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ASSISTANCE TO THE NATIONAL ENERGY REGULATORY COMMISSION OF UKRAINE:

REGULATORY SUPPORT PROGRAMME TCS ID: 29084

Subtask I: Full implementation of the existing Green Tariff Law and Methodology

This assignment was contracted by the Ukrainian National Electricity Regulatory Commission utilising European Bank for Reconstruction

and Development (EBRD) funding provided by the Global Environment Facility (GEF).

Prepared by:

AF-MERCADOS EMI with

EXERGIA RAMBOLL December 2011

AF-MERCADOS EMI – EXERGIA - RAMBOLL

REGULATORY SUPPORT PROGRAMME – Task I: Full implementation of the green tariff law and methodology 2

REVISION HISTORY

1.0 07-02-2011 Initial version for review by beneficiary

16-02-2011 Review by beneficiary

2.0 23-02-2011 Final version after review by beneficiary

3.0 19-12-2011 Final version after further review by Consortium



TABLE OF CONTENTS

1 INTRODUCTION ................................................................................................................................ 4

2 E-RES PROMOTION IN UKRAINE .......................................................................................................... 4

2.1 EXISTING LEGAL BACKGROUND FOR RENEWABLE ENERGY PROMOTION IN UKRAINE ....................................................................................... 4 2.1.1 NERC and E-RES promotion ...................................................................................................................................................... 5

2.2 RENEWABLE ENERGY PROMOTION SCHEME IN UKRAINE .............................................................................................................................. 5 2.2.1 Green tariff level ......................................................................................................................................................................... 6 2.2.2 Green tariff validity and its degression .................................................................................................................................... 7 2.2.3 Electricity sales on the green tariff .......................................................................................................................................... 7

2.3 PRACTICAL APPLICATION OF THE RENEWABLE ENERGY PROMOTION SCHEME ................................................................................................. 9

3 INTERNATIONAL EXPERIENCE ........................................................................................................... 10

3.1 THE EU EXPERIENCE IN RENEWABLE ENERGY PROMOTION ........................................................................................................................ 10 3.2 RES TARIFF COMPARISON BY TECHNOLOGY ............................................................................................................................................ 11

3.2.1 On-shore Wind .......................................................................................................................................................................... 11 3.2.2 Solid Biomass ............................................................................................................................................................................ 12 3.2.3 Small Hydro ............................................................................................................................................................................... 13 3.2.4 Solar PV ..................................................................................................................................................................................... 13

3.3 COMPARATIVE ANALYSIS OF BIOMASS AND BIOGAS PROMOTION PRACTICES ACROSS EUROPE ...................................................................... 14 3.3.1 The definition of biomass ........................................................................................................................................................ 14 3.3.2 Promoting E-RES with biomass ............................................................................................................................................... 15

4 DIAGNOSIS OF THE EXISTING SCHEME ............................................................................................... 19

4.1 POSITIVE ASPECTS FROM ANALYSIS OF EXISTING LEGISLATION FOR E-RES DEVELOPMENT IN UKRAINE ....................................................... 19 4.2 PITFALLS IN THE DEVELOPMENT OF E-RES IN UKRAINE .......................................................................................................................... 20

5 RECOMMENDATIONS ........................................................................................................................ 26

ANNEX A. PRIMARY LEGISLATION OF UKRAINE RELATED TO THE ALTERNATIVE ENERGY SOURCES DEVELOPMENT . 29

ANNEX B. LATEST RESOLUTIONS OF CMU RELATED TO THE ALTERNATIVE ENERGY SOURCES DEVELOPMENT ......... 33

ANNEX C. TAX INCENTIVES FOR POWER PRODUCERS FROM ALTERNATIVE ENERGY SOURCES .............................. 35

ANNEX D. APPROVAL DECREE OF THE GREEN TARIFF RATES FOR 36 FACILITIES ............................................... 38

ANNEX E. SELECTED EU EXPERIENCE IN BIOMASS E-RES ............................................................................... 43

ANNEX F. SUPPORT SCHEMES IN EU MEMBER STATES ................................................................................... 53



1 INTRODUCTION

This is an interim report addressing the activities conducted by the Consultant under Task 1: ‘Full implementation of the existing green tariff law and methodology’. The issues covered in this report include:

Current renewable energy regulations used to increase the amount of renewable energy production.

Assessment of the implementation experience for green tariffs in Ukraine

Ukrainian renewable energy promotion scheme evaluation: identification of the benefits in the existing scheme and areas where improvement are necessary.

Developing legislation and regulations and corresponding green tariffs for biomass and biogas installations based on international experience.

Assessing the rationale for applying different green tariff coefficients for wind power plants depending on installed capacity.

The objective of this report is to present recommendations to the National Electricity Regulatory Commission of Ukraine (NERC) that will aid in the implementation of an E-RES supporting scheme that effectively promotes the deployment of RES generation in Ukraine. These recommendations have already been discussed in our meeting with stakeholders held in February 2011. Comments provided by stakeholders have been adressed in this version.

2 E-RES PROMOTION IN UKRAINE On April 22, 2009, the Verkhovna Rada of Ukraine adopted an amendment to the Ukrainian Law on Electricity1

2.1 EXISTING LEGAL BACKGROUND FOR RENEWABLE ENERGY PROMOTION IN UKRAINE

; this now serves as the legal basis for the renewable energy support scheme (now commonly referred to as the Green Tariff Law). In this section, the Consultant will provide an analysis of the existing regulatory and institutional framework for E-RES development in Ukraine.

In addition to the Law on Electricity, during the last decade Ukraine has implemented the legal framework to promote the development of alternative energy sources. The main laws serving as the foundation to the sector are the following:

The Law of Ukraine № 555-IV from 20.02.2003 on Alternative Energy Sources;

The Law of Ukraine № 74/94 from 01.07.1994 on Energy Saving;

The Law of Ukraine № 1391-XIV from 14.01.2000 on Alternative Types of Fuel;

The Law of Ukraine № 2509-IV from 05.04.2005 on Combined Heat and Power (Cogeneration) and Use of Waste Energy Potential"

1 Electricity Act of 16 October 1997. Officially published in "Bulletin of the Verkhovna Rada of Ukraine”, 1998, N 1, Art. 1; newspaper "Governmental Courier", 20.11.97 N 215-216; "Official Gazette of Ukraine" 02.12.1997, number 46, № s. 1



An explicit description and the main provisions from the laws relating to the renewable energy sources are provided in Annex A.

