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What Are the Factors Constraining the Development of Renewable Energy in Ukraine?

Date of publication: 2 April 2019

Oleh Trokhymchuk, Attorney at Law

Source: Yurydychna Gazeta

Growth in the renewable energy production is a priority for the world community, as soon as it is the prerequisite for solving the burning problems facing humankind today (ecology disruption, climate change with all consequences harmful to people and the planet as a whole).

Due to its convenient geographical location Ukraine is quite a good object of interest for investors, which is confirmed by the constant growth of the number of new projects in the field of renewable energy, especially in the field of production of e

nergy from renewable sources such as solar and wind. The main reason for this growth is the legislatively established guaranteed level of “green” tariff for electricity produced from renewable energy sources, which is pegged to the exchange rate of Euro and will be unchanged till 2030, as well as obligations on purchasing the entire volume of “green” energy released into the energy system of Ukraine.

Today, the share of energy from renewable sources is about 2% of the total volume of generated energy, and its cost is almost 9% of the turnover in the electricity market. Such a financial burden was caused by the “green” tariff due to its pegging to Euro. Today’s tariff, which was approved several years ago, is one of the highest in Europe.

Due to the established level of the “green” tariff in Ukraine, the return on the investments made into renewable energy may be made on average in 4-6 years (depending on the capacity). However, as shows the experience of some European countries where the “green” tariff was introduced, the development of the industry, which was built solely on the support mechanism, is not sustainable.

Being aware of this fact, the special-purpose committee of the Verkhovna Rada prepared a draft Law No. 8449-d On Introduction of Amendments to Certain Laws of Ukraine as to Ensuring Competitive Conditions for the Production of Electric Power from Alternative Energy Sources, which was adopted by the Verkhovna Rada in its first reading at the end of 2018. The said draft Law introduces new competitive mechanisms of price formation (auctions) and provides for a reduction of the amount of the “green” tariff for solar power plants by 25% from 2020, and by 10% for wind power plants.

The European Union, the EBRD, the World Bank and the Energy Community are supporting Ukraine’s need to move from the current “green” tariff to a competitive system based on “green” auctions. These institutions believe that the current system, although useful for launching the sector, is no longer viable to maintain its long-term development.

In addition, Ukraine was informed that the EBRD will no longer be able to finance new projects in its territory that rely on the “green” tariff, except for those which are already currently underway. Unless a law will be passed guaranteeing a long period of economic stability in the sector, which will provide the necessary comfort for investors and financiers.

In such way, it can be stated that currently the main constraint to the development of renewable energy in the long run is the transitional processes occurring at the market, as well as the legislative uncertainty of the new rules of the game.