Analysis of the Law of Ukraine «On amendments to the Law of Ukraine «On Electricity» N5485-VI of

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1 Analysis of the Law of Ukraine «On amendments to the Law of Ukraine «On Electricity» N5485-VI of UABio s Position Paper N2 G. Geletukha, O. Kiva, Yu. Matveev, Ye. Oliynyk, M. Sysoiev 28 th January 2013 Discussion within BAU: from to Approval by the Board of BAU and publication at The publication is available at: Responses and comments: geletukha@uabio.org Bioenergy Association of Ukraine, 2013 Please note that any copying or publication of association materials without reference to the source is prohibited

2 Contents Introduction... 3 Barrier 1: Unreasonably low green tariff rate for power generated from biogas... 3 Barrier 2: Incorrect definition of the term biomass... 6 Barrier 3: Unjustified requirement concerning the local content share of equipment, materials, and services in the total project cost... 7 Barrier 4: Terminological mistakes in the description of main pieces of equipment for power generation objects which use energy of biomass and biogas Barrier 5: Discriminatory approach towards biogas plants which were put into operation before Barrier 6: Absence of green tariff for power generated from municipal solid waste Barrier 7: Absence of green tariff for electricity generated via co-firing of biomass and fossil fuels Barrier 8: Procedure of development and discussion of draft Law # that was adopted as Law of Ukraine #5485-VI from Barrier 9: Consequences of adopting the Law of Ukraine #5485-VI from Conclusions REFERENCES Abbreviation Previous UABio publications

3 Introduction Present Position paper #2 by the Bioenergy Association of Ukraine is the next document in a series of planned publications on major issues of bioenergy development in Ukraine. The paper is dedicated to the analysis of the Law of Ukraine On Amendments to the Law of Ukraine On Electricity concerning stimulation of power generation from alternative energy sources ( VI of ) [1]. Mentioned law, from our point of view, creates a number of significant barriers to bioenergy and other renewable energy sources (RES) development in our country. Barrier 1: Unreasonably low green tariff rate for power generated from biogas Green tariffs for power generated from renewable energy sources have been enacted in Ukraine since Green tariff values that were valid before the adoption of a new Law #5485-VI in November 2012 and that will be effective until the law comes into force on April 1, 2013 for various types of RES are presented in Table 1. Table 1. Green tariffs for RE power that will be valid in Ukraine until 1 April 2013 RES Increase factor (green tariff) GT, c/kwh without VAT GT, kop./kwh without VAT Solar (max) 4.8 1, Solar (min) Biomass Wind (max) Wind (min) HPP (up to 10 МW el ) In general, the Law on green tariffs in its original version (2009) could be considered as a progressive and effective mechanism to stimulate power generation from RES. It was and is now practically the only operating mechanism that supports projects in this area. At the same time, questions concerning green tariffs for power generated from biogas, MSW, and for co-firing of fossil and renewable resources remained unresolved in the law. An attempt to resolve these problems was made in the draft Law of Ukraine of Green tariffs on the level of 2.7 and 3.0 for power from biogas and MSW respectively were set in the version, which was adopted in first reading on July 3, In addition, a correct definition of "biomass" that complies with the EU Directive was given in this version [2]. Nevertheless, some fundamental changes had been made in the draft law in the version that was adopted in the second reading on November 20, 2012 and signed by the President of Ukraine, as the Law 5485-VI. In our opinion, the changes converted it from a progressive law into the one that hampers the development of renewable energy, particularly bioenergy in Ukraine. The proposed by the Law green tariff for power generated from biogas 2.3 (for the plants which are put into operation from to ) is absolutely insufficient for the development of biogas technologies. Under such tariff, the payback period of the projects will be 3

