Renewable Energy Projects Boosted by Long-Term Power Purchase Guarantees
Ukraine continues an ambitious plan to increase the share of renewables in its electricity production from an estimated 4.3% (1.9 GW) by the end of 2017 to at least 11% by 2020. A recent Ukraine energy strategy puts priority on development of renewable energy sources, and projects that their shares should reach 35% in the overall electricity production by 2035.
In September 2017, the Ukrainian energy regulator approved the template for the long-term power purchase agreement (the PPA) to be entered into between a renewable energy producer and the state-owned Company, Energorynok, the principal operator of the electricity market in Ukraine. Unlike previously, when the PPAs were concluded for one year only, the long-term PPAs with the state-owned operator should provide legal certainty and predictability for the term of the investment into the renewable energy project.
The template PPA incorporates the following major milestones:
- Guaranteed Term until 1 January 2030: The PPA now expressly prescribes that it would remain in place for the term of the feed-in tariff for the particular renewable energy producer, ie, until 1 January 2030.
- PPA Signed before Commissioning of the Renewable Energy Production Facility: Unlike previously, the PPA will be entered into before the renewable electricity production facility is commissioned, subject to the following precedent conditions: (i) licensing of electricity generation, (ii) establishment of a specific feed-in tariff depending on the time of commissioning of the facility, and (iii) becoming a member of the electricity market.
- New Payment Terms Introduced: Payments for renewable electricity will continue to be made on a daily working-day basis until 31 December 2017. Starting from 1 January 2018, such payments will be made on a monthly basis (upon submission by the producer of an electricity production and release act for the respective month). In both cases, the outstanding amounts for the preceding month shall be paid to the producer not later than on the fifteenth day of the following month.
- Unreasonable Financial Sanctions are Removed: The PPA no longer provides for a penalty of 25% of the cost of electricity sold for failure by the producer to comply with the State Standards of Ukraine (DSTU) applicable to the quality of such electricity.
- Disputes Can Be Resolved in International Arbitration and Mediation: At the choice of the claimant, any dispute arising from a PPA can be settled by either a Ukrainian commercial court or ICC Arbitration. The parties can also decide to settle such dispute through negotiation or mediation in the Energy Community Dispute Resolution and Mediation Centre.