Practical legal aspects for implementation of projects under “green” tariff

danevychlaw.com

International Energy Forum in Zaporizhya

11 September 2013Zaporizhia, Ukraine

Legislative incentives for development of renewables in Ukraine

Rates of “green” tariff for electricity from various types of renewables

Rates change/decrease in the future

Local content for “green” tariff projects

Procedure and main requirements/conditions for getting “green” tariff

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CONTENT

Strong international focus

Actively involved into green energy legal environment

IFC expert on “green” tariff mapping in Ukraine

Legal expert and partner of Ukrainian Bioenergy Association and Ukrainian Wind Energy Association

We are proud to provide Clients with services which make the environment better and the economy of Ukraine stronger

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DANEVYCH law firm

Tax incentives under the Tax Code exemption from import VAT and customs dutiesdecrease of land tax for bioenergy power plants by 75%limits for rental payments for lands lease from state and municipal authorities by 3% of appraisal valueexemption from CPT of

profit from main activity of companies in the energy sphere which produces electricity only from renewable till 2021profit from simultaneous production of electricity and heat and/or heat from biofuels till 2020

Possibility to use JI under Kyoto Protocol for biomass/biogas energy projects

The mechanism of the "green" tariff (GT)

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Incentives for development of bioenergy projects

All alternative energy sources, except for blast furnace and coke oven gas, and hydroelectric power plants over 10 MW

However, only certain alternative energy sources have a legally guaranteed level of “green” tariff (tables below)

For all other alternative energy sources NERC sets “green” tariff at its discretion at substantiated level

a relatively low level

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The coverage of «green» tariff

GT rate for solar

Categories eligible to GT

Rate of the tariff (€ / kW) depending on commissioning date

 

till 31.03.2013

inclusively

from 01.04.201

3 till 31.12.201

4

from 01.01.20

15 till 31.12.20

19

from 01.01.20

20 till 31.12.20

24

from 01.01.202

5 till 31.12.202

9

Electricity of solar power plants (SPPs) on lands

0,46526 0,33926 0,30533 0,2714 0,23748

Electricity of SPPs on the roofs of buildings or on facades of constructions with power capacity more than 100 kW

0,44588 0,34895 0,314053 0,27916 0,24426

Electricity of SPPs installed on the roofs of buildings or on facades of constructions with power capacity not more than 100 kW

0,42649 0,35864 0,322777 0,28691 0,25105

Electricity of SPPs on the roofs of buildings or on facades of private households with power capacity not more than 10 kW

- 0,35864 0,322777 0,28691 0,25105

* Expected to take effect on 01.01.2014

GT rate for wind

Categories eligible to GT

Rate of the tariff (€ / kW) depending on commissioning date

 

till 31.03.2013

inclusively

from 01.04.2013 till

31.12.2014

from 01.01.20

15 till 31.12.20

19

from 01.01.20

20 till 31.12.20

24

from 01.01.20

25 till 31.12.20

29Electricity of

wind farms with turbines* up to

600 kW

0,06462 

0,06462 

0,058158 0,0517 

0,04523 

Electricity of wind farms with turbines* from 600 to 2000 kW

0,07539 0,07539 0,067851 0,06031 0,05277

Electricity of wind farms with

turbines* 2000 kW and more

0,11309 0,11309 0,101777 0,09047 0,07916

*GT rates are determined and depends on the power of wind farm till 01.04.2013

GT rate for bioenergy

Categories eligible to

GT

Rate of the tariff (€ / kW) depending on commissioning date

 

till 31.03.201

3 inclusively

from 01.04.2013

till 31.12.2014

from 01.01.201

5 till 31.12.201

9

from 01.01.202

0 till 31.12.202

4

from 01.01.202

5 till 31.12.202

9

Electricity from

biomass 0,12386 0,12386 0,11147 0,09908 0,0867

Electricity from

biogas - 0,12386 0,11147 0,09908 0,0867

GT for small hydro power plants ( up to 10 MW)

Categories eligible to GT

Rate of the tariff (€ / kW) depending on commissioning date

 

till31.03.2013

inclusively

from 01.04.201

3 till 31.12.201

4

from 01.01.201

5 till 31.12.201

9

from 01.01.202

0 till 31.12.202

4

from 01.01.202

5 till 31.12.202

9

Micro hydro power plants (up to 200 kW)

0,11632 0,19386 0,174474 0,15509 0,1357

Micro hydro power plants (from 200 kW to 1 mW)

0,11632 0,15509 0,139579 0,12407 0,10856

Small hydro power plants (from 1 mW to 10 mW)

0,11632 0,11632 0,104684 0,09305 0,08142

In the middle of 2009 the core legislation on the current feed-in tariff scheme (GT) was enacted

As of beginning of August 2013 GT is established for 96 companies operating 153 power plants

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Current statistics

Why don’t so much as it could be?!

121351 86

Solar power plants with power capacity not more than 10 kW

Not subject to electricity licensing

The procedure of selling and counting such electricity and settlements for it shall be approved by NERC

There is no a project or even understanding how to implement it

Electricity distributors at regulated tariffs are obliged to purchase electricity in the excess of monthly consumption of electricity.

What is “monthly consumption”?

Result: No boom of small SPPs

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Expected special rules for households

NERC approves minimal fixed GT rates only for bioenergy power plants (BPPs) using solely biomass/biogas!!!

Combined use of biomass/biogas and conventional energy sources make BPPs ineligible to minimal fixed GT rate for biogas regardless of biogas share

There is no minimal fixed GT rate for electricity plants, commissioned till 1.04.2013!!!