4 more than years that is unacceptable for investments. Economic analysis is performed for a typical biogas plant with an average capacity of 526 kw el that runs on pig manure and maize silage (Tab. 2 and Таb. 3), as well as for system of biogas collection and utilization at MSW landfill for a city of 100 thousand dwellers (Таb. 4) Table 2. Economic indexes of a 526 kw el biogas plant: Object: pig-breeding farm of 6 thousand heads + 25 t/day maize silage Investments: 2.0 million EUR (~ 3800 EUR/kW el ) Volume of digesters: 2650 m 3 Biogas yield: 6600 m 3 /day Scenarios Values according to the adopted Law #5485-VI 4 Scenarios until 2015 after Specific investments /kw el Green tariff Cost of maize silage /t Share of excess heat from the CHP plant which is sold % Discounted payback period years Thus, typical projects of biogas production from animal waste and plant material, as well as projects aimed at collection and utilization of biogas at MSW landfills, at the recommended rate of green tariff K = 3.0 and K = 2.7, respectively, will have a discounted payback period in the range of 7-10 years. It can be seen from the table that under the existing market preconditions even high efficient biogas projects cannot be attractive to investors at the green tariffs which are introduced by the Law of Ukraine 5485-VI. The cost of imported equipment and technological know-how and also the price of maize silage at Ukrainian market (currently the market value of maize silage is equivalent to 20 EUR/t) are among these preconditions. In order to achieve acceptable payback period of 7-10 years under such conditions is possible only in case of a significant reduction of project s costs, which in turn will reduce its efficiency and reliability, or via zero cost of incoming raw materials (maize silage), which is impossible in a market economy. The use of over 75% of excess heat generated by cogeneration units also could improve the economic indexes. However as a rule there are no heat consumers nearby the potential locations of biogas plants. This precondition is also considered to be unrealistic for typical biogas plants. We think that the minimum green tariff for such biogas plants must be fixed at the level of 3.0. With increasing the scale of biogas project its economic performance might be slightly improved, although payback period even in this case will exceed 10 years (see Таb. 3). Table 3. Economic indexes of 2128 kw еl biogas plant:

5 Object: pig-breeding farm of 24 thousand heads t/day maize silage Investments: 6,4 million EUR (~ 3000 EUR/kW еl ) Volume of digesters: m 3 Biogas yield: m 3 /day Сценарії Values according to the adopted Law 5485-VI until 2015 after 2015 until 2015 Scenarios after 2015 until 2015 after 2015 Specific investments /kw el Green tariff - 2,3 2,07 2,3 3,0 2,3 2,3 Cost of maize silage /t Share of excess heat from the CHP plant which is sold Discounted payback period % years 11,2 14,2 6,9 6,0 7,4 6,8 Table. 4. Economic indexes for project of biogas collection and utilization at MSW landfill for a city of 100 thousand dwellers: Installed capacity: 380 kw еl ; Investment: 1.22 million EUR (~ 3200 EUR/kW еl ); Biogas yield: 4500 m 3 /day Scenarios І ІІ ІІІ ІV V Green tariff 2,5 2,7 2,7 3,0 3,5 Share of excess heat from the CHP plant which is sold, % Share of the loan on total investments, % Discounted payback period, years 8,3 8,4 9,4 7,7 8,6 follows: For biogas projects to be attractive for investor, green tariff coefficient shall be set as К=3.0 for electricity generated from biogas, produced from agricultural biomass and waste; К=2.7 for all other types of biogas, in particular biogas from MSW, organic part of MSW, sewage water and its sediments. Under such green tariffs typical biogas projects will have a discounted payback period within 7-10 years, which is the minimum necessary for attracting domestic and foreign investors in this sector. Without the green tariff given payback period will be years. 5

6 In addition, worldwide green tariff for power from biogas is usually 30-40% higher than green tariff for power from biomass (Table 5). This example can be considered as additional confirmation of necessity to establish a higher green tariff for power from biogas in Ukraine. Table 5. Green tariff in some EU countries and Ukraine [3] Countries Power from biogas, c/kwh Power from biomass, c/kwh min max min max Germany Italy Bulgaria Austria Czech Republic Ukraine (К=3.0) 1) 16,16 Ukraine (К=2.7) 1) Ukraine (К=2.3) 2) (К=2.3) 3) Spain Great Britain ) Green tariff coefficient in accordance with UABio s suggestion. 2) Green tariff coefficient in accordance with the Law of Ukraine 5485-VI of for plants commissioned from to The plants, which are commissioned later, will have a lower coefficient. 3) Green tariff coefficient in accordance with the Law of Ukraine 5485-VI on for the plants commissioned until The plants, which are commissioned later, will have a lower coefficient. UABio s proposal for overcoming the barrier: Taking into account the above mentioned we propose to set the following green tariffs for power generated from biogas: 3.0 for power generated from biogas, which is produced from biomass of agricultural origin; 2.7 for other types of biogas. Typical projects for biogas production with such green tariffs will have the payback period within 7-10 years that is the minimum required for attracting domestic and foreign investors in this sector. Barrier 2: Incorrect definition of the term biomass The Law of Ukraine 5485-VI introduces the incorrect definition of biomass into the Law On Electricity [1]: In this Law, biomass is a non-fossil biologically renewable substance of organic origin in the form of waste of forestry, agriculture (livestock and crop sectors), fishery and technologically related industries which is subject to biodegradation as well as the part of industrial and municipal waste which is able to undergo biological decomposition. 6