In order to reduce dependency on imported gas, the Ukrainian government actively started seeking ways to minimize the use of natural gas and accelerate development of alternative energy sources in the country. In this regard, the Cabinet of Ministers of Ukraine (CMU) adopted regulations (please refer to Annex B for further information), which is supports the development of alternative energy sources.

In addition, the Ukrainian government provides a number of tax incentives for renewable energy producers (analyzed in Annex C).

2.1.1 NERC AND E-RES PROMOTION

NERC oversees the power sector in the country. Among its main duties2

Approval of green tariffs for electricity produced from alternative energy sources;

– in the field of non-conventional energy – are:

Creation and maintenance of alternative energy facilities registry;

Annual publication of information related to the connection costs for traditional energy facilities;

Licensing and approval of electricity generation, transmission and supply activities, separate conditions and rules apply for each type of licensed activities, according to the Law on Electricity;

Licensing of electricity and heat generation for cogeneration units;

Setting tariffs for electricity and heat generated at cogeneration units;

Setting rules for connection of cogeneration units to the transmission network.

2.2 RENEWABLE ENERGY PROMOTION SCHEME IN UKRAINE3

The level of green tariff and the applicable rules are specifically defined in the Ukrainian Law on Electricity. This law defines the green tariff as:

2 The scope of plenary powers of NERC in field of alternative energy is set by:

Law of Ukraine on Power Sector,

Law of Ukraine “On Combined Generation of Heat and Electricity (Cogeneration) and Use of Waste Energy Potential”, and

President Decree of the "Issues of the National Electricity Regulatory Commission of Ukraine" dated from 21.04.1998 № 335/98.

Internal normative documents that regulate NERC’s activities:

Decree of NERC No. 3 from 08.02.1996 “On approval of Conditions and Rules for Carrying Out Entrepreneurial Activities Related to the Electricity Generation”;

Decree of NERC No. 1305 from 06.10.1999 “On approval of the Instruction on the Procedure for Issuance of Licenses for carrying out certain types of entrepreneurial activities by the National Electricity Regulatory Commission”;

Decree of NERC No. 32 from 22.01.2009 “On approval of the Procedure for setting, reviewing and termination of validity of “green” tariff for economic entities”

3 Currently the term “alternative” is widely used in the Ukrainian legislation. However, as formulated in the Law on Electricity, the financial incentive in a form of a green tariff is given to the electricity produced from “renewable” energy sources.



[…] ”The green tariff is a special tariff for electricity generated by alternative energy sources (excluding electricity generated with blast-furnace and coke oven gases but including electric energy generated by small HPP).

The green tariff is approved by NERC.” […]

According to Article 17-1 of the Law on Electricity, NERC is responsible for developing the procedure to define, review and suspend the green tariff for economic entities. The Procedure was approved by NERC decree No. 32 from 22.01.2009 (hereinafter the Procedure).

2.2.1 GREEN TARIFF LEVEL

In accordance with the Procedure, as of January 1, 2009, the minimum green tariff level is set at the level of the retail tariff for electricity for the second voltage class of consumers; this value is then multiplied by the corresponding green tariff coefficient.

The green tariff coefficients are fixed by the Law on Electricity and they were developed under technology-specific characteristics (see Exhibit 1).

Each month and for each technology, the level of green tariff (in kop/kWh) is revised and asymmetrically adjusted taking into consideration the UAH/EUR exchange rate. NERC uses the UAH/EUR exchange rate established by the National Bank of Ukraine for converting the tariff level from Grivnas into Euros, on the date of the tariff review. After this, the ratio between the current and original exchange rates (fixed on January 1, 2009) is calculated. If this ratio is higher than one, then the tariff is adjusted accordingly; otherwise, the original tariff (fixed on January 1, 2009) is maintained:

2009.01.01.

...2009.01.01....

2009.01.01.

... 1EURO

XXXXXXXXEUROTARIFFXXXXXXXXTARIFF

EURO

XXXXXXXXEURO

NNBB

NN

×=⇒

2009.01.01....2009.01.01.

... 1 TARIFFXXXXXXXXTARIFFEURO

XXXXXXXXEURO BBN

N=⇒≤

The minimal rates and coefficients of green tariffs for the proper types of alternative energy are defined in the Law on Electricity (see Exhibit 1).

Exhibit 1 - Green tariffs by type of renewable energy source

Energy facilities (according to the Law on Electricity)

Green tariff coefficients

Green tariff (kop/kWh)

Wind Power Parks with WTG of installed capacity up to 0.6 MW 1,2 70,15

Wind Power Parks with WTG of installed capacity from 0.6 to 2 MW

1,4 81,84

Wind Power Parks with WTG of installed capacity over 2 MW 2,1 122,77

Biomass power plants 2,3 134,46

Surface solar power plants 4,8 505,09*

Solar power plants of installed capacity over 0.1 MW that are mounted (installed) on roofs of houses, buildings and structures

4,6 484,05*

Solar power plants of installed capacity up to 0.1 MW that are mounted (installed) on the roofs of houses, buildings and

4,4 463,00*



Energy facilities (according to the Law on Electricity)

Green tariff coefficients

Green tariff (kop/kWh)

structures and solar installations mounted (installed) on the front-side of the houses, buildings and structures regardless their installed capacity

Small HPP 0,8 84,18* Note: * - Green tariff level with implementation of tariff coefficient for peak load (in case of three-zone tariff implementation).

2.2.2 GREEN TARIFF VALIDITY AND ITS DEGRESSION

The Law on Electricity establishes that the green tariff is to be valid until 2030, with the amount slowly reduced during this time. The gradual reduction of the green tariff is done by lowering the green coefficient over time.

2014 – reduced by 10 %;

2019 – reduced by 20 %;

2024 – reduced by 30 %.

This provision is applicable to electricity that is generated by power plants commissioned (or extensively upgraded) after 2014, 2019 and 2024 respectively.

According to the Law on Electricity, ‘extensively upgraded’ power plants that generate electricity using alternative energy sources are the power plants that have estimated equipment upgrade costs over fifty percent of their initial value.