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Combined use and GT, biogas and GT

Term «biomas» Silage, energy willow and other energy crops are not covered However, the biomass of any origin is included

Biogas is a gas formed from biomass.

If you are using energy crops, you can’t obtain GT!

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Definitions of biomass and biogas

Its rates are not tied to retail rates or average rates for producers of electricity

They are fixed as of January 1, 2009 in EUR and linked to EUR/UAH exchange rate (if more than 10.86 )

The State guarantees GT application to commissioned power plants and purchase of all electricity produced by them

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Guarantee of GT application in the future

Wholesale Electricity Market of Ukraine (WEM) represented by State Enterprise “Energorynok”

State guarantee of purchase of all electricity under GT

Direct sales of electricity to consumersLegislative limitations Absence of economic and administrative incentives

Changes of the mechanism of Sales inthe future on the draft law No. 10571

(No. 0916 of 12.12.2012)

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Purchase of electricity at GT rates

If a construction began in 2012 or later, the rates of the local component depends on the year of commissioning and shall be:

since 01.04.2013 till 01.07.2013, 15% (old calculation approach)till 07.01.2013 (for biogas in 2014) - 30%till 01.07.2014 (since 2015 for biogas) - 50%

Local component does not affect hydropower plants and installations of households

NERC will itself determine Ukrainian content based on certificates of origin, legal documents, etc.

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Ukrainian componentrequirement (from 1.04.2013)

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Ukrainian LCR for SPPs (since 1.07.2013)

Elements of local content Operations should be taking in Ukraine Fixed share, %

Polysilicon manufacturing 32

Monocrystals, multicrystals and pseudo-mono-crystals manufacturing 13

Cells from monocrystals or multicrystals manufacturing 7

Photoelectric elements manufacturing 20

Photoelectric modules assembling 23

Construction works manufacturing 5

Total 100

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Ukrainian LCR for wind farms (since 1.07.2013)

Elements of local content

Operations should be performed in Ukraine Fixed share, %

Rotor blades manufacturing 15Towers manufacturing 15Nacelle assembling 30Main frame manufacturing 5Main hub manufacturing 5

Rotor hub manufacturing (foundry) 5assembly 5

Construction works performance 20

Total 100

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Ukrainian LCR for biomass power plants (since 1.07.2013)

Elements of local content Operations should be taken in Ukraine Fixed share, %

Turbine manufacturing 25

Boiler manufacturing 35

Construction works performance 40

Total   100

The fixed shares since 2014

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Ukrainian LCR for biogas power plants (since 1.07.2013)

Elements of local content Operations should be taken in Ukraine Fixed share, %

Bioreactor for hydrolysis manufacturing 35

Cogenerator manufacturing 35

Construction works performance 30

Total   100

According to the order of calculation of the LCR of the NERCIf developer has 100% of one of the element of Ukrainian origin from the table, it can use this element regardless of the value to fulfill the respective share from the table, e.g. in the case of biomass

100 of construction works by a Ukrainian EPC – 40%100% of the turbine production by a Ukrainian manufacturer– 25 %

As a result, 50% of LCR is fulfilled!!?

Practical problem!!!most of the equipment is not produced in Ukraine, or produced not enough and won’t produced enoughunclear the approach of the CCI for an issuance of certificates of originnon-exhaustive list of documents

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Ukrainian LCR and fixed shares

Rates of GT shall be approved by NERC for each producer after filing the application and the required package of documents regarding the constructed and commissioned WF

Term for passing a decision by NERC: Consideration of documents package– 30 calendar days Approval by NERC’s meeting– 15 calendar days

GT documentation in the respective NERC’s Resolution

GOOD NEWS! Approval fee is absent

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Approval of GT (currently)

Set up of a company Electricity producer licenseConnection to the grid (compensation of expenses related to grid connection) Participation in WEM and signing WEM Agreement Conclusion of agreement for sales of electricity with State Enterprise “Energorynok” Execution of documentation for power plants construction

documents on the use of land plots project documentationcommissioning etc.

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Conditions for GT ProjectsImplementation

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Conditions for GT ProjectsImplementation

Set up of a company (charter shall provide that

the company produces

electricity) )

Acquisition of rights in land

Construction

Registration of ownership

Registration of leases

Registration of easements and

superficies

Change of designated purpose

License for electricity

production

Receipt of electricity producer’s

license

Receipt of a license for CHP

Joining WEM and Signing WEM Agreement

Conclusion of agreement with

Energorynok

GT approval by NERC

Tax and customs duties breaks

Exemption from import VAT and customs duties

25% of required land tax

Maximal annual lease payments – 3% of appraisal value

Exemption from corporate profit tax till 2021

Receipt of initial data

Receipt of technical

conditions

Development of project

documentation

Examination of PD, if necessary

Registration of declaration re preparatory

works, if necessary

Registration of declaration re beginning of construction

Receipt of permission r e

construction works

Issue of Certificate on readiness for

exploitation

Registration of declaration on

readiness

Registration of ownership

Connection to the grid

Main legislative barriers for development of GT projects

state guarantee

local content requirement

definition of "biomass“

no possibility to combine the use of biomass/biogas and traditional energy sources

uncertainty with GT for SPPs of householders

overall investment climatedanevychlaw.com

Legislative barriers

CONTACTS

t +38 044 596 46 36 f +38 044 596 46 35e maksym.sysoiev@danevychlaw.com a 10 B, Vozdvyzhenska Street, Office 8, Kyiv, 04071 Ukrainewww.danevychlaw.com

MAKSYM SYSOIEV, LL.M., Attorney-at-law, Senior Associate of DANEVYCH law firm