THE PRESIDENT VETOED THE LAW INTRODUCING THE GREEN TARIFF FOR BIOGAS PLANTS In November 2011 the Parliament adopted the Law introducing green tariff for electricity produced from biogas. However, the President has vetoed the law, arguing against: - promotion of the development of electricity generation from biogas, reasoning that its cost after 2017 will be higher than the cost of traditional power generated from fossil fuels; - provision of the Law, under which alternative energy sources and traditional types of fuel can be used simultaneously; - provisions of the Law, according to which control over the use of funds received from the green tariff is imposed on the National Electricity Regulatory Commission, as this could strengthen the administrative pressure and would require additional expenses for organization of the specified control. At the same time, leading experts of renewable energy market of Ukraine expressed support to the idea of introducing the green tariff for electricity produced from biogas that prompted Parliament Committee for Fuel and Energy Sector to ask the President to re-consider partially his decision. THE PRESIDENT REORGANIZED THE NATIONAL ELECTRICITY REGULATORY COMMISSION The President liquidated the National Electricity Regulatory Commission and initiated creation of new commission for the electricity market regulation.

3 This decision was confirmed by the Presidential Decree No. 1057/2011 dated 23 November The same day Viktor Yanukovych issued another Decree No. 1059/2011 establishing the National Commission on Energy Regulation. The main tasks of new agency will include the state regulation of activities of natural monopolies and business entities, operating in adjacent market, in the electricity and heat supply sector, markets of natural gas, oil (associated) gas, coal mines gas (methane) and shale stratum gas, oil and oil products, etc. By its structure, the new Commission is a state collegial body subordinated to the President and accountable to the Parliament. WIND PARK OCHAKIVSKY RECEIVED A LICENSE FOR ELECTRICITY PRODUCTION Wind Park Ochakivsky (Mykolaiv oblast, southern Ukraine) received a license for 20 years for the production of 75 million kwh of electricity per year. The National Electricity Regulatory Commission adopted this decision at its extraordinary public meeting on 28 November Wind Park Ochakivsky has completed the construction of the first WPP stage consisting of ten 2.5 MW wind turbines of Fuhrlander FL The cost of construction is about 350 million UAH; the payback period is 7 years. Under the project, it is planned to install 100 industrial wind turbines. According to the plans of the company, the second stage of construction in Ochakiv region will be started in Though, next year it is planned to build two relatively small WPPs in other regions of Mykolaiv oblast. THE NERC REVISED GREEN TARIFFS FOR RENEWABLE ENERGY PRODUCERS IN NOVEMBER AND DECEMBER 2011 In November 2011, tariffs for the electricity produced using renewable energy sources were increased by 1.44% compared to October level: for wind plants with installed capacity of more than 2 MW UAH/MWh, for small hydro power plants UAH/MWh, for biomass plants 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. In December 2011, tariffs for the electricity produced using renewable energy sources were decreased till its minimum fixed level: for wind plants with installed capacity of more than 2 MW UAH/MWh, for small hydro power plants UAH/MWh, for biomass plants 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. The green tariffs are revised on a monthly basis based on the exchange rate of EUR against UAH. Investment News VOSKHOD SOLAR PLANS TO CONSTRUCT SOLAR POWER PLANTS WITH TOTAL CAPACITY UP TO 300 MW IN MYKOLAIV OBLAST Voskhod Solar LLC plans to construct two solar power plants in Mykolaiv oblast in Ochakiv and Berezanka regions. One of the plants will be constructed near Ochakiv, where a former military landing field was located. The area of the field is over 500 hectares. The Ministry of Defense gave a preliminarily consent to use this land for energy needs. Earlier Mykolaiv Oblast State Administration gave a permit to Voskhod Solar to develop land plot design for allocation of hectares to construct a solar

