Certain practical legal aspects of implementation of solar

energy projects under GT in Ukraine

CISOLAR-2012

Maksym Sysoiev, LL.M., Attorney-at-Law, Senior Associate at PARITET law firm

April 5-6, 2012, Odesa, Ukraine

Content

Legislative incentives for development of solar

energy projects under GT in Ukraine

Rates change/decrease in the future

Ukrainian content for solar energy projects under GT

Procedure and main requirements/conditions for

getting “green” tariff

Main legislative barriers and possible ways for their

solution

Incentives for development of solar energy projects under GT

– exemption from import VAT and customs duties– decrease of land tax for RES power plants by 75%– limits for rental payments for lands lease from state and

municipal authorities by 3% of appraisal value– exemption from corporate profit tax of profit derived from

sales of electricity produced from renewables till 2021 (changes since 01.04.2012)

Tax incentives under the Tax Code

Possibility to use JI for renewable energy projects

Feed-in tariff scheme or “green” tariff (GT)

Recent changes in CPT exemption

Before April 1, 2012, CPT exemption applied to

•any profit from sales of “green” electricity were exempted from CPT

Since April 1, 2012, CPT exemption applies •if the company produces electricity solely from renewables

•to profit from main activity of the company which is not necessarily production of electricity from renewables

Further clarifications of tax authorities are necessary!!!

Actual statistics

1. In the middle of 2009 the core legislation on the current feed-in tariff scheme (GT) was enacted

2. As of March 2012 GT is approved for: 8 companies operating 8 wind farms 2 companies operating 2 biomass power plants 1 company operating 1 landfill power plant 16 companies operating 16 solar power plants (1 key player

owns 13 companies with 13 plants ) 32 companies operating 86 small hydro power stations

3. If the legislation establishes quite good minimal fixed rates for “green” tariff, why the number of solar energy projects under GT is so scarce!?

Minimal fixed GT rates

Type of energyPower station capacity and other factors

influencing the rate of GTRate of the

tariff (€ / kW)

Wind

less 600 kW 0,0646

600-2000 kW 0,0754

more 2000 kW 0,1131

Solar energy  

Power plants on ground surface 0,4653

Power plants on the roofs of buildings with power capacity exceeding 100 kW

 0,4459

Power plants on the roofs of buildings with power capacity of up to 100 kW

0,4265

BiomassShould be at least partially of plant origin to be eligible

0,1239

Small hydropower plants

not more than 10000 kW 0,0775

Change/Decrease of GT in the future “Green” tariff is established until 2030 (grounds for

termination are also established by a Decree of NERC)

2014 – by 10%2019 – by 20%2024 – by 30%

Decrease of the current rates of “green” tariff for power plants commissioned (significantly upgraded) after:

Change/Decrease of GT in the future

Its rates are not tied to retail rates or average rates for producers of electricity

They are fixed as of January 1, 2009 in EUR and linked to EUR/UAH exchange rate (if more than 10.86 )

The State guarantees GT application to commissioned power plants and purchase of all electricity produced by them

Purchase of electricity at GT rates

Wholesale Electricity Market of Ukraine (WEM) represented by State Enterprise “Energorynok”

State guarantee of purchase of all electricity produced by solar power plants under GT

Direct sales of electricity to consumers Legislative limitationsNo economic and administrative incentives

Ukrainian content requirement

If construction of power plant began in 2012, the share of the Ukrainian content (fixed assets, materials, works, services) in the total value of a power plant construction shall be at least

• for plants commissioned in 2012 – 15 %• for plants commissioned in 2013 – 30% • for plants commissioned in 2014 – 50 %

Additionally for solar power plants, value of materials and raw materials in production of solar modules shall be at least

• for plants commissioned in 2013 – 30% • for plants commissioned in 2013 – 50 %

Ukrainian content requirement

There is still no adopted procedure on determination of the share of the Ukrainian content

However, draft procedure published on March 16, 2012 at NERC’s website Formula to calculate the share of local content Documents proving value of materials, raw materials, works,

services Ukrainian origin of raw materials, materials and fixed assets

should be determined under the procedure established by the Cabinet of Ministers of Ukraine.

Origin of works and services should be determined by the country of their performer registration .

Documents proving the share of Ukrainian materials in generating equipment imported from abroad

Ukrainian content requirement

Draft procedure establish 2 steps for calculation• PRELIMINARY CALCULATION (DISCRETIONAL)

o By authorized expert organization after preparation of project documentso At producer’s discretion

• ACTUAL CALCULATION (MANDATORY)o By authorized expert organization after commissioningo Requires filing of documents proving value of construction and local contento Conclusion of expert organization and list of documents submitted for

calculation of local content are documents proving the actual share of local

content and constitute grounds for establishing “green” tariff by NERC.

Ukrainian content requirement

Shortcomings of the draft procedure

• Unclear what specific types of expenses related to construction (for instance, lease of land plots, costs for connection etc.) shall count to the power plant construction

• There are only 3 authorized expert organizations as of today• Issuance of certificate of origin shall be governed by the procedure

established by Cabinet of Ministers of Ukraine which is absent• The procedure lacks formula and special information for calculation

on special local content in solar power plants (share of materials in production of solar modules).

• The procedure lacks any timeframes

Approval of GT

Rates of GT shall be approved by NERC for each producerafter filing the application and the required package of documents regarding the constructed, commissioned and connected power plant

Term for passing a decision by NERC:– Consideration of documents package– 30 calendar days– Approval by NERC’s meeting– 15 calendar days

Documentation of “green” tariff (stipulated by the respective NERC’s Resolution)

GOOD NEWS! No Approval Fee

Conditions for Implementation of GT Projects

Set up a companyElectricity producer license Connection to the grid (compensation of

expenses related to grid connection)Participation in WEM and signing WEM

AgreementConclusion of agreement for sales of

electricity with State Enterprise “Energorynok”Execution of documentation for power plants

construction (documents on the use of land plots, project documentation, commissioning etc.)

Set up of a company

(charter shall provide that the

company produces

electricity)

Acquisition of rights in land Construction

Registration of ownership

Registration of leases

Registration of easements and

superficies

Change of designated purpose

License for electricity

production

Joining WEM and Signing WEM Agreement

Conclusion of agreement with Energorynok

GT approval by NERC

Sale of electricity at GT

Tax and customs duties breaks

Exemption from import VAT and customs duties

25% of required land tax

Maximal annual lease payments – 3% of appraisal value

Exemption from corporate profit tax till 2011

Receipt of initial data

Receipt of technical

conditions

Development of project

documentation

Examination of PD, if necessary

Registration of declaration re preparatory

works, if necessary

Registration of declaration re beginning of construction

Receipt of permission r e construction

works

Issue of Certificate on readiness for exploitation

Registration of declaration on

readiness

Registration of ownership

Connection to the grid

Connection of certain types of

wind farms

Connection of other power plants

Conditions for Implementation of GT Projects

Legislative barriers

Main legislative barriers for development of solar power projects under the GT:

State guarantee/Stabilization clause

Ukrainian content requirement

Connection to the grid

Legislative barriers

Main legislative barriers for development of solar power projects under the GT:

Moratorium on use of agricultural lands

New construction legislation

Nontransparent procedure for import

VAT and customs duties exemption

Thank you for your attention!

Since 1998 in the Ukrainian market

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Actively involved into green energy legal environment for last 3 years

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MAKSYM SYSOIEV, LL.M., Attorney-at-Law, Senior Associate at PARITET law firm (energy, commercial and corporate law).t|

+38 044 207 08 98; е| maksym.sysoiev@paritet.ua