7 As compared with European practice and the definition, which was adopted in the first reading of the Law, one word and products was omitted (after the word waste ). That is biomass must include wastes and products of forestry and agriculture, not only their wastes. Under the current definition of biomass as it is in the final version of the Law, the most prevailing in practice types of biomass including firewood, pellets/briquettes, wood chips and energy willow (as a fuel for biomass CHPP/TPP) and also maize silage (as a fuel for biogas plants) will not be considered as biomass. All these types of biomass cannot be classified as waste. In our opinion, just this incorrect definition may completely stop the bioenergy development in Ukraine. Thus, according to the State Classifier of waste, most raw materials of plant origin, which are currently used as a feedstock in bioenergy projects, do not fall within the definition of biomass [4]. In particular, the respective State Classifier defines the following waste categories for corn: Corn plugs milled Stalks of corn dry Additionally, such type of waste as straw other is defined (code ). For the forestry such type of waste are defined: Crop trunks and crowns of trees Crop tree basal Twigs, branches, trees top. UABio s proposal for overcoming the barrier: Based on the above mentioned we consider that the definition of biomass should be corrected as follows: In this Law, biomass is a biologically renewable substance of organic origin which is subject to biodegradation (products, wastes or residues of forestry and agriculture (livestock and crop sectors) and technologically related industries as well as the part of industrial and municipal waste, which is able to biological decomposition. This definition is fully consistent with international and European practice on this issue. The European Parliament and Council Directive 2009/28/EC [2], which is obligatory for the implementation by Ukraine until 01/01/2014 according to the Treaty on establishing the Energy Community, and provides the following definition of biomass: Biomass means the biodegradable fraction of products, waste and residues from biological origin from agriculture (including vegetal and animal substances), forestry and related industries including fisheries and aquaculture, as well as the biodegradable fraction of industrial and municipal waste. Barrier 3: Unjustified requirement concerning the local content share of equipment, materials, and services in the total project cost Even before passing the new Law on green tariff 5485-VI, most of experts believed that existing local content requirement concerning equipment, materials and services for the installations applying for green tariff, were unreasonably high: 30% for the projects implemented until 2013, 7

8 and 50% for the projects implemented after This is due to the fact that manufacture of most types of equipment or at least their basic components does not exist in Ukraine today and is unlikely to be launched during the short period of time that remains. For example, Ukrainian manufacturers has never produced (and are unlikely to start production in the coming 10 years), such hightechnology equipment as biomass boilers of over 10 MW th, steam turbines of 1-10 MW el capacity, biogas cogeneration units of kw el, and a number of other specialized equipment for bioenergy sector. Analysis of capital costs for the construction of a typical biomass CHP plant shows that in practice the maximum possible share of the Ukrainian component is about 40% (Table 6). Table 6. Capital costs for the construction of a typical biomass CHP Components EUR/kW el 8 Typical % of the total cost The maximum possible contribution of the Ukrainian manufacturers, % of the total cost 1. Construction work % 8% - fuel storage % 1% - CHP plant building % 4% - other % 3% 2. Technological equipment % 8% - fuel storage % 1% - boilers % - - ash removal and gas cleaning systems % 3% - steam turbine with its equipment % - - installation of equipment % 4% 3. General boiler equipment % 10% - equipment % 4% - installation of equipment % 6% 4. Electric equipment 0.4 kv and 10 kv, control and ACS % 7% 5. Commissioning, testing, training % 3% 6. Design work, expertise % 5% TOTAL % 41%* Boiler and turbine are imported. Specific capital costs are 2775 EUR/kW el. The local content requirement introduced by the Law of Ukraine 5485 of only worsened the situation. Requirements of 50% domestic component remained, though with a delay of about half a year for biogas plants as compared with biomass plants. This requirement will apply to: - biomass power plants, construction of which was started after and which will be commissioned after ;

9 - biogas power plants, construction of which was started after and which will be commissioned after In our opinion, this requirement will completely stop development of the sector of electricity generation from renewable energy and will lead to the monopoly position of several manufacturers of such equipment. This, in turn, will affect the level of energy independence of the State and environmental its situation, significantly worsen the investment climate, in consequence of which Ukraine will not be able to fulfill its commitments regarding development of RES (adoption by Ukraine in late 2012 commitment within the framework of the Energy Community to achieve 11% of RES in total energy consumption in 2020). Such requirement also violates the principle of non-discrimination of the World Trade Organization (WTO). This is evidenced by the fact that the WTO on made a similar conclusion regarding the program for green tariff imposed by Ontario Province (Canada), according to which 60% of the equipment is to be produced locally [11]. The principle of non-discrimination implies that one state in the economic field of the other state is provided with the same conditions, benefits and privileges as any other state. In addition, the deployment of local content requirement contradicts to competition rules set by the European Union. The vast majority of countries that use incentive mechanisms such as green tariffs or green certificates do not impose simultaneously any requirements of the local content. The following Tab. 7 shows a list of countries that use/used the local content requirement, and the features of such a requirement. Table 7. Data on countries adopted the local content requirement for RES projects [5, 6] Country Some provinces of Spain Croatia Turkey Brazil China Quebec (Canada) Ontario (Canada) province province Requirements Although the local content requirement is prohibited by the EU legislation, in some provinces of Spain local government requires 70% of local content for approval of lease or concession of land for RES projects. However, at the national level, Spain has no local content requirements The variable part of the green tariff depends on the proportion of goods and services of domestic origin, used in the construction of wind parks There are foreseen benefits in proportion to the share of the local content in RES projects, however, the law is not implemented due to lack of regulations and pressure from investors Preferential loans are offered for developers of RES projects if over 60% of equipment and works are of local origin Till 2010 there was a local content requirement, but it was canceled after negotiations with the U.S. 60% Wind (10 kw and less) no requirements Wind (over 10 kw) 25%; 50% after Micro solar PV (10 kw and less) 40%; 60% after Solar PV (over 10 kw) 50%; 60% after

