Comment on Renewables Auction Law in Ukraine
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As for now, the Ukrainian Parliament has voted in first reading for the implementation of renewable auctions scheme in Ukraine starting from year 2020. We strongly believe that the new mechanism should be implemented as soon as possible. The year 2020 is the optimal date for it taking into account the period needed for the introduction of secondary legislation after the adoption of the Law in the second reading.
According to the Draft Law on Introduction of Certain Changes to Laws of Ukraine regarding Ensuring Competitive Conditions for Generation of Electricity from Alternative Energy Sources (the “Draft Law”), the auctions will be mandatory for:
- starting with 2020 for solar power plants more than 10 MW and wind farms more than 20 MW;
- starting with 2021-2022 for solar power plants more than 5 MW and wind farms more than 20 MW;
- starting with 2023 for solar power plants more than 1 MW and wind farms more than 3 MW (or 1 turbine).
For all other renewables, the participation in the auction will be possible, but not mandatory. They will have the right to work under current support scheme – Feed –in Tariff. Therefore, the producers will have a choice to participate in the auction receiving a 20 years PPA or to work under current support scheme – Feed –in Tariff, which is valid until 2030. Although the levels of Feed –in Tariff will be reduced in the following way (according to the text of the Draft Law of the first reading):
- the feed-in tariff for solar power plants will be reduced by 25% for solar in 2020 with the reduction by 2.5% each year within the following 3 years;
- the feed-in tariff for wind power plants will be reduced by 10% for wind (as set out in the effective legislation) in 2020 with the reduction by 1.5% each year within the following 3 years.
- the feed-in tariff for biomass, biogas and small hydro – still under discussion.
Currently, there are still some positions of the Draft Law that are discussed and are to be improved before the second reading, but the main concept remains the same. It will be a 1 stage auction where the winner will be determined by the lowest price. The ceiling of the auction price would be the level of actual Feed –in Tariff as of the date of the auction. The 20 years period of PPA will encourage further sectors development. The investor will have the opportunity to receive longer period of support on the lower price and the consumer will receive the cheaper electricity from renewables. Otherwise, if the auction system will not be implemented sector’s development will be stopped in the nearest years with the Feed-In Tariff valid until 2030.
In general the adoption of the Draft Law will make positive influence for the state, producer and the end consumer as well:
· it will reduce the cost of clean energy for the consumer;
· create a competitive renewable energy market;
· open long-term planning opportunity for strategic investors;
· reduce the current "green" tariff to economically justified levels taking into account the technologies development level.
Hopefully the Draft Law will pass successfully the second reading in the nearest future.