The Ukrainian mechanism for incentivizing renewable energy

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1 The Ukrainian mechanism for incentivizing renewable energy Black Sea Regulatory Workshop on Renewable Energy Investment Framework May 20, 2011 St. Petersburg, Russia

2 The current mechanism of incentives for RES in Ukraine On April 1, 2009, the Parliament of Ukraine adopted the Law of Ukraine No VI On introducing amendments to the Law of Ukraine On Electricity regarding promotion and utilization of alternative energy sources. A feed-in tariff model is applied for all economic entities generating electricity with use of alternative energy sources and separately fo each type of alternative energy; For those economic entities which generate electricity from RES, the green" tariff is established for the period until January 1, 2030 (Article 17-1, the Law of Ukraine On Electricity )

3 Basic principles governing the current practice in RES regulation The main factors that characterize the mechanism of incentive in Ukraine: The system of feed-in tariffs; Sufficiently competitive levels of feed-in tariffs in Europe; 100 per-cent sales market secured at the legislative level (obligato purchase by the wholesale market of Ukraine of the total RES generated electricity, if it is not sold by direct contracts) and the purchase is being done at feed-in tariffs without any restrictions; RES investment protection mechanism hedging against the curren risks (a monthly revision of the feed-in tariffs depending on the exchange rate Ukrainian hryvnia/euro) The establishment of feed-in tariffs for a long-term period (until 2030). There is a regression of feed-in tariffs, however, it applies only to newly built facilities starting from 2014; No tax on profit for RES-E generators during 10 years.

4 Consultative process with other entities involved in the field of renewable energy NERC official information sources: Official website of NERC of Ukraine ( NERC newsletter (monthly edition). Other forms of interconnection with involved entities: Involvement of stakeholders in drafting amendments to the RES regulatory framework (publication of the draft regulatory act, analysis of proposals from all parties, the inclusion of stakeholders in working groups); Organization and participation of NERC of Ukraine in scientific conferences, forums and exhibitions; NERC cooperation with central executive authorities (Ministry of Energy, NAER, Ministry of Economy, Ministry of Industrial Policy and others), Committee of the Parliament on energy sector and other state authorities; Creation of the Public Council under NERC of Ukraine; Providing personal and electronic consultations (forum on the official NERC websit with interested parties; NERC cooperation with international financial institutions in regard to improving RE regulatory framework (NERC Regulatory Support Program by EBRD, etc.).

5 NERC s experience regarding development and establishment of feed-in tariffs. Tariff adjustment proce Implementing the Law of Ukraine No VI On amendments to the Law of Ukraine On Electricity, regarding promotion and utilization of alternative energy sources, NERC by its Resolution dated July, 16, 2009 No. 828 amended the Procedure for establishment, adjustment and determination of a green tariff for economic entities, approved by Resolution No. 32 dated January 22, 2009, by redrafting it according to the adopted Law. As of April 21, 2011 the following generators applied for and received a green tariff from NERC: Type of alternative source Number of economic entities electricity generators Solar Wind Small HPPs Biomass A Green tariff coefficient for electricity produced by power facilities put into operation (or significantly modernized) after 2014, 2019 and 2024 shall be respectively reduced by ten, twenty and thirty per-cent of its baseline value. (Article 17-1 of the Law of Ukraine On electricity )

6 NERC s prerequisites on access and connection of RES generators to the grid Obtaining Technical Requirements for connection from NEC Ukrenergo, which are an integral part of the Connection Agreement; The obligation of utility companies to provide a free access for RES-E generators to the grid (according to Resolution of CMU No. 126 dated February 19, 2009 On peculiarities of connection to the power grid by electric facilities that generate electricity using alternative energy sources ). Issues: - reasonable cost of connection (in case of a remote location of the facility, cost of such connection is significant; either utility covers similar level of costs for each facility or separate decision regarding each certain facility is required); - adding up connection costs to tariffs of utilities, which are regulated by NERC of Ukraine. At the connection point, a generator shall ensure the quality of transmitted electricity according to the state standards.