4 power plant in Berezanka region (resolution No 237 dated 09 September 2011). According to the document, the land plot will be leased for 49 years. ACTIV SOLAR COMPLETED CONSTRUCTION OF 80 MW OKHOTNIKOVO SOLAR PARK Austrian company Activ Solar announced the completion of the fourth and last stage of solar park Okhotnikovo - the largest solar photovoltaic facility ever constructed in Central and Eastern Europe. The power plant with total capacity of 80 MW is located at more than 160 hectares and consists of approximately 360,000 modules. The project was divided into four stages of 20 MW each. The first three stages were constructed and connected to the national power grid earlier this year. The power plant will generate 100,000 MWh of electricity per year that will allow reducing carbon dioxide emissions up to 80,000 tons per year. Solar power plant will be able to satisfy the electricity demand of about 20,000 households. Activ Solar also announced opening its office in Odessa. The company plans to create significant number of working places in the region for the implementation of a number of projects in 2012 and later on. Activ Solar is an international group of companies headquartered in Vienna that specializes in designing and manufacturing of solar technologies. Main direction of the company s activity is production of silicon products and development of largescale solar parks. ACTIV SOLAR INCREASED THE CAPACITY OF PEROVO SOLAR POWER PLANT UP TO 40 MW Activ Solar completed the construction and commissioned the second stage of Perovo solar power plant (Simferopol region, Crimea) with the capacity of 20 MW raising its total capacity up to 40 MW. The final total capacity of the project has not been disclosed yet, however, the company claims that it will be one of the largest ones in the world. The construction of the first 20 MW stage of Perovo was completed in August this year. Currently the power plant consists of more than 176 thousand ground-based mono and multi-crystalline photovoltaic (PV) modules and 60 central inverter stations. It is expected that the first and second stages of Perovo will produce 53,000 MWh of electricity per year, which is enough to satisfy the demand of about 11,000 households. Also, the power plant operation will allow reducing carbon dioxide emissions by 42 tons per year. KVAZAR LOOKS FOR AT LEAST EUR 9 MILLION FROM INVESTOR Kvazar, the private Ukrainian manufacturer of solar cells and modules, looks for an investor to help raising production. An ideal investor would be a fund that sells back its stake to Kvazar in a few years. The minimum investment sought is EUR 9 million. Kvazar would use the equity provided to expand its production capacity and reduce production costs. The investment would take the form of a joint venture. Kvazar has only engaged Ukrainian partners in this way so far. Kvazar, which calls itself a monopolist in the production of solar cells and solar modules in Ukraine, also has production facilities in Germany and Canada.

5 EKOTECHNIK PRAHA PLANS TO CONSTRUCT SOLAR POWER PLANTS IN UKRAINE IN 2012 The Group of companies Ekotechnik Praha will start construction of the first SPP in Shyroke region of Dnipropetrovsk oblast in It is supposed to lease a land plot of 106 ha for that purpose. The general contractor of construction will be the company Ekotechnik Ukraine willing to invest about EUR million in the project. It is planned to install photovoltaic plates of 1 MW each. Installation of one plate on the area of 2.5 ha takes about a month and costs up to EUR 2.5 million. Also Ekotechnik Praha plans to commission 42 MW SPP near Bohuslav (Kyiv oblast) in the end of The company has obtained technical conditions for connection to AES Kyivoblenergo power grids as well as other permits required at this stage. In the course of construction, materials and components produced in Ukraine, Czech Republic and other countries will be used. Ekotechnik Praha is engaged in waterproofing, installation of photovoltaic coatings and construction of SPPs. The founders of the Group are the Czechs, Alesh and Tomash Korostetsky. Besides, the shareholder structure of Ekotechnik Bohuslav and Ekotechnik Uzhgorod includes citizens of Ukraine. RENGY DEVELOPMENT INTENDS TO BUILD 50 MW SOLAR POWER PLANTS IN VINNYTSIA OBLAST Kyiv-based Rengy Development is planning to build six solar power plants with a total capacity of 50 MW in Vinnytsia oblast. The company's portfolio includes projects in the solar power sector with total capacity of 35 MW. The company operates in Ukraine and Armenia. Rengy Development registered a subsidiary in Vinnytsia oblast Green Agro-Service LLC (Yampil region) and four subsidiaries in Odessa oblast: Rengy Izmail, Rengy Tatarbunary, Rengy Sarata and Rengy Artsyz. In early 2010, Artsyz regional administration permitted Rengy Development to develop a feasibility study for placing a MW solar power plant in the region. DEVELOPMENT OF RENEWABLE POWER PROJECTS BY WIND PARKS OF UKRAINE LTD Wind Parks of Ukraine Ltd. implements investment projects on construction of Wind Park Novoazovsky (Donetsk oblast), Wind Park Ochakivsky (Mykolaiv oblast), and Wind Park Berezansky (Mykolaiv oblast) within the investment project Wind Parks of Ukraine. Wind Parks of Ukraine Ltd. is a daughter company of the Ukrainian Machine-Building Plants Trading House Ltd. (both registered in Donetsk oblast). Wind Park Novoazovsky plans to increase its capacity up to 57.5 MW by the end of this year. The first stage of the park, consisting of 10 turbines, started producing electricity on 01 July The company plans to commission another 13 turbines by the end of the year. Next year the company plans to commission the third stage of the park, consisting of 10 turbines. As it was reported, Wind Park Novoazovsky implements the project on construction of MW wind power plant. The power plant will be equipped with 43 wind turbines of Fuhrlander of 2.5 MW each. Wind Park Ochakivsky has installed 10 wind turbines with total capacity of 25 MW. The commissioning of the first stage of the Wind Park is planned by the end of The company plans to import another 10 wind turbines produced by Fuhrlander AG of 2.5 MW each in the nearest future. In addition, the control cabinet FL-Scada at hardware WP4000 will be imported. The equipment will be used for construction of the second stage of the Wind Park. According to the decision of the Cabinet of

