The Cabinet of Ministers made a deal with green energy producers to cut tariffs — but this is only the first step.
Renewables sell their energy at a fixed feed-in tariff, making them costlier than other forms of energy.
The greens have been in stalemate with the government over this tariff since last fall. Investors say the generous tariff justly compensates for the big risks and extra costs of building in Ukraine. Officials and energy consumers rail against high electricity prices — solar and wind is close to 9% of the total energy balance but 25% of its cost.
On June 10, the Cabinet signed a memorandum of understanding with two out of three major renewable industry associations. Solar tariffs would be cut by 15% while wind tariffs would be cut by 7.5%. The Cabinet promised to pay back all debts to green producers and to establish energy quotas so that the long-delayed green auctions can finally move forward.
“We are staunch supporters of green energy infrastructure development and such energy being the most widespread, as the cleanest,” Prime Minister Denys Shmyhal said, in a statement. “But it is important to us how much it will cost.”
The agreement comes as frustrated investors moved towards international arbitration.
The next step is getting a law through parliament, securing this deal. The memorandum is a road map but it needs the backing of law, said Oleksandra Gumeniuk, the director of the European Ukrainian Energy Agency, one of the groups that signed the deal.
Shmyhal promised to introduce the law before the end of the week. Multiple previous compromise bills have failed in the Rada.
Even so, many renewable developers and investors remain opposed to the deal. Most of them are in solar. In the EUEA itself, about 30% of the member companies voted against it.
Investors wanted the government to extend the tariff’s term to compensate for the cut. But there will be no extension under the memorandum.
Solar producers also worry about the size of the cut. At a June 9 conference in Kyiv, Ihor Tinniy, a co-founder of the Ukrainian Renewable Energy Association, said that a 15% cut in the feed-in tariff results in 50% cuts in revenues.
Besides the tariff cut, renewable producers would have to take responsibility for balancing and agree to limit commissioning of new plants that would get this tariff. Starting from Aug. 1, new solar plants with over a megawatt capacity, could only lock in preferable rates by participating in renewable energy auctions.
In an auction, green producers bid on the prices at which they can supply energy to the state buyer. Most countries with developed renewable energy sectors have moved toward this model.
The auctions were supposed to start earlier this year. But the standoff between the government and the green producers pushed them back. The auctions cannot take place until the government sets specific yearly quotas on renewable energy.