It is not clear how modernized facilities that have power equipment installed, after 2030, account for the initial cost of the equipment.

2.2.3 ELECTRICITY SALES ON THE GREEN TARIFF

The Law on Electricity regulates the electricity sales from alternative energy sources. Also, this law identifies the rights of generators to sell electric power directly to consumers or to suppliers at a regulated tariff (hereinafter the Suppliers).

However, at the moment there are no standards that would regulate these sales neither directly to consumers, nor to the Suppliers. Moreover, the template for the Power Purchase Agreement (PPA) regulating the electricity sales from alternative energy sources directly to consumers or to Suppliers has to be approved by NERC.

The Law also obliges wholesale power supplier (hereinafter the wholesale supplier) to purchase all electricity produced from alternative energy sources at the green tariff – if such electricity is not already sold to consumers or the Suppliers directly.

Today the wholesale supplier in Ukraine is the Wholesale Electricity Market (WEM) of Ukraine. The functions of the wholesale supplier have been taken by the State Enterprise Energy Market (hereinafter the SE Energy Market).

According to the Law, settlements for the electricity from alternative energy sources between the SE Energy Market and the generators are performed exclusively in cash with no ability to offset debt retirement.

The sale of electricity produced from alternative energy sources to the wholesale supplier is licensed. Licensing for the power industry is performed by NERC. The main document, Regulating Energy Licensing Procedure by Business Activity, is the instruction on the license granting procedure for types of business activities approved by NERC’s decree No. 1305 from 06.10.1999.



All WEM participants (power producers and suppliers) are members of the Wholesale market according to the agreement (hereafter – WEMMA) between WEM Members. WEMMA defines the rights and obligations for power producers, suppliers by regulated tariff, and suppliers by unregulated tariff and wholesale supplier.

WEMMA has a number of annexes such as WEM Regulations, Procedure of Financing Arrangements, Provisions on Emergency Conditions of WEM, and Provisions on Commercial Power Consumption Measuring and others, which are all an integral part of WEMMA.

The most important annex is the WEM Regulations that establishes the functioning mechanism of the WEM, namely: data provision, allocation of load between generators, establishment of the wholesale buy/sell prices, settlements in the WEM.

Power purchasing by the wholesale supplier from the producers is carried out in accordance with the sales and purchase agreement between SE Energorynok and the producer.

In order to sell electricity from alternative energy sources to the WEM the producer shall first apply to the NERC concerning the following:

Obtain a power generation license (combined heat and power production license in the case of the CHP);

Establish the green tariff level for power generation.

Basic terms for qualifying for the green tariff:

Property or agreement to use of power-generating equipment that works with use of alternative energy sources (obtaining of license);

Completed power-generating facility interconnected to the network (in case of new facility construction), confirmed by the Certificate of power energy facility compliance to the Design documentation, requirements of state standards, norms and rules of construction.

If NERC makes a positive decision regarding the issuing of a proper license, and after approving of the green tariff for this licensed producer, the producer should complete the following activities:

Become WEM member by signing with WEMMA;

Sign PPA with SE Energy Market.

Licensed producers that generate electricity from RES with the subsequent sales should follow the Rules and Conditions of electricity production business conduct that have been approved by the NERC decree No. 3 from 08.02.1996.

The Law on Electricity contains provisions on the issuance of a special certificate to the buyer of electricity generated from alternative energy sources. This will certify the purchase of electricity generated from alternative energy sources and will detail the procedure.

Connection of alternative energy power plants to the electricity grid4

According to the Ukrainian Law on Electricity, energy suppliers that feed electricity through their own networks cannot deny third-party access to generators from alternative energy sources. They are allowed to include the connection costs in their investment programs. However, the procedures for recovering such

4 Is recommended to take into account in Paragraph 3.3 from the Terms of Reference.



connection costs have not been put in place so far. Thus, in practice, all connection costs are supported by the producer.

2.3 PRACTICAL APPLICATION OF THE RENEWABLE ENERGY PROMOTION SCHEME

According to the registry of power facilities using alternative energy sources, compiled and maintained by NERC as of January 1, 20115

57 electricity producers that use alternative energy sources are registered in the NERC database. Among them are:

:

3 solar energy facilities;

8 wind energy facilities;

39 small hydro power facilities;

1 mine gas facility;

4 biomass facilities;

2 facilities that use energy wastes from industrial processes.

From this set, NERC has approved Green tariffs for 36 facilities. Green tariffs are updated on monthly basis for all entities covered by the scheme following a Decree issued by NERC (see Annex D). The Decree contains the list of licensees, which have obtained a generation license and been approved for green tariff, with their specific green tariff rate.

Exhibit 2 – Alternative energy sources facilities by technology

Source: NERC Decree No. 1958 23.12.2010

NERC has provided green tariffs to those projects that have fulfilled the required documentation. However, in defining those tariffs NERC has found some difficulties when the involved input fuel was biomass.

One example of such difficulties can be illustrated by the following case: in 2010, the ‘Ukrainian Milk Company’ LLC applied to NERC for green tariff approval. The project comprised the commissioning a 955 kW biogas cogeneration unit

5

at the milk farm. NERC proceed with the approval of the green tariff for the new electricity producer accordingly but granting them a green tariff coefficient of 1. The explanation for such coefficient was based on the fact that in the Law of Electricity there is no coefficient defined for electricity produced from the biomass of animal origin (biogas from animal origin). Currently, the financial support is

http://www.nerc.gov.ua/document/82567/Reestr_alter.zip

http://www.nerc.gov.ua/document/82567/Reestr_alter.zip�



provided only to the electricity facilities that use biomass of vegetable origin as a primary energy source and the green tariff coefficient for such facilities is 2.3.

Thus, the company obtained a “green tariff” set by NERC but without a green tariff coefficient. Therefore, this rate is considerably different from the fixed minimum rate of the green tariff granted to other biomass projects.