10 Supporters of the local content requirement suppose that this rule will provide a variety of economic benefits, including domestic production growth, export of technology, the use of renewable energy and the creation of local green jobs. However, it is worth remembering that the local content requirement may be pushed by certain lobbying groups who seek to monopolize the supply of equipment and services for RES projects. Such monopolization will have a number of negative consequences for the national economy: Distortion international trade principles that foresee production of certain goods and service by those countries who most effectively and efficiently. That is, each country should focus on those industries, which historically it has the advantage in and purchase lacking equipment and technology from countries that produce them at lower cost and of higher quality. Experience of such countries as Denmark, Germany, Norway, Portugal, and the United States indicates that protection of local producers is not needed to create sustainable green jobs. The most successful exporters of RES-to-energy technologies have never protected their producers from competition. If a country has a competitive advantage in the production of equipment, favorable investment climate, and the growing demand for renewable energy sources, foreign or domestic investors will always be eager to invest in such businesses even without the local content requirement. For example, China's surge in local production using renewable energy sources continued even after the abolition of the local content requirement in 2010, due to the extremely rapid growth of the domestic market of renewable energy and low production costs. The local content requirement often has the opposite effect than expected. For example, limited competition allows local producers to create monopolistic conditions at the RES market and reduces the number of participants in the industry, as well as competitive pressure on them. This increases the capital cost of production, and often the quality of the equipment. As a result of costs increase fewer RES projects are developed, while reducing the quality of equipment leads to fewer hours and lower performance of energy generation. All these factors lead not to creation of new jobs, but only to higher electricity prices for end-users. This negative effect is usually observed in countries that impose the local content requirement, not having established local production of RES equipment and technologies. Significant drawback of introduction of local content requirement in Ukraine is also high risk of refusal to provide lending by international financial institutions and banks for RES projects in our state due to the use of local technological equipment that is not certified by international standards and does not have proven long-term practice of successful operation. UABio s proposal for overcoming the barrier: We believe that the requirement of 50% local content in bioenergy projects will completely stop their development in Ukraine in the nearest future. We propose to abolish any local content requirement for projects applying for a green tariff for electricity generated from biomass and biogas, as well as for all RES projects. Such approach to the local content in the given law will correspond to the widespread international practice, WTO rules, and to deregulation policies pursued in Ukraine over the last few years 10

11 Barrier 4: Terminological mistakes in the description of main pieces of equipment for power generation objects which use energy of biomass and biogas Local content requirement for equipment in electric-power objects which use biomass and biogas are detailed incorrectly, with errors in terminology and without the necessary details. As some bright terminological errors one can cite the use of terms water-heater 1 (instead of boiler : can be both thermal-oil and steam), bioreactor for hydrolysis (instead of digester or anaerobic digestion reactor ) and co-generator (instead of cogeneration unit ). Such errors will lead to the situation that state body authorized for the issuance of green tariff (NERC) will not approve green tariff for bioenergy objects based solely on the fact that water heater, bioreactor for hydrolysis and co-generator will be absent among their equipment. Although the law is applicable for all types of biogas, requirements for specific contributions to the overall cost by the local component elements is prescribed only for certain types of biogas technology (including bioreactor for hydrolysis ), which is generally not suitable for other (including biogas collection and utilization systems at landfills, that do not have bioreactors in their content at all). The same applies to the technology of thermochemical biomass gasification. The final product of this technology (syn-gas) as defined by the law falls under the term biogas as gas derived from biomass. However, within the gasification installation again there is no bioreactor and instead there are gasifiers or gasification reactors. Thus, application of the law for all biogas plants, except those that include a bioreactor for hydrolysis is in practice impossible. UABio s proposal for overcoming the barrier: To correct errors of Law 5485 and to introduce a sufficient level of detailing we suggest the following definitions of specific contribution of the local content elements to the overall cost of an object (Table 8 and Table 9). Present recommendations are relevant only if legislators do not accept previous proposal by the UABio to abolish local content requirement. Table 8. Specific contribution of elements to the local content in the overall cost for power plants that use biomass Elements of local content Operations, which should be performed in Ukraine Fixed share, % Turbine manufacture 20 Steam boiler manufacture 20 Gas cleaning and ash removal systems manufacture 5 Electrical equipment, including transformer manufacture, assemblage, 15 substation and connection to the network performance Construction work performance 40 Total Actually the term boiler is used with the meaning water-heater in the Law. 11

