Some foreign investors in wind energy in Ukraine are apprehensive as the Oct. 28 parliamentary vote is approaching, fearing the parliament may rubber-stamp legislation that they say will make it nearly impossible for them to pursue their projects further.
A recently
proposed draft law proposes to increase the share of the so-called local
content, a share of domestically produced products, in the development of wind
electricity power stations to 50 percent, a requirement some investors says
would be almost impossible to meet.
“Foreign
investors will lose their projects because of this local content requirement,” said
Tom Hanson, shareholder of Belgium-registered wind power developer GreenWorx
that is developing a wind farm in Crimea. “If this law is adopted, there will
be no market.”
GreenWorx
along with a Turkish firm Guris Insaat jointly develop a wind power station in
Crimea called West Crimean Wind Energy Station. They are aiming to spend 400
million euros to build a 250 megawatt capacity wind power plant in 2014.
In an Oct.
19 interview with the Kyiv Post, Hanson said he is afraid that “after elections
some people will rush to adopt the law. The bomb will be dropped and everybody
will lose.”
“Foreign
investors will lose the money they’ve already invested, Ukraine will lose a
couple of billion euros of potential investment, missed profit tax and the
value of local companies’ assets [in the market] will go down in such a
situation,” the investor said.
He says
that there have already been four million euros invested into developing his
wind farm in Crimea, a figure he and his Turkish partners could lose if they
would not be able to meet the 50 percent local content requirement. Also if
they pull out of the country, Ukraine will lose some 150 million euros in
profit tax the company projected to pay locally within the next twenty years.
The draft
law proposes to set the local content to 30 percent share for wind power
stations that will be put into operation starting from 2013 and 50 percent for
those commissioned from 2014. The local content requirement is the key
prerequisite for the feed-in-tariff, higher tariff subsidized by the
government for the electricity produced from renewable energy sources.
Pro-presidential
Party of Regions lawmaker Mykola Romaniuk, who co-authored the amendment,
defended his proposals by saying that the local renewable energy market is now
“so attractive to foreign investors that they are only dreaming to enter the
Ukrainian market,” due to high green tariffs on wind and solar power here.
Hanson
tends not to exaggerate the attractiveness of the local renewable energy market.
Hanson says that the “feed-in-tariff mechanism is not as interesting as
perceived at first sight,” because of value-added tax payments on local goods,
high country risks, which reflect on the high interest rate from banks, and the
fact that the green tariff for wind farms will go down by 10 percent for power
stations launched starting from 2014.
The final
voting for this draft law is preliminarily scheduled for Nov. 6 after being
postponed twice in the last several weeks.
Hanson says
he is not entirely against local content, but against it being as high as 50
percent of it, which in Ukraine he says is hardly possible to fulfill. “We want
to buy locally, but it seems very difficult,” he added.
He says
there is not enough of local production to supply the market and
internationally certified production to secure bank financing.
According
to Hanson, the major problem here is that “there is only one company we can buy
from.”
As of now
there is only one domestic producer of wind turbines – Fuhrlander Wind Technology,
joint venture owned by small German turbine manufacturer Fuhrlander and
Ukrainian partners.
He doubts
the Fuhrlander Wind Technology will be able to supply the entire market with
the current demand of up to estimated 3000 megawatt capacity turbines in the
nearest future.
Fuhrlander
Wind Technology did not respond to emailed questions, but their director
Vitaliy Zagudayev told reporters in September that in 2013 they expect to
produce at least 50 turbines with 2.5 megawatt capacity each, and up to 100
turbines annually when the plant starts working at its full capacity.
“In such
circumstances with just one local wind turbine manufacturer the 50 percent
local content requirement is really an obstacle for the development of wind
energy market in Ukraine,” said Yuriy Korolchuk, energy analyst at the
Kyiv-based Institute of Energy Studies.
He does not
see anything wrong with opening the market for more imported wind turbines,
which normally cost less and are better, but suspects that “some are lobbying
for such legislative novelties to close this market for themselves.”
GreenWorx’s
Hanson believes that the “local content requirement is used (or can be used) to
exclude investors and that’s not good.”
“There is a
huge polarization of domestic and foreign investors [in the sector],” he said
and tried to soften the message by adding that they are “not against anybody,
we just want to work and create a good market.”
He believes
that the consensus could be the framework, under which those who cannot meet 30
percent local content can be punished by 10 percent off their green tariff and
those who can reach 50 or more percent of local content can be rewarded with a
10 percent surplus to the green tariff.
Kyiv
Post staff writer Yuriy Onyshkiv can be reached at [email protected]