7 NERC s experience in the licensing of RES-E generators The sequence of actions of RES electricity generator if it wishes to receive feed-in tariff: Apply to NERC to obtain a licence for electricity generation (submission of application and a set of required documents) Apply to NERC to receive a fixed green tariff Become a participant in the wholesale market of Ukraine Pre-condition for obtaining a license ownership or use of electricity-generating equipment on RES. Pros: - implementation of the License conditions on electricity generation by produce - reporting on its activity; - the ability of NERC to impose penalties for violation of Licence conditions. Cons: - additional administrative barrier for generators

8 Experience in monitoring the RES market in energy sector To date, NERC has established the following mechanisms for monitoring RES-E generators: - According to the License conditions of electricity generation or License condition combined generation of electricity and heat, the generator submits monthly and quarterly reports to NERC (reports on facility operation (electricity output, fuel consumption, if applicable, plan for the next month); reports on actual structure of operational costs, financial reports, etc.); - When submitting application for obtaining a feed-in tariff, the generator also sub to NERC estimated operational production costs, which are subject to NERC s analysis with the purpose of defining profitability, investment payback period, determining taxation basis (if applicable) + presenting development plans (building reconstruction, modernization); - Separate reporting form for RES-E generators; - NERC considers the possibility to implement a new reporting form in order to me requirements of Directive ЕС 2009/28/ЕС (as for the implementation of Guarantee origin, disclosure of information for end customers); - Scheduled and unscheduled inspections of licensed activity; - Meeting the technical requirements in regard to metering devices by RES-E generators.

9 Experience of traders or TSO on cross-border interconnections with RES in electricity Based on actual data for the year 2010, the share of electricity production from renewable energy sources in total energy balance is 0.2% (except Ukrhydroenergo). There is no need for cross-border interconnections to balance the system; As for the balance, there are issues in the local nodes to connect a large number of RES-E generators (in areas with significant potential for renewable energy); NERC provides the funds for TSO (NEC Ukrenergo) and supply companie for the reconstruction and improvement of networks at the points of connection of a large number of RES-E generators in a framework of investment programs (regulated tariff).

10 Authorization and regulation of RES by NERC NERC s primary authority regarding alternative energy: Approval of a green tariff for electricity generated from alternative energy sources Forming and maintaining a register of the alternative energy facilitie Annual disclosure of information concerning the cost of connection alternative energy facilities to the electricity networks Issuance of licenses for generation, transmission and supply of electricity by approving the instructions, conditions and rules separately for each type of licensed activity according to the Law of Ukraine On Electricity Issuance of licenses for generation of electricity and heat by cogeneration facilities Setting tariffs for electricity and heat produced by co-generation facilities Setting rules for co-generation plants connection to the power grid

11 Authorization and regulation of RES NERC of Ukraine Department of generating companies is dealing with RES issues within NERC (beside RES issues, the Department is also responsible for setting tariffs for electricity generated by NPPs, HPPs, TPPs and co-generation facilities); The work of this department is constantly expanding due to development of RES-E production in Ukraine; Having authorized NERC from 2012 to define the Ukrainian part in the structure of costs of electric facilities producing electricity from RES, will translate into more regulatory work; NERC considers possibility of improving its staff expertise to work on regulation of RES-E generation.

12 Market drivers and solutions Development of alternative energy provides significant benefits: Reducing greenhouse gas emissions - improvement of environmental situation - an opportunity to sell quotas of greenhouse gas emissions Development and stability of energy sector - reducing consumption of the fossil resources - reducing import of natural gas - development of the technologies Business opportunities - creation of new jobs - attractive conditions for investments - formation of a new energy sub-sector

13 Market drivers and solutions Starting from January 1, 2012, the share of raw materials, capital assets, works and services of the Ukrainian origin in the costs of construction of an RES-E facility must be at least 30%, and from January 1, %; Starting from January 1, 2012, it is necessary to use solar modules on electricity facilities, and include in the cost of production the share of raw materials of the Ukrainian origin that should not be less than 30%; Indicating conditions when building RES-E facilities will ensure development of the new types of RES production (manufacturing of generating equipment, creation of the service sector, etc.)

14 Thank you for your attention!