12 Table 9. Specific contribution of elements to the local content in the overall cost for power plants that use biogas Elements of local content Operations, which should be performed in Ukraine Technological tanks of bioreactors or manufacture 15 technological equipment for biogas collection at landfills Cogeneration unit manufacture 30 Technological equipment, including pumps, mixers, industrial control Electrical equipment, including transformer substation and connection to the network manufacture 15 manufacture, assemblage, performance Construction work performance 30 Total 100 Fixed share, % 10 Barrier 5: Discriminatory approach towards biogas plants which were put into operation before According to the Law of Ukraine 5485 of , objects which generate electricity from biogas and were commissioned before 03/31/2013 inclusive, do not get green tariff. There are up to 10 such objects in Ukraine, and they were built in recent years in anticipation of green tariff for electricity from biogas. Not granting green tariff to them puts them in a position of inequality as compared with other biogas plants that is, in our view, deeply unfair and discriminatory. UABio s proposal for overcoming the barrier: We consider that provisions of the Law should be corrected in such a way that objects which generate electricity from biogas and are commissioned before 31/03/2013 inclusively, could get green tariff on equal basis with the objects commissioned from to Barrier 6: Absence of green tariff for power generated from municipal solid waste The specificity of MSW is a complex morphological structure. In particular, MSW consists of organic and inorganic substances; organic part is divided into fractions, consisting mainly of renewable raw materials (paper, wood, food waste) and raw materials derived from fossil fuels (plastics, polyethylene and other synthetic materials). The share of renewable energy generally dominates and depends on the morphological composition of waste. For example, in the UK renewable fraction of MSW is 62%, in Denmark 58%, in the U.S. 56%. In case of lack of information, the International Energy Agency recommends to assume that the share of renewable energy in MSW is 50%. For example, this value is used in the preparation of statistical data in Germany and France. 12

13 Majority of EU member states stimulates energy use of waste via legislative means, on the one hand by introduction of higher electricity tariffs, on the other hand by increasing costs of waste management and ban for landfilling of biogenic waste. At present, there are over 900 waste incineration plants that utilize 200 million tons of solid waste per year and generate 130 TWh of electricity. According to experts assessment, the total income from thermal waste treatment in the world will grow rapidly. In 2010, it amounted to about $ 3.7 billion, and in 2016 will reach $ 13.6 billion. In the period from 1984 to 1992 in Ukraine four incinerators were built (in Kharkiv, Sevastopol, Kyiv, Dnipropetrovsk). There are currently only two of them in the operation in Kiev and Dnepropetrovsk, while electricity is generated and the resulting heat from waste combustion is partly used to supply small consumers in close proximity to the installations. There are stated plans for the redevelopment of both companies. In Kiev the installation of two turbine generators with total capacity of 10 MW with connection to power grid, as well as to the DH system is foreseen. A similar project of installing turbogenerators with electric capacity of 9.4 MW is planned in Dnepropetrovsk. During recent years plans to build incinerators in different cities such as Donetsk, Odessa, Nikolayev, and Chernigov were repeatedly reported. In particular, construction of incinerator with capacity of 500 tons of solid waste/year was planned in Kiev. Economic indicators of MSW incineration with subsequent electricity generation are mainly depending on two factors the tariff of MSW utilization and sale price of electricity. Under current rates for recycling solid waste in the country and current electricity price, combustion of MSW is obviously unprofitable. For this reason, construction of new incineration plants by investment funds is impossible or at least unprofitable. In 2011, specific investments in the construction of incinerator ranged from 4000 /kw e (China) to /kw e (Canada). Specific cost of large incinerator with capacity of tons of MSW/year in the UK and the Netherlands was /kw e. According to recent measurements made in Ukraine, calorific value of Ukrainian MSW varies in the range MJ/kg with an average value of 8.2 MJ/kg. In case of the processing 200 thousand tons of solid waste/year, electric power capacity of equipment may reach 16.5 MW (with electrical efficiency of 30%). Possible profit of MSW combustion is formed via selling electricity and heat, as well as via payment for processing MSW. In Table 10 economic parameters of incinerator with capacity of tons of solid waste/year and 16.5 MW electrical capacity for different tariffs for electricity and waste treatment for multiple levels of specific investments are presented. 13