3 INTERNATIONAL EXPERIENCE

3.1 THE EU EXPERIENCE IN RENEWABLE ENERGY PROMOTION

The promotion of renewable energy sources has been a main component of the European energy and environmental policy for many years. According to the EU Policy contained in the Directive 2009/28/EC6

Despite the introduction of green certificates schemes in Belgium, Italy, Poland, Romania, Sweden and the United Kingdom, feed-in tariffs still represent the most common ingredient in the EU renewable promotion policy, as they are in use in more than 20 Member States

, RES penetration targets have been agreed at EU level; however, the selection of instruments for their pursuance had been left to each Member State to decide. This has led to the current situation where different Member States implement a mix of different approaches towards promoting E-RES generation within their territories.

7

Exhibit 3

.

shows the range of feed-in tariffs available to renewable energy-based electricity generation.

Exhibit 3 - Feed-in Tariff levels in the EU

Source: AF-Mercados EMI

Average feed-in tariffs in the EU are around 120 €/MWh for biomass and 90 €/MWh for wind and small hydro generation. For solar energy, the average feed-in tariff is around 300 €/MWh and may even be as high as 470 €/MWh.

During last two years in several EU countries, such as France, Germany, Spain, financial support scheme (feed-in tariff) has been revised and adjusted. One of the main reasons became unexpectedly high penetration of renewable generation in

6 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. 7 Even in countries with Green Certificates (i.e.: the UK) a feed-in tariff system has been implemented to promote E-RES development in small producers.



short time and the increased burden on the final consumer associated to that. Therefore it was decided to adjust feed-in tariffs (FIT) according to the development of technology for renewable generation (particularly solar PV).

The table below represents an overview for the evolution of the feed-in tariff in selected Member States (a dagger shows moments of FIT adjustment/revision).

Exhibit 4 - FIT evolution in selected Member States8


Annex F describes in more detail the instruments used for the promotion of E-RES across all EU Member States.

3.2 RES TARIFF COMPARISON BY TECHNOLOGY

One important aspect to analyse is the level of current green tariffs in Ukraine vis-à-vis those already implemented in the EU. Having a tariff level different than the ones already implemented in other countries does not necessarily raise a red flag on the supporting scheme. However, large deviations with respect to the international benchmark may cause – at least – two concerns:

If the promotion scheme is unusually low, this may reflect that the economical incentive may not be sufficient to promote effective RES development.

On the other hand, is the scheme is unusually high, this may create some concerns on the sustainability of the mechanism as the energy bill for the society may rapidly increase.

In this section, the consultant will analyse tariff ranges for the main renewable technologies that are currently promoted in Ukraine: on-shore wind, solid biomass, small hydro and solar PV.

3.2.1 ON-SHORE WIND

In the case of on-shore wind, Exhibit 5 represents information regarding the existing feed-in tariffs in key EU Member States and in Ukraine.

8 In Cyprus initially the tax incentives/investment subsidies were introduced (further it has been changed to FIT by 2006). In France the FIT for wind energy was introduced since very beginning – by 2001 it was revised and complemented for the rest of technologies. In the case of the Netherlands, since 1997 tax incentives/investment subsidies were used to support E-RES generation (FIT served as a secondary instrument).



Exhibit 5 - Wind On-Shore Feed-In Tariffs Comparison (€/MWh)


From the figure above can be seen that the level of green tariffs for wind power plants that were established in Ukraine are slightly higher than the average level of 90 Euro/MWh across Europe. Therefore, investments in wind generation in Ukraine become very attractive for local and foreign developers.

3.2.2 SOLID BIOMASS

Tariffs applied to the electricity produced from (solid) biomass are in the average of tariffs observed in other EU countries, therefore no economical barrier is envisaged in this technology (see Exhibit 6).

Exhibit 6 - (solid) Biomass Feed-In Tariffs Comparison (€/MWh)




However, despite the existence of high feed-in tariffs, in many countries — such as Greece, Slovenia, Spain — the deployment of this technology has been modest if comparing with other renewable energy sources, such as wind, and even the introduction of new incentive schemes still do not have the ability to curve this trend.

The reasons that may explain such behaviour are complex. A key issue is that, unlike other RE technologies — e.g., wind —, biomass technologies are as diverse as the different forms of biomass used as input. In addition, biomass technologies suffer from several problems of economic nature, which can be summarized as the non-existence of a ‘biomass market’ that could provide the necessary price signals for long-term technology development. To that must be added the fact that, like in any other conventional technology, generators need to enter into long-term agreements with biomass producers in order to obtain the guarantee that they will have enough input for power generation at a given price9

3.2.3 SMALL HYDRO

.

The current levels of feed-in tariffs for small hydro installations with installed capacity less than 10 MW are presented in Exhibit 7 for the case of selected EU Member States and Ukraine.

Exhibit 7 - Small Hydro Feed-In Tariffs Comparison (€/MWh)


It can be stated that Ukrainian policy goes in line with the schemes applied in European countries: the green tariff for small hydro power plants is on the average (about 8-9 c€/kWh).

3.2.4 SOLAR PV

On the following exhibit, the financial support levels for solar photovoltaic across European countries is presented, taking into consideration the latest changes and recent adjustment as on November 2011.

9 Other important issues include: biomass delivery processes and costs, sustainable harvesting, water resources, etc.



Exhibit 8 - Solar PV Feed-In Tariffs Comparison (€/MWh)


From the figure above can be seen that Ukrainian feed-in tariff for solar PV electricity generation lies on the upper margin – far above the average, if comparing with European Member States where during the last years solar PV tariffs have been revised and updated with consideration of the fast technological development.

3.3 COMPARATIVE ANALYSIS OF BIOMASS AND BIOGAS PROMOTION PRACTICES ACROSS EUROPE

3.3.1 THE DEFINITION OF BIOMASS

The European Commission in the article 2 of Directive 2009/28/EC defines biomass as

[…]“the biodegradable fraction of products, waste and residues from biological origin from agriculture (including vegetal and animal substances), forestry and related industries including fisheries and aquaculture, as well as the biodegradable fraction of industrial and municipal waste” […]

Even though this definition is not binding for EU member states, countries have translated its spirit into their national legislations maintaining the key concept of biodegradability as the starting point for defining this concept.

3.3.1.1 BIOMASS AND BIOGAS

There are several alternatives in which biomass’ energy content can be transformed into electricity. Broadly speaking, there are two main categories in which the use of biomass for electricity can be classified:

Direct: which means the direct burning of biomass – replacing or mixed with fossil fuels – into a conventional thermal generator transforming thermal energy into electricity.



