12:55 19.12.2019

Bill on restructuring feed-in tariff to allow Ukraine to avoid investment arbitrations – lawyers

4 min read
Bill on restructuring feed-in tariff to allow Ukraine to avoid investment arbitrations – lawyers

 Bill No. 2543 on restructuring the feed-in tariff (FIT) would allow Ukraine to avoid investment arbitrations and let construction of new plants go forward, according to lawyers polled by Interfax-Ukraine

"Bill No. 2543 is a kind of compromise that will reduce the financial burden on the guaranteed buyer both thanks to existing plants and future ones. At the same time, it will allow the construction of new plants to go forward, as the tariff reduction is compensated by the extension of its validity period," Managing Partner at Integrites Law Firm Oleksiy Feliv said.

According to him, most developers, especially foreign ones, positively perceived the bill.

"They consider it a balanced proposal that takes into account the interests of the state, consumers and investors in the 'green' energy industry. This gives reason to expect that, despite the proposed tariff reduction, Ukraine will avoid investment arbitrations, as was the case in many countries that retrospectively revised the rules of state support for 'green' energy and where subsequently investments in the sector were frozen for decades," the lawyer said.

Feliv said that the development of "green" energy for Ukraine is not only a matter of the consumption of clean electricity but the issue of national security.

"Over the next 5-15 years, many existing facilities in nuclear and coal generation will be phased out. The only quick and cheap alternative will be 'green' generation, so a balanced approach to the development of the sector should be among other priority issues of national security of Ukraine," he said.

In turn, Head of Energy and Natural Resources Practice at Arzinger law firm Yaroslav Cheker said that bill No. 2543 is supported by a significant part of investors in alternative energy in Ukraine, and it is more acceptable for the investors than some other bills. In particular, at present, investors who have concluded agreements for the sale of electric energy at the feed-in tariff (FIT, also known as preliminary power purchase agreements (pre-PPA) before December 31, 2019 and put solar facilities into operation within two years from the date of the conclusion of pre-PPA and wind facilities within three years, can sell electricity at FIT and be exempted from the auction system.

At the same time, bill No. 2543 proposes to significantly reduce the aforementioned terms for the commissioning of the plants: until April 1, 2020 inclusively for solar power plants, and until December 31, 2020 inclusively for wind farms.

"Since January and February 2020 are winter months, and the construction of solar power plants on frozen ground is technically difficult and expensive, many investors in solar energy consider such a period impossible and unreasonable. In the event that the solar panels have not yet been purchased and imported into Ukraine, the possibility of putting into operation a solar power plant in such a period looks completely illusory," he said, while emphasizing the difficulties of implementing projects in wind energy, where the average implementation period is it is one and a half or two years.

At the same time, the investors who agree to restructure pre-PPA with FIT have a longer period for commissioning: for solar power plants – until September 30, 2020 inclusive, for wind farms – until June 30, 2022 inclusive.

"Thus, for many investors, restructuring will be the only possible way to complete the project, although for solar projects the deadline is still quite tight. In simple terms, the state offers investors in alternative energy to voluntarily agree to reduce the FIT in exchange for extending it," Checker said.

However, the lawyer noted the problem of financing "green" energy projects.

"Since most of the completed projects and those that are going to be built, alternative energy facilities attract debt financing or refinancing in Ukrainian (in particular, Ukrgasbank and Sberbank very active in this sector) and international banks, it would be important to hear the opinion of banks and their official position regarding whether they will agree to restructure the issued loans in accordance with the changed terms of payment of FIT," he said.

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