14 Table 10. Economic indicators of waste incinerator of 200 thousand t MSW/year Scenario Index Unit Specific investments /kw el Tariff on electricity kopecks/kwh 95,6 95,6 172,1 95,6 172,1 /MWh 89,8 89,8 161,6 89,8 161,6 Tariff of MSW utilization /t 11,9 35,8 11,9 11,9 35,8 Share of income from electricity sale % 63,4 50,5 75,8 63,4 64,8 Discounted payback period years 12,1 9,4 7,3 8,9 10,8 Scenario 1 tariff on electricity is adopted on the level of tariff for 2 nd class of voltage consumers in January 2013 Scenario 2 with MSW utilization tariffs increasing tree times Scenario 3 green tariff (K=3.0) and current MSW utilization tariffs Scenario 4 cheaper equipment with GT Scenario 5 expensive equipment with GT (K=3.0) with MSW utilization tariffs increasing tree times It is easy to see that in case when the expected tariffs for electricity are equal to the tariff for consumers of 2 nd class voltage in January 2013 [14], currently operating tariffs for solid waste incineration (127 UAH/t or 11.9 /t) [15] and for thermal energy (250 UAH/Gcal) project payback period is more than 12 years (scenario 1). With increasing tariffs for MSW utilization 3 times, the payback period may be reduced to 9.4 years (scenario 2). When the green tariff with K = 3.0 is imposed the payback period is reduced to 7.3 years in case of keeping existing tariffs for utilization of MSW (scenario 3). Payback of incinerator construction at existing tariffs for electricity and waste treatment hypothetically is possible using cheap equipment, such as Chinese (scenario 4), but the technical and environmental feasibility of such decision is questionable. Using the European standard equipment is possible only with simultaneous introduction of green tariff with K=3.0 and increasing rates of MSW treatment three times (scenario 5). In this way, the introduction of green tariff with a factor of at least 3.0 is necessary for investments in waste incineration. In addition, it will solve one of the thorniest environmental problems in Ukraine disposal of household waste. If green tariff is imposed, the payback period of modern incineration plants decreases too the level of 10 years (without a significant increase in tariffs for disposal of solid waste) and incineration projects may become attractive for investment. Similar stimulation of energy generation from waste exists in many EU countries and worldwide (Таb. 11). 14

15 Table 11. Rates of GT for energy generation from MSW in some EU countries [7, 12] Country GT rate for energy from MSW Austria For wastes with high content of biomass 50 /MWh United Kingdom For heat: - CHP below 200 kw 99 /MWh - CHP kw 61 /MWh - CHP over 1000 kw 12 /MWh For electricity: kw 175 /MWh kw 162 /MWh kw 5 МW 118 /MWh - Over 5 МW ROC (renewable energy certificates) system enters into force Netherlands Power generation at waste incineration plants (if efficiency is over 22%) /MWh Portugal Unsorted municipal waste /MWh Sorted municipal waste /MWh UABio s proposal for overcoming the barrier: We consider it as necessary to introduce green tariff for electricity generated from municipal solid waste at least on the rate of 3.0. Barrier 7: Absence of green tariff for electricity generated via co-firing of biomass and fossil fuels Promotion of co-firing of biomass with fossil fuels (mainly coal) via introduction of green tariffs or green certificates is also widely used in many EU countries. The major advantages of co-firing technology introduction at coal units of thermal power plants are as follows: High efficiency of energy conversion of fuel: electric efficiency is up to 38%. Ability to use different biomass types and organic part of MSW. Reduction of harmful substances emission. Implementation of projects with minimal capital costs and implementation terms. Ability to rapidly increase RES share in energy balance of a country. Justification of necessary coefficient of green tariff for projects generating electricity from co-firing of biomass with coal in existing coal power plants are given in Table