Indirect: biomass is firstly transformed into biogas10

3.3.2 PROMOTING E-RES WITH BIOMASS

– through natural or forced decomposition process – and this gas is afterwards used as primary fuel in power generators. Indirect use of biomass includes: landfill gas, digesters, gasifiers, pyrolisis, etc.

From the producers’ point of view, the decision of generating power through biomass is not easy as the technology to develop is highly constrained by the specific type of biomass in the surrounding area, moisture content, long-term availability, etc.

As a result of these constrains project development faces large cost volatility in both investment and operation and maintenance costs, as presented in Exhibit 9. This volatility can be reduced if we take a closer view on the technologies and sizes of the projects to be developed. As it can be seen in the exhibit, landfill gas present smaller costs and lower variability; also, the volatility on biomass costs can be also reduced if we classify them into large and small projects.

Exhibit 9 – Volatility in biomass generation costs

Investment Cost (€/kW)

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

Biogas Biogas plant

Landfil gas

Biomass Small scale

Large scale

€/kW

Annualized O&M Costs (€/kW year)

0

50

100

150

200

250

300

350

400

Biogas Biogas plant

Landfil gas

Biomass Small scale

Large scale

€/kW

yr

Source: AF-Mercados EMI, based on EU Commission Staff Document SEC(2008) 2872

These characteristics in cost volatility have lead many policy makers across the world to develop tailor-made promotion schemes for biomass-based power generation11

Technology-wise: takes into account the technology to be developed in the project (i.e.: only power or CHP)

. These schemes may contain static and dynamic features to provide incentives to project developers. A brief example of these features includes:

Fuel-wise: biomass is divided in several sub-categories depending on the fuel used as input source (i.e.: biomass and biogas is the most common categorization).

10 Biogas typically refers to a gas produced by the biological breakdown of organic matter in the absence of oxygen. Biogas is produced by anaerobic digestion or fermentation of biodegradable materials such as biomass, manure, sewage, municipal waste, green waste, plant material and energy crops. This type of biogas comprises primarily methane and carbon dioxide. Other type of gas generated by use of biomass is wood gas, which is created by gasification of wood or other biomass. This type of gas consists primarily of nitrogen, hydrogen, and carbon monoxide, with trace amounts of methane. 11 Even though the consultant is mostly referring to the specific case of feed-in tariff schemes (as the one developed in Ukraine), most of this features are also applicable to other promotion schemes such as green certificates, tax exemptions, etc.



Size-wise: assumes that costs are affected by the size of the plant, therefore each technology is further classified by installed capacity.

Tariff duration: defines the lifespan of the promotion scheme

Tariff degression: sets the reduction path of the initial tariff to be applicable to new developers joining the scheme. This feature captures some proportion of the windfall profits generated by the learning curve process.

3.3.2.1 THE EXPERIENCE ACROSS THE EU

The development of biomass across EU member states is widely different. Nordic countries such as Finland, Sweden and Denmark, with large tradition in the use of biomass for power generation purposes present large penetration shares of biomass with respect to their total mid-term potential (please refer to Exhibit 10) while others, with large biomass potential, are still in early development stages (Italy, France, Poland, etc.).

Exhibit 10 – Biomass-based RES-E generation and potential in EU-27

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

100.000

AT BE BG CY CZ DK EE FI FR DE GR HU IE IT LV LT LU MT NL PO PT RO SK SL ES SE UK

GW

h

Potential

2008

2004

Source: AF-Mercados EMI, based on Eurostat and OPTRES report

The consultant will not focus the current analysis on explaining why some countries have larger penetration than others as this is a complex analysis of economical incentives and non-economical barriers which is out of the scope of the project.

However, our work will try to present alternatives undertaken by representative EU member states which can be helpful for ensuring an effective E-RES deployment of biomass-based generation in Ukraine.

Exhibit 11 presents a summary of the experience from four EU member states (Spain, Germany, France and Denmark), which have developed different alternatives for promoting E-RES from biomass. The experience of these countries is of relevance for Ukraine as they present different combinations the characteristics presented in section 3.3.2.

Exhibit 11 – Selected EU Experience on Biomass Promotion Schemes

Country Characteristics Size Wise Promotion Mechanism

Spain Promotion mechanism recognizes 9 categories divided in three groups: 1) Plants using energy crops,

Two categories for b.6 and b.8: Capacity ≤ 2MW

Choice between FIT and price premium: Category b.6:




waste from agricultural or gardening, or residues of forest harvesting and other operations in woodlands and green spaces (b.6)

2) Plants using manure, biofuels or biogas from anaerobic digestion of agricultural and livestock waste or sludge from wastewater treatment and the recovery in landfills (b.7)

3) using biomass as primary fuel from industrial plants (b.8)

Capacity > 2MW Two categories for b.7.2: Capacity ≤ 500kW Capacity > 500kW No category for b.7.1 and b.7.3

Min = 10.75 €/MWh Max = 15.89 €/MWh Category b.7: Min = 5.36 €/MWh Max = 13.06 €/MWh Category b.8: Min = 6.51 €/MWh Max = 12.57 €/MWh Tariff reduction after 15 years in operation (approx. 20-30% reduction). 1.5% Yearly tariff degression.

Germany

The Law recognizes 3 categories: 1) Biomass: fuels made of

phytomass and zoomass, including products, by-products, residues and waste from phytomass and zoomass whose energy content comes from phytomass and zoomass (biogas inclusive).

2) Landfill gas 3) Sewage gas

Biomass: (1)<150kW (2)150kW<x≤0.5MW (3)0.5MW<x≤5MW (4)5MW<x≤20MW Landfill & Sewage Gas: (5)<500kW (6)500kW<x<5MW

Biomass: (1) 11.67 c€/kWh (2) 9.18 c€/kWh (3) 8.25 c€/kWh (4) 7.79 c€/kWh Landfill Gas: (5) 9.0 c€/kWh (6) 6.16 c€/kWh Sewage Gas: (5) 7.11 c€/kWh (6) 6.16 c€/kWh Tariff lifespan: 20 years Tariff degression: 1% for biomass and 1.5% for landfill and sewage.

