Green tariff for solar energy : practical legal aspects and legislative barriers

1. Green tariff for solar energy: practical legal aspects and legislative barriers ROUND TABLE «UKRAINIAN SOLAR ENERGY MARKET: REMOVING BARRIERS FOR GROWTH» March 29, 2011

2. Content • Legislative incentives for development of solar energy in Ukraine • Rates of “green” tariff for solar energy • Rates change/decrease in the future • Ukrainian component for “green” tariff projects • Procedure and main requirements/conditions for getting “green” tariff • Main legislative barriers and possible ways for their solution

3. PARITET law firm • More than 13 years in the Ukrainian market • Strong international focus • Actively involved into green energy legal environment for last 2 years • We are proud to provide Clients with services which make the environment better and the economy of Ukraine stronger

4. Incentives for development of solar energy in Ukraine • Tax incentives under the Tax Code • NEW! exemption of profit derived from sales of electricity produced from solar energy from CPT • Possibility to use JI under Kyoto Protocol for solar power projects • Feed-in tariff scheme or “green” tariff (GT)

5. Actual statistics In the middle of 2009 the core legislation on the current feed-in tariff scheme (GT) was enacted GT is currently approved for 6 companies operating solar power plants (SPPs) • 5 companies operate SPPs on ground surface • 1 company operates SPP on the roof of a building with power capacity of up to 100 kW Even though the legislation establishes quite good minimal rates for “green” tariff for SPPs in comparison with other RES power plants !?

6. Minimal fixed GT rates

7. Change/Decrease of GT in the future • GT is established until 2030 (grounds for termination are also established by a Decree of NERC) • 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 SPPs • Decrease of the current rates of “green” tariff for SPPs commissioned (significantly upgraded) after: • 2014 – by 10% • 2019 – by 20% • 2024 – by 30%

8. Purchase of electricity at GT rates • Wholesale Electricity Market of Ukraine (WEM) represented by State Enterprise “Energorynok” • Principle of purchase of all electricity produced under “green” tariff by SPPs • Direct sales of electricity to consumers • Legislative limitations • Absence of economic and administrative incentives

9. Ukrainian componentrequirement • The share of the Ukrainian component (materials, works, services) in the total value of SPP construction shall be at least • since 2012– 30 % • since 2014– 50 % • ForSPPs the Ukrainian component (materials) in production of solar modules must be at least 30 % since 2012 (additional requirement for SPPs) • It is unclear whether the requirement is deemed to be fulfilled on the commissioning date or date of GT approval • The procedure on determination of the share of the Ukrainian component is still absent

10. Approval of GT Rates of GT shall be approved by NERC for each producer after filling the application and the required package of documents regarding the constructed and commissioned SPP 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 Decree) GOOD NEWS! Approval fee is absent

11. Conditions for Implementation of GT Projects • Set up a company • Electricity producer license • Connection to the grid (compensation of expenses related to grid connection) • Participation in WEM and signing WEM Agreement • Conclusion 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.)

12. Legislative barriers Main legislative barriers for development of solar power projects under the GT • state guarantee • Ukrainian component requirement • connection to the grid

13. State guarantee Effective legislation Proposed changes Guarantee should apply either from the date of the receipt of respective permissions for construction or commissioning whichever earlier occurs, or the date of receiving approval from an authorized state agency State guarantees that the current feed-in tariff scheme will apply to SPPs only from the date of their commissioning

14. Ukrainian component Effective legislation Proposed changes Possible solutions: Repeal the requirements Decrease the shares or postpone dates of the entry into force of the requirements Stipulate that the requirements are fulfilled on the date of commissioning rather than on the date of GT approval Adopt the procedure on the calculation of the Ukrainian component 1. Ukrainian component (materials, equipment, works, services) in the construction of SPPs: • since 2012 – 30% • since 2014 – 50% 2. Ukrainian component in the value of materials for production of solar modules • since 2012- 30% 3. The procedure on determination of the Ukrainian component is still absent

15. Connection to the grid Effective legislation Suggested changes 1. Elaborate and adopt the procedure on connection to the grid and procedure on compensation of expenses 2. Establish for SPPs and other RES power plants the maximum reasonable term for compensation by law (according to the drafts of the procedure it is up to 25 years) • The unified procedure on connection to the grid is absent 2. The procedure on compensation of expenses for construction (upgrading) networks and other objects to be transferred to transmission and distribution grid operators is absent

16. Thank you for your attention!

17. PARITET law firm Maksym Sysoiev, LL.M.– lawyer with PARITET law firm working energy, commercial and corporate law. T +38 044 207 08 98 (direct number118) E maksym.sysoiev@paritet.ua