16 Table 12. Justification of necessary coefficient of green tariff for projects generating electricity from co-firing of biomass with coal in existing coal power plants Electric capacity MW el 300 Hours of operation hours/year 6000 Share of biomass in co-firing % 5 Consumption of biomass t/year Volume of generated green MWh/year electricity Price of biomass (pellets) UAH/t 1200 Price of coal UAH/t 850 Specific capital modernization costs Euro/kW el 1200 Capital modernization costs thousand UAH Green tariff coefficient Value of greеn tariff UAH/kWh Income: th.uah/year from difference of fuel price (coal th.uah/year biomass) - from electricity sale at green tariff th.uah/year Simple payback period years As it might be seen in case of green tariff at the rate of 1.9 such projects payback in 8.6, thus, such tariff is minimal required to ensure payback of investment projects in this area. Similar stimulation of electricity generation from co-firing of biomass with coal and other fossil fuels exist in many EU countries and worldwide (Таb. 13). Таble 13. Economic incentives for the use of co-firing of biomass with fossil fuels in the EU countries [13] Country Type and level of economic support Austria Green tariff 60 /MWh Belgium Green certificate 60 /MWh United Kingdom For power plants ROC/MWh (renewable obligation certificate) depending on biomass share; CHP 1 ROC/MWh CHP using bioenergy crops 1.5 ROC/MWh (average price: 1 ROC = 50 /MWh) Ireland Green tariff /MWh Poland 0.3 of green certificate/mwh (average price: 1 green certificate = 60 /MWh) Slovenia Premium /MWh Czech Republic Premium /MWh (depending on biomass price) UABio s proposal for overcoming the barrier: To introduce green tariff for electricity generated from biomass co-firing with fossil fuels at least at the rate of 1.9. Restrictions on the share of biomass we consider to be inappropriate. 16

17 Barrier 8: Procedure of development and discussion of draft Law # that was adopted as Law of Ukraine #5485-VI from The text of mentioned law and procedure for its preparation, as well as not taking into account comments by experts in the area during its preparation are of great concern. For example, many comments to the Law, as described above, were declared by UABio experts and other industry experts immediately after analysis of amendments to the Law #10183 during its preparation for the second reading. Such recommendations were indicated during discussion of these proposals at a meeting of the working group for the preparation of given Law, where representatives of the expert community were invited in October 2012 (after mentioned case the experts have never been invited to the meeting of the working group) Additionally, it was pointed out in an open letter by the Ukrainian National Committee of the International Chamber of Commerce to the Chairman of Committee of the Verkhovna Rada of Ukraine on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety M.V. Martynenko with a copy to the Prime Minister of Ukraine, Chairman of the National Commission providing state regulation in the energy sector, Chairman of the State Agency for Energy Efficiency and Energy Saving of Ukraine, Head of the Presidential Administration of Ukraine On the Law # The letter was signed and delivered to recipients on 26 th October 2012 (about a month before the Parliament passed the law, on 20 th November 2012). A copy of mentioned letter is available on the official website of the Bioenergy Association of Ukraine [9]. On this occasion also a press conference of experts in the area was held at the news agency Interfax on 26 th October 2012 [9]. No response to the letter and no consideration of expert opinions occurred in the text of the Law. Even after the Parliament passed the Law on 27 th November 2012 six professional associations working in the field of renewable energy, including UABio, addressed to the President of Ukraine to veto the Law and send it to Parliament for revision [10]. For this purpose on 28 th November a press conference of representatives of these associations was held [11]. Unfortunately the President signed given Law on November, 29 th. The question arises why the expert opinion was so blatantly ignored and was not included in the final text of the Law. We believe that this is one of reasons for the presence of such a large number of errors, drawbacks, and uncertainties that revealed in the final text of the Law, which is able to completely stop the electricity market, as well as combined heat and power generation from biomass in Ukraine. UABio s proposal for overcoming the barrier: We consider that as necessary for Committee of the Verkhovna Rada of Ukraine on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety to identify the reasons for ignoring expert opinion, which occurred during preparation and discussion of the Law #10183, and to not avoid repetition of such situations in the future 17

18 Barrier 9: Consequences of adopting the Law of Ukraine #5485-VI from Let's try to answer the question for whom the Law in the current form is beneficial. Firstly, it is beneficial to potential competitors among market players on the renewable energy sources (RES) market. All odious amendment to the law, mentioned above, were made between the first and second reading by the deputy Glushchenko I. M., who according to the mass media is connected to the DTEK company, which has interests in wind energy sector. Hidden message of such actions seem as follows: RE market is narrow it is very tight for us, so we do not want biomass, biogas, and MSW here. We believe that the interests of mentioned commercial company in the Law, of course, were taken into account and, accordingly, a competitor in the form of bioenergy is neutralized. However, public interest in this law is unlikely considered. We believe that the Law enacted in current form will completely stop development of the sector of power generation and combined heat and power generation from biomass in Ukraine. This, in turn, would deprive the country from significant reduction of natural gas consumption (especially in the sector of combined heat and power generation from biomass). Assessment by UABio shows that possibility to substitute natural gas in the sector of combined heat and power generation from biomass is over 4 billion m 3 /year. Additionally, adoption of mentioned Law has the following consequences: Defined tendency for energy saving and RES sector developemnt in Ukraine is distorted (Order of the President of Ukraine from 22 nd August 2011, State programme on energy saving from 2014, declared at all levels goals of natural gas procurement and consumption decrease, creation of national project Energy of the nature with sub-projects Biomass Energy and Biogas Energy ). Inconsistency of stated objectives and actions is demonstrated. For instance, Ukraine in late 2012 has made a commitment to develop renewable energy under obligations taken before the Energy Community (11% till 2020). It will be impossible to achieve such goal without bioenergy development. Unequal conditions for bioenergy development in comparison with other sectors of renewable energy (solar, wind, small hydro) are created. Clear step backwards from the harmonization of the laws of Ukraine and the EU is made. Another image attack is done to Ukraine in such a sensitive area for Ukrainian and European community as RES development and environmental protection. Next negative message for domestic and foreign investors is sent. Hence, the question arises: are these obvious image, economic, environmental, and social damages caused by of the Law adoption justified? We believe that the answer is no. UABio s proposal for overcoming the barrier: The Committee of the Verkhovna Rada of Ukraine on fuel and energy complex shall immediately begin preparing amendments and changes to the Law of Ukraine On Electricity taking into account proposals made in present Position paper and via involvement of industry experts (including the UABio). 18

