Feed-in Tariffs in Ukraine ranking among the highest in Europe Feed-in Tariffs in Ukraine ranking among the highest in Europe RSS feed

(06/02/2012) 

Ukraine seeks to reduce its current dependency on gas imports. To address the issue, a number of initiatives are being taken which are aimed at boosting energy efficiency, introducing energy saving technologies and renewable energy resources. The feed-in tariffs effective since April 2009, rank among the highest in Europe, which considering the saturated European market, makes Ukraine especially luring for the foreign investors in the field. As forecasted by the government, in the next 3-4 years Ukraine will be able to attract about 3 billion dollars of private investments for the development of renewable energy production.

Last year, the power generated from renewable energy sources (incl. large hydropower plants) constituted 7% of the total power generated in the country. Yet, when considering only the renewable energy complying with the Ukrainian law on the “Green” tariff, the figure is less than 2%. The share of renewable energy in the state energy balance was less than 1%. The ratio is expected to improve within the next few years, and according to the target program for energy efficiency for the years 2010-2015, it should reach the 10% mark by 2015. And by 2030, the share of the renewable energy in the state energy balance shall amount to 20%, following the energy strategy up to 2030.

Potential
Experts claim the proven technological, climatic and geographic potential allowing for the renewable energy used in Ukraine to comprise 50% of the total amount of power consumed currently, with the potential of wind plants alone being estimated at 16 GW.
Many major investors are already making use of the favorable climatic and geographic conditions of Ukraine and the high feed-in tariffs for their profit. For example, during the period from June to October, a number of solar plants (20 MW each) constructed by the Austrian company Activ Solar in Crimea came on line. The total capacity is expected to reach 80 MW, which would suffice to provide 20,000 households in the region with electricity. By 2018 two windparks with the total capacity of 1.2 GW are to be built in the Donetsk region. The estimated cost of the project for the Ukrainian investors amounts to about 2 billion EUR. Tax concession and low wage costs make Ukraine an even more attractive facilities location for the production of renewable energy, as proven by enterprises like the German company Fuhrländer AG, planning to construct wind plants with total capacity of 2.5 MW.

Feed-in tariffs
The “Green” tariff applies to the producers of electricity from renewable energy sources. It is set by the NERC (National Electricity Regulatory Commission of Ukraine) for every producer individually. The “Green tariff” is effective till 1 January 2030. As the reference value for the calculation of the “Green” tariff serves the tariff rate for the second class voltage consumers as of January 2009 (0.5846 UAH, 0.0538531 EUR at that time). The aforementioned value is multiplied by the “Green” tariff coefficient for the respective type of energy production. For hydropower and solar energy production, the top consumption hours coefficient according to the three-zone-tariff (1.8 at the time of reference) is used as the multiplier, instead.
The coefficients for individual types of energy generation are as follows:
4.8 – surface facilities for solar energy generation
4.6 – roof facilities for solar energy generation with the capacity over 100 kW
4.4 – roof facilities for solar energy generation with the capacity of 100 kW or less
2.3 – biomass energy
2.1 – windpower facilities, capacity over 2000 kW
1.4 – windpower facilities, capacity of 600-2000 kW
1.2 – windpower facilities, capacity of 600 kW or less
0.8 – hydroenergy generation facilities, capacity up to 10 MW

The following feed-in tariffs for the producers of renewable energy were assigned by NERC for November 2011:
Hydropower – 0.8539 UAH (about 0.077 EUR)
Windpower (capacity over 2000 kW) – 1.2454 UAH (about 0.11 EUR)
Biomass energy – 1.3640 UAH (about 0.12 EUR)
Solar energy generation, surface facilities – 5.1238 UAH (about 0.46 EUR)
Solar energy generation, roof facilities (<100 KW) – 4.6968 UAH (about 0.42 EUR).
As far as the biomass energy is concerned, the “Green” tariff applies solely to the electricity produced from biomass of plant origin. In November, the total number of 55 energy producers (94 energy generating facilities) qualified for
the “Green” tariffs.

The “Green tariff” coefficient will be reduced by 10%, 20%, and 30% for the power generation facilities to be deployed or substantially renovated (i.e., the renovation should constitute not less than 50% of the initial construction cost) after 2014, 2019, and 2024, respectively. Materials, technical equipment and services used for the facilities construction are to be of Ukrainian origin (not less than 15% of the total cost since 2012; not less than 30% since 2013; and 50% since 2014). The solar modules used for generation of solar energy, shall be manufactured with the minimum domestic content of 30% in 2013, and 50% starting 2014.

The “Green” tariff is secured from the devaluation of the Ukrainian currency: in the event of devaluation of hryvnia, the tariff will be calculated based on the exchange rate as of 1 January 2009 (1 EUR = 10.85546 UAH).

Tax concession
Electricity production in Ukraine is subject to licensing. Both enterprises possessing technical means that are used to generate energy from alternative sources for in-house power supply (with the capacity of 10 MW or more), and production facilities generating electricity from alternative sources for wholesale, regardless of the capacity are obliged to apply for a license. The electricity produced from alternative energy sources, however, can also be sold directly to the end consumers. In the event of wholesale, the priority purchase right is granted to the state enterprise Energorynok enjoying the monopoly position. For the electricity to be fed in, a further agreement with local power providers (“Oblenergo”) shall be concluded. The above mentioned power providers cannot refuse electricity feed-in, and the costs on electricity distribution are covered for in their investments plans.

The earnings of enterprises from electricity production, on condition that they use biofuel, are tax-free up to 2020. Additionally, 80% of earnings gained out of sale of self-produced goods (if listed among the goods which are subject to tax concession, as approved by the government) in Ukraine are exempted from taxation. In particular, the tax concession concerns the following categories of goods: equipment working on renewable energy sources or used for the generation of the “green” energy; energy-efficient equipment and materials, as well as products allowing to save fuel and energy resources.
When sold in Ukraine, the equipment utilized in the field of renewable energy production is VAT-free. No import duty is imposed on equipment and materials intended for the generation of “green” energy, on condition that the aforementioned will be used for manufacturing own products and no equivalent equipment or materials are manufactured in Ukraine.

The land tax rate on land plots used as facilities sites for renewable energy generation constitutes only 25% of the current tax rate.


Igor DYKUNSKYY, LL.M. (Augsburg)
Rechtsanwalt, Partner
Attorney-at-law
bnt attorneys-at-law
13 Yakira Street
UA - 04119 Kyiv
Ukraine
Tel.: +380 44 235 06 56
Fax: +380 44 235 20 76
igor.dykunskyy@bnt.eu
www.bnt.eu


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