Foreign investors in renewable energy are complaining that the sector is stacked against them in favor of a handful of domestic companies.
Peter Justin O’Brien, country manager for EuroCape, a wind power developer that is building a wind power station in Zaporizhya Oblast, says that “the playing field for foreign and domestic investors is not the same.”
O’Brien and other investors say local renewable energy companies benefit from their government connections to access land, hook up to energy grids and qualify for green tariffs on favorable terms.
“It has the effect of closing the entire sector,” O’Brien told the Kyiv Post in an Oct. 10 interview. The same view was expressed during a press conference the same day by representatives of European-Ukrainian Energy Agency, representing foreign investors working in the industry, including EuroCape.
Foreign developers are worried that Ukraine’s parliament might next week adopt amendments to increase requirements that renewable energy developers use a share of domestic content when constructing their power plants, from the current 30 percent to 50 percent.
If companies do not fulfill the local content requirement, they would not be able to qualify for green tariffs – high prices the government pays for electricity from renewable energy sources.
These amendments are co-authored by three pro-presidential Party of Regions’ lawmakers, including Yulia Lyovochkina, the sister of Presidential Chief of Staff Serhiy Lyovochkin, and Yuriy Miroshnychenko, the president’s representative in parliament. They did not immediately respond to requests for comment.
EuroCape’s O’Brien says that it is really tough “when the rules of the game are being changed in the middle of the game.”
He fears that banks won’t be willing to finance such projects if developers are forced to purchase less reliable Ukrainian wind turbines that might break down and make it impossible to pay off bank loans. “It would be very difficult to deal with [such an increase], but it would be possible,” he said.
In his view, if the tougher requirements become law, some foreign companies might drop out of the small but growing sector, costing the country in potential future investments.
“Development companies generally do not complain, but it’s getting to the point that we can’t work in this industry,” he said. And, as a result, “you could see some good companies leave and the investment capital would not be here.”
If the law is adopted, the EuroCape Ukraine chief predicts that some developers might lose close to $40 million they have already invested. If the conditions don’t improve, the alternative energy market might remain starved of billions of dollars of contemplated investment to add 3,000 megawatts in renewable energy capacity.
Besides the local content requirement, O’Brien cites land acquisition and connection to the electrical grid as two other market entry obstacles for foreign investors in the renewable energy market in Ukraine right now.
“Connection to the electrical grid is almost impossible because they (the authorities) are not giving out grid connection permission. It’s a political issue, not a technical issue,” O’Brien stressed.
Investors also complain that the green tariff does not give enough incentive the way it works at the moment. The Ukrainian government grants the green tariff – one of the highest for wind and solar in the world – only after a project is completed, which makes an investment risky. In most countries, the green tariff is granted at the beginning of a project.
EuroCape’s country manager says that his company and some other foreign investors will be asking for a meeting with President Viktor Yanukovych to discuss the issue after the Oct. 28 parliamentary elections. “There could be a reasonable compromise,” he said optimistically.
O’Brien says they are not entirely against the local content rule and as a compromise offer to tie the percentage of the local content share to the green tariff rate. That is, the bigger the local content in the renewable electric station facility, the higher the green tariff such companies should be getting.
He believes that the current philosophy is “we, meaning several companies, do not want competition, we want to own this market.”
He said that three companies in Ukraine are the most active in lobbying
for the local content increase to 50 percent. According to him, those
companies are DTEK, Activ Solar, and Donetsk-based Wind Parks of
Ukraine.
DTEK did not respond to a Kyiv Post inquiry. Activ Solar’s press service said their company “is not lobbying and has never lobbied for such an amendment.”
Vladyslav Yeremenko, director of Wind Parks of Ukraine, told the Kyiv Post that they are “supporting the amendment, but not lobbying for it,” because it will create more jobs locally. He also said that foreign investors “missed time and now want to amend legislation” and added that “if they want to work in Ukraine, they have to follow the legislation.”
Wind Parks of Ukraine is often tied to Anatoliy Blyzniuk, minister of building and housing, an allegation Yeremenko denies.
It took Wind Parks of Ukraine some two years in order to launch and get green tariffs for their two wind power stations totaling 100 megawatts capacity. EuroCape has spent the last four years on a 500-megawatt wind power project, which it hopes to complete by 2016.
Owned by billionaire and Yanukovych ally Rinat Akhmetov, DTEK finished its first 60-megawatt wind power facility in Zaporizhya Oblast last week in less than four years.
Activ Solar, which is linked to Ukraine’s Security and Defense Secretary Andriy Klyuyev, installed solar parks with a total 270 megawatts of capacity in two years. The company has some 99 percent of all solar energy capacity in the country.
Kyiv Post staff writer Yuriy Onyshkiv can be reached at [email protected]