France

The promotion scheme accepts two categories: 1) Biomass includes: industrial

waste (eligible by-products of the paper industry and waste from the food industry); agricultural products (waste and residues including straw and energy crops); forestry products (byproducts of the timber industry, recyclable industrial waste, recyclable non-hazardous industrial waste and other biomass such as hedges, bushes and street trees).

2) Biogas: facilities that use gas due to decomposition or fermentation products, waste and residues from agriculture (including vegetal and animal substances), forestry and allied industries (food industry), water treatment or municipal waste.

Only for plants up to 12 MW. Biomass plants are not size-wise. However, biogas plants are: (1)<150kW (2)150kW<x<2MW (3)2MW<x<12MW

Feed-in tariff plus premium for efficiency. Biomass Tariff = T+X T=4.5 c€/kWh X=8+(V-50)/10 c€/kWh V=energy efficiency of the installation (V≥50%) Biogas Tariff = T+M+PM (1) T=9 c€/kWh (2) T= linear interpolation (3) T=7.5 c€/kWh M=f(energy efficiency) V≤40%: M=0 c€/kWh V≥75%: M=3 c€/kWh 40%<V<75%: M= linear interpolation. PM=2 c€/kWh (biogas excluding municipal waste sources) Tariff lifespan: 15 years

Denmark

The Danish promotion scheme is based on a single price premium for biomass and biogas. The system considers the use of biomass waste directly (direct burn of biomass at power stations) or indirectly (through burn of biogas or other gasification process). The biomass waste definition includes the following categories: wood, straw, kernel, seeds, fruit residues, nut and seed shells, untreated cork,

No size limit Price premium on top of market price with cap. Premium for biomass and biogas is set at 0.405 DKK/kWh (5.43 c€/kWh). The limit of the scheme is set at 0.745 DKK/kWh (10 c€/kWh). If the market price plus the premium exceeds this limit, the difference is deducted from future payments.




untreated grain and seeds, untreated cotton and flax, lolly sticks, green pellets, malt, thatched roofing, tobacco waste, fuel pellets or briquettes.

However, only for direct burning of biomass the schemes grants a guaranteed premium of 0.15 DKK/kWh (2 c€/kWh) irrespective of the price limit. Tariff lifespan: 10 years.


The Spanish case is probably the most detailed of the four cases under analysis. The promotion system for biomass includes 9 subcategories, size-wise provisions and the possibility of choosing between a fixed feed-in tariff and a price premium on top of the market price (with collars). There is no lifespan for the tariff scheme but tariffs are reduced by 20-30% after 15 years of the commissioning of the plant. In addition, the mechanism introduces a 1.5% yearly tariff degression and inflation adjustment provisions (please refer to Annex E for further details).

In Germany, the scheme to promote E-RES considers three categories (biomass, landfill gas and sewage gas). For each category, the government has defined size-wise sub-categories (with a limit in installed capacity of 5MW for landfill and sewage plants and 20MW biomass facilities) and feed-in tariff accordingly. The tariffs are valid for 20 years after commissioning and the system presents a tariff degression of 1% per year for biomass and 1.5% per year for landfill gas and sewage gas. The scheme is complemented with some additional bonus of 1 c€/kWh if the facility fulfils specific environmental requirements (for further details please consult Annex E).

The French promotion scheme is one step simpler than in Germany. The government promotes the use of biomass for power generation by a feed-in tariff system that divides biomass into two categories: (solid) biomass and biogas, with a detailed classification on what is to be considered biomass. Also, the system is complemented with size-wise provisions and a 12 MW cap in the installed capacity of the plant. The payment scheme considers a basic payment and bonus based on the energy efficiency of the plant. Lastly, the lifespan of the tariff is 15 years after commissioning of the plant.

Finally, in Denmark the promotion scheme for biomass is the simplest of the four cases under analysis. This scheme is based on a single price premium for biomass (including biogas) on top of the market price for electricity with a cap on the allowed total electricity selling price for the generator. If the market price plus the premium for biogas exceeds the cap, the extra revenues perceived by the generator are discounted from future payments. However, this system provides an exemption for biomass plants with direct biomass burning by setting a minimum guaranteed premium (not affected by the cap). The scheme does not incorporate any size-wise provision and the lifespan of the scheme is 10 years after commissioning.

From the four experiences under analysis, we can observe that too many sub-categories (as in the Spanish case) may largely increase the complexity of the promotion scheme as:

The developer is constrained to receive biomass from specific sources which may increase supply risks if this biomass is affected by seasonal factors.



The developer and the regulator may find difficulties to classify a specific plant into a tariff category which may unnecessary slow down the development process, introducing additional risks.

The monitoring process becomes more complex and the incentives to deviate from the scheme increases.

On the other hand, a very simplistic classification may generate large windfall profits with returns on investments largely exceeding market expectations. This situation is not necessarily a problem if the market has the ability to adjust prices but given the fact that the tariff perceived by developers is fixed, this situation may hamper the sustainability of the scheme in the long run.

4 DIAGNOSIS OF THE EXISTING SCHEME

4.1 POSITIVE ASPECTS FROM ANALYSIS OF EXISTING LEGISLATION FOR E-RES DEVELOPMENT IN UKRAINE

1. The Law on Electricity provides the following mechanisms to promote the use and development of alternative energy sources:

Green tariff concept (feed-in tariff) – special tariff for the electricity that is applicable to producers from alternative energy sources until 1/1/2030;

Green tariffs have been defined with a floor level in UAH and linked to the Euro exchange rate adjusted on monthly basis;

Green tariffs are in line with international experience as presented in section 3.2;

Wholesale electricity supplier is obliged to act as a last resort buyer, purchasing electricity from alternative energy sources at the green tariff if this electricity has not been sold directly to consumers or suppliers;

Energy suppliers cannot deny grid access to the electricity producers from alternative energy sources;

Super shallow connection cost procedure: Grid companies must assume the connection costs for projects developed with alternative energy sources and NERC must fully acknowledge these costs during their investment programs’ approval.

2. Based on Article 13 of the Law of Ukraine on Energy Saving the State Energy Saving Fund (SESF) was created.

Article 13 of this Law lists the sources of SESF financing:

Funds raised through fines for breaching regulations on the effective use of energy resources;

Part of the fees for natural resources are used, the amount is approved by Verkhovna Rada;

Funds raised by the National Agency of Ukraine by ensuring the effective use of energy resources through the issuance of permits;

Voluntary contributions of companies, entities and citizens.