19 Conclusions Performed analysis of the Law of Ukraine N5485-VI On Electricity (concerning stimulation of power generation from alternative energy sources) showed that given law creates a number of significant barriers for development of renewable energy market, including growth of bioenergy in the State. We believe that urgent amendments to the law are necessary in order to correct the identified barriers and mistakes UABio s proposals for overcoming barriers: The Committee of the Verkhovna Rada of Ukraine on fuel and energy complex shall immediately begin preparing amendments and changes to the Law of Ukraine On Electricity taking into account proposals made in present Position paper and via involvement of industry experts (including the UABio). To abolish any local content requirement for projects applying for a green tariff for electricity generated from biomass and biogas, as well as for all RES projects. To correct term biomass adopted in the Law and to synchronize it with the EU Directive on RES. To set the following Green tariffs for power generated from biogas: K=3.0 for power generated from biogas, which is produced from biomass of agricultural origin; K=2.7 for other types of biogas (biogas from MSW and biogas from sewage water). To correct terminology concerning equipment units during definition of local content share of objects. To widen application of such requirements to all types of biogas. Present recommendations are relevant only if legislators do not accept previous proposal by the UABio to abolish any local content requirement at all. To correct the Law in such a way that objects which generate electricity from biogas and are commissioned before 31/03/2013 inclusively, could get Green Tariff on equal basis with the objects commissioned from to To introduce green tariff for electricity generated from municipal solid waste, at least on the rate of 3.0. To introduce green tariff for electricity generated from biomass co-firing with fossil fuels at least at the rate of 1.9. Restrictions on the share of biomass we consider to be inappropriate. We consider it to be necessary for the Committee of Verkhovna Rada of Ukraine on fuel and energy complex, nuclear policy and nuclear safety to identify reasons for expert opinion to be ignored, which took place during preparation and discussion of draft Law # and to allow such situation in the future. 19

20 REFERENCES 1. Law of Ukraine On amendments to the Law of Ukraine «On Electricity» concerning stimulation of power generation from alternative energy sources ( 5485-VI from ): 2. Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources Legal sources on renewable energy 4. State classifier of Ukraine. Classifier of waste DK Grzegorz Peszko, Janina Ketterer. Local content requirements for renewable energy: an unnecessary evil. EBRD blogs: 6. ICTSD Global platform for climate change, trade and sustainable energy. Feed in tariffs for renewable energy and WTO subsidy rules European Commission. Use of economic instruments and waste management performance. Final report df 13. Ecofys. Renewable energy policy. Country profiles Data of waste incineration plant Energia, Kyiv. 20

21 Abbreviation BM biomass; CHPP combined heat and power plant; DH district heating; EU European Union; GT Green Tariff; HPP hydro power plant; TPP thermal power plant; LHV low heating value; LFG landfill gas; MSW municipal solid waste; NERC National Energy Regulation Commission; NG natural gas; RE renewable energy RES renewable energy sources; WTO World Trade Organization Previous UABio publications 1. Position Paper N1 «Position of bioenergy in the draft updated energy strategy of Ukraine till 2030» Civic union "Bioenergy Association of Ukraine" (UABio) was established to create a common platform for cooperation on bioenergy market in Ukraine, as well as to provide the most favorable business environment, accelerated and sustainable development of bioenergy. General constituent assembly of UABio was held on September, 25, 2012 in Kyiv. Currently, the Association is in the process of state registration. Among UABio members are over 10 leading companies and over 20 recognized experts working in the field of bioenergy. 21