The state electricity grid operator Ukrenergo announced on Nov. 3 that it placed $825 million green bonds in a bid to resolve the payments crisis gripping the country’s renewable energy sector.
The European Bank for Reconstruction and Development (EBRD) backed the green bonds by investing $75 million in the proceeds.
The bonds will cover 87% of the state electricity transmission system’s $950 million debt to renewable producers, according to investment bank Concorde Capital, which means that the Guaranteed Buyer can finally pay renewable producers over its long-running debt.
“The agreement is a significant step towards resolving imbalances in the Ukrainian electricity market in accordance with Ukraine’s obligations to producers of electricity from renewable sources,” said Ukrenergo Chairman Volodymyr Kudrytskyi in a press release on Nov. 3.
Alexander Paraschiy, head of research at Concord Capital, said the placement will become an important tool for the government to repay its debt to green producers.
Long-running debt
Paraschiy added that this financing didn’t address the problem of the state’s payment to green energy producers in the long term, which brought the Guaranteed Buyer to this abysmal debt.
The standoff between green energy developers and the state has dragged on since September 2019.
The tariffs were originally introduced in 2008 to encourage renewable energy investment, with a goal of making 25% of Ukraine’s energy production come from renewable sources by 2035. Under the new system, the state company Guaranteed Buyer was supposed to buy all renewable energy.
The tariff has been a running source of controversy. It also largely enriched ousted President Viktor Yanukovych’s political allies Serhiy and Andriy Kluyev, businessmen from Donetsk who held influential positions in government and parliament.
One of the highest in Europe, the tariffs attracted about $10 billion in renewable energy projects since they were put in place, according to Kosatka.media.
Billions of dollars of investment in 2018 and 2019 raised renewables’ share of Ukraine’s energy mix from just over 2% to more than 10% in about a year.
However, the amount of new renewable projects introduced in 2019 and early 2020 exceeded the amount for which the government budgeted.
The arrival of the COVID-19 pandemic further hurt Guaranteed Buyer’s ability to cover its debts. On June 10, 2020, the government and numerous renewable producers approved a memorandum to lower the feed-in tariff in exchange for the government’s promise to pay back its debts.
Many companies refused to support the memorandum, instead opting to begin international arbitration to recoup lost profits.
Oleksiy Feliv, energy expert and managing partner at law firm Integrites, told the Kyiv Post that while the new bonds do not guarantee that the state will fulfill all future payments, it was a positive step that would encourage investors.
“The payment of these debts would mean that the government is late but is still in compliance with what they promised,” Feliv said.