The Law of Ukraine on Energy Saving also provides that the SESF should use the money to finance renewable developments and the production of alternative fuels.



3. Connection of power facilities from alternative energy sources to power networks

According to the Law on Electricity, electricity suppliers that perform transmission of electricity through their own power network cannot deny third party access to the network to producers from alternative energy sources. As previously mentioned, grid companies must compensate connection costs to producers and NERC must fully take into account these costs when approving their investment programs.

However, in order to implement such a mechanism, NERC should develop and adopt regulations and provide a contract template for connecting producers using alternative energy sources to the power grid. Such templates and additional secondary legislation are part of Task III under this project.

4.2 PITFALLS IN THE DEVELOPMENT OF E-RES IN UKRAINE

1. E-RES versus Alternative Energy Sources

The Law of Ukraine on Alternative Energy Sources defines alternative energy sources as:

"Renewable energy sources, which include solar energy, wind, geothermal, tidal and wave energy, hydropower, biomass, gas from organic wastes, sewerage gas power plants, biogas, and secondary energy resources, including the blast furnace and coke gases, methane gas from degassing of coal mines, transformation of unused power potential of technological processes".

On the other hand, the green tariff established by the Law on Electricity applies only to a limited group of electricity generated from alternative energy sources, namely: wind, biomass, solar, and small hydro power plants.

According to the definition provided by the Law of Ukraine on Alternative Energy Sources there are some alternative sources of energy for which the green tariff does not apply.

There are two issues that create confusion among stakeholders:

• Firstly, the Law on Alternative Energy Sources mixes in the definition Renewable Energy Sources (solar energy, wind, geothermal, tidal and wave energy, hydropower, biomass, gas from organic wastes, sewerage gas power plants, biogas) with Non-renewable Energy Sources (blast furnace and coke gases, methane gas from degassing of coal mines, transformation of unused power potential of technological processes)

o This combination of different sources of energy may create some inconveniences for an effective transposition of the European Energy Communitaire Aquis as these sources are treated differently according to EU Directives. Policies for Non-renewable energy sources are related to the efficient use of this type of energy sources (energy savings) and their promotion policy should be unlinked to any promotion scheme related to E-RES sources.

• Secondly, the green tariff concept defined on the Law on Electricity does not take into account the complete set of E-RES sources defined in the Law on Alternative Energy Sources. The most prominent exclusion is the case of biogas for which no coefficient has been defined and it is not even allowed to be associated to the biomass concept.



2. Local share content

Beginning from January 1st, 2012, the promotion scheme for electricity from alternative energy sources applies only if the share of raw materials, capital assets, works and services of Ukrainian origin in the total power facility construction cost exceeds 30%; and starting from the January 1st, 2014 this share increases up to 50%.

However, there is still no methodology for determining the share of services, materials, etc. of Ukrainian origin.

3. Purchase of electricity by consumers at a green tariff rate

Law on Electricity implies that the buyer of electricity generated from alternative energy sources, will receive a certificate confirming the purchase of electricity generated from alternative sources and determine the procedure of its utilization.

However, the Law does not specify the purpose of issuing certificates and how they will be treated in funding the system.

At the moment there is no normative document that regulates the sale of power generated from alternative energy sources, directly to consumers or suppliers.

4. The definition of ‘biomass’

The Law on Electricity defines biomass as:

“…products consisting wholly or partly of vegetable matters that can be used as fuel in order to transform energy contained in them.”

This definition of biomass is – at minimum – incomplete and totally unrelated to the biodegradability concept defined in EU Directives as presented in section 3.3.1.

Even if compared to the biomass definition in the Law of Ukraine on Alternative Types of Fuel12

In addition, for developers that would generate electricity with a fuel mixture containing products of plant origin or substances that derives for vegetable matter (such as manure), the following question arises: what is the accepted ratio between vegetable matter and other substances to obtain the green tariff?

, which clearly introduces the concept of bio-degradation, the treatment of biomass in the Law on Electricity seriously hampers its effective development as it excludes the possibility of developing E-RES generated from organic substances of animal origin and from industrial or municipal wastes.

5. Green tariff for biogas

In addition to the issues related to the definition of biomass, the inclusion of biogas as an E-RES supported technology into the Ukrainian promotion scheme requires some attention.

As it was presented in section 3.3.2 investment costs for biogas plants present a large volatility and this is mainly caused for the specific requirements in each development site.

Therefore, further analysis should be developed in this sense to evaluate the possibility of developing fuel-wise and/or size-wise green tariffs. This concept can be also translated to biomass green tariff as well.

12 which defines a biomass as: “…a renewable biological substance of organic origin, undergoing biological decomposition (waste products of agriculture (of crop and livestock), forestry and technology-related industries, as well as an organic component of industrial and domestic waste)”



During 2010, NERC, NAER and other organizations13

On January 28, 2011 was registered “The Draft Law of Ukraine on Bringing Amendments to the Article 17-1 of the Law of Ukraine on Electricity (draft law No. 8028 from 28.01.2011)”.

started working on different alternatives to close the “biogas gap” by submitting draft Laws to the Verkhovna Rada of Ukraine.

It should be noted that suggestions of the mentioned parties are quite different. The comparative analysis has been carried on this occasion and results are summarized in Exhibit 12.

13 Such as the International Chamber of Commerce of Ukraine and Entrepreneurs.



Exhibit 12 - Comparison of proposed changes to Article 17-1 of the Law of Ukraine on Electricity

Item № Current Version Proposals of NAER Proposals of NERC Draft version as of

28.01.2011 № 8028

1

Article 171. Promotion of Electricity Generation from Alternative Energy Sources


Article 171. Promotion of Electricity Generation from Renewable Energy Sources and Secondary Energy Resources


2

An amount of the "green" tariff for economic entities that generate electricity from biomass shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the "green" tariff for electricity generated from biomass. In this Law biomass is the products composed fully or partially of vegetable origin substances that can be used as fuel with the purpose of converting their energy.