6 Ministers 1219 dated 23 November 2011, the equipment was included in the list of energy saving equipment exempted from customs duties and VAT. In the future, the company intends to increase the wind power capacity up to 1 GW and this would require the construction of 330 kv power transmission line. FUHRLANDER WILL START ASSEMBLING WIND TURBINES AT KRAMATORSK BY THE END OF THE YEAR Wind energy technology provider Fuhrlander AG will start assembling wind turbines at OJSC Kramatorsk Heavy Machine Tool Buildings till the end of this year. It is planned to produce two or three turbines by the New Year. They will be supplied to the customer in January Also, it is planned to manufacture about 40 turbines in First 2.5 MW wind turbines will initially be assembled from German components, but next year the company plans to use components of the Ukrainian origin. Currently the wind power equipment of Fuhrlander dominates in the market of Ukraine. Novoazovsky WPP of MW in Donetsk oblast and Ochakivsky WPP of 300 MW in Mykolaiv oblast are being constructed using Fuhrlander turbines. In addition, the equipment of Fuhrlander is planned to be used for construction of 200 MW Berezansky WPP in Mykolaiv oblast. VINDKRAFT UKRAINE INSTALLED THE FIRST WIND TURBINE IN KHERSON OBLAST Vindkraft Ukraine has installed the first wind turbine of 3 MW produced by Vestas in Kherson oblast. The company plans to put the wind turbine in operation before the end of this year. Next year, the company intends to increase the number of wind turbines in the area between Novorossiysk and Lazurne in Kherson oblast up to nine. The first wind turbine was financed by an investor; in future it is planned to attract financing from banks. UKRAINE WILL CONSTRUCT TRANSMISSION LINES USING EU FUNDS TO CONNECT RENEWABLE ENERGY FACILITITES Ukraine plans to construct two 110 kv power transmission lines and transformer yard to connect renewable energy facilities to the substations Reni (Odessa region) and Zaliznodorozhne (the Autonomous Republic of Crimea) using funds provided by the European Union within the framework of supporting implementation of the energy strategy of Ukraine in the area of energy efficiency. Besides, the EU funds will be spent on adapting the Ukrainian legislation to the European standards, research works in the area of energy production from renewable sources, creating the system of monitoring over operation of facilities producing electricity from renewable energy sources, etc. DTEK HAS CHOSEN VESTAS AS TECHNICAL PARTNER FOR CONSTRUCTION OF BOTIYEVSKY WIND POWER PLANT Ukraine's largest private vertically integrated energy holding DTEK has chosen Danish company Vestas Wind Systems A/S, one of the world's leading manufacturers of wind turbines, as technical partner for construction of Botiyevsky wind power plant of DTEK Pryazovsky Wind Park. It is planned to install 30 wind turbines produced by Vestas by the end of 2012 and to increase the number of wind turbines up to 65 in 2013.

7 DTEK plans to invest EUR 1.85 billion in construction of wind parks DTEK Pryazovsky (Zaporizhia oblast) and DTEK Mangush (Donetsk oblast) by DTEK Pryazovsky will consist of three plants: Botiyevsky, Prymorsky and Berdiansky. Total capacity of the wind park is 500 MW. BRITISH COMPANY ETHA TECH PLANS TO BUILD A WASTE RECYCLING PLANT IN MYKOLAIV ETHA TECH is ready to build a waste recycling plant in Mykolaiv using own funds. The plant will sort all solid inorganic materials (plastic, metal), while organics and substances containing pulp will be pressed, hermetically sealed and exported to the European countries for the production of bioethanol. Investors plan to invest EUR 25 million in the project. The payback term of the project is about eight years.

8 Commercial and Economic Developments Source: National Bank of Ukraine

9 Source: National Bank of Ukraine