An amount of the "green" tariff for economic entities that generate electricity from biomass, and/or biogas shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the "green" tariff for electricity generated from biomass and/or biogas. In this Law biomass and biogas are defined as in the Law of Ukraine on Alternative Types of Fuel".

An amount of the "green" tariff for economic entities that generate electricity from biomass shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the “green” tariff for electricity generated from biomass. In this Law biomass is the products composed fully or partially of vegetable and animal origin substances that can be used as fuel with the purpose of converting their energy.

An amount of the "green" tariff for economic entities that generate electricity from biomass shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the “green” tariff for electricity generated from biomass. In this Law biomass is the biological substance of vegetable or animal origin that is the energy extraction source.

http://search.ligazakon.ua/l_doc2.nsf/link1/ed_2009_04_01/an/28/T091220.html#28�







28.01.2011 № 8028

3

The level of the "green" tariff for economic entities that generate electricity from municipal waste shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the "green" tariff for electricity generated from municipal waste. In this Law municipal waste is defined as in the Law of Ukraine on Waste

In order to simplify the monitoring of the electricity generation from municipal waste, this Law assumes that electricity is generated mostly from the renewable component of the municipal waste. Presence of the non-renewable component is accounted for by applying coefficient of the "green" tariff that is lower than the coefficient of the "green" tariff for electricity generated from biomass.

The level of the "green" tariff for economic entities that generate electricity from biogas derived from the biomass of an vegetable or animal origin shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the "green" tariff for electricity generated from biogas derived from the biomass of an vegetable and animal origin.

The level of the "green" tariff for economic entities that generate electricity from biogas derived from the organic waste (landfills) shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the "green" tariff for electricity generated from biogas derived from the organic waste (landfills).

The level of the “green” tariff for economic entities that generate electricity from biogas derived from the combustion or fermentation of biomass of an vegetable or animal origin shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the “green” tariff for electricity generated from biogas derived from the combustion or fermentation of biomass of an vegetable or animal origin.

The level of the "green" tariff for economic entities that generate electricity from biogas derived from the landfills or sewage effluent sludge shall be established at a level of the retail tariff for customers of the second class of voltage for January 2009 multiplied by a coefficient of the "green" tariff for electricity generated from biogas derived from the landfills or sewage effluent sludge.

4

…2,3 – for electricity generated from biomass …

…2,3 – for electricity generated from biomass;

3,0 – for electricity generated from biogas;

2,1 – for electricity generated from municipal waste.


2,3 – for electricity generated from biogas derived from the biomass of an vegetable and animal origin;

2,3 –for electricity generated from biogas derived from the organic waste (landfills).


2,3 – for electricity generated from biogas derived from the combustion or fermentation of biomass of an vegetable or animal origin;

2,5 – for electricity generated from biogas derived from the landfills or sewage effluent sludge.




28.01.2011 № 8028

5

The fixed minimum amount of the "green" tariff for economic entities shall be established by recalculating in euro the amount of the “green” tariff calculated under the rules of this Law as

of 1 January 2009 by the official exchange rate of the National Bank of Ukraine as of the stated date.

The fixed minimum amount of the "green" tariff for economic entities shall be established by recalculating in euro the amount of the “green” tariff calculated under the rules of this Law as

of 1 January 2009 by the official exchange rate of the National Bank of Ukraine as of the stated date.

In the case of electricity generation by the economic entities on the electric power engineering facilities that utilize renewable energy sources alongside conventional energy sources, the "green" tariff is established on the electricity amount that has been produced with utilization of the renewable energy sources only. In this case the alternative sources utilization rate is not limited.

The fixed minimum amount of the "green" tariff for economic entities shall be established by recalculating in euro the amount of the “green” tariff calculated under the rules of this Law as of 1 January 2009 by the official exchange rate of the National Bank of Ukraine as of the stated date.

In the case of electricity generation by the economic entities on the electric power engineering facilities that utilize alternative energy sources alongside conventional energy sources, the "green" tariff is established on the electricity amount that has been produced with utilization of the renewable energy sources only. In this case the alternative sources utilization rate must be not less than 50% of the total energy sources utilized at the facility.

Revenues that have been received by the economic entity that generates electric power with the utilization of the alternative energy sources according to the approved "green" tariff after deduction of the operating expenses, all taxes and fees payments have to be directed to the payback of the renewable energy facility construction/modernization investment and/or to the further development of renewable energy industry.

Control over the use of revenues that have been received by the economic entity that generates electric power with the utilization of the alternative energy sources according to the approved "green" tariff is executed by the National Electricity Regulatory Commission of Ukraine.

The fixed minimum amount of the "green" tariff for economic entities shall be established by recalculating in euro the amount of the "green" tariff calculated under the rules of this Law as of 1 January 2009 by the official exchange rate of the National Bank of Ukraine as of the stated date.

In the case of electricity generation by the economic entities on the electric power engineering facilities that utilize alternative energy sources alongside partial use of the conventional energy sources, the "green" tariff is established on the electricity amount that has been produced with utilization of the alternative energy sources only. In this case the alternative sources utilization rate must be not less than 50% of the monthly energy generation amount produced at the facilities with such combined utilization.

Revenues that have been received by the economic entity that generates electric power with the utilization of the alternative energy sources according to the approved "green" tariff after deduction of the operating expenses, all taxes and fees payments have to be directed to the payback of the investment into the newly constructed alternative energy facility and/or to the further development of alternative energy industry.




6. Green tariff for wind energy According to Article 17-1 of the Law on Electricity, the value of green tariff for electricity generated from wind is defined based on the amount of installed capacity of a power generation facility.

However, according to the definitions in this Law, the following facilities are considered as power generation facility:

• Power plant (except nuclear modules of nuclear power plant);

• Power substation;

• Power network connected to the power system of Ukraine;

• Boiler connected to the district heating transmission network;

• District heating transmission network.

By applying this definition to the wind power sector, the power generation facility is a wind farm, which can consist of one or more wind power generators.

This situation may hamper the possibility of installing state-of-the-art wind power generators as small – inefficient – units will still receive an attractive tariff based only in adding up the sufficient number of wind turbines.

In this sense, it is important to point out that state-of-the-art wind turbines have implemented several features to reduce the impact of wind power volatility in the transmission network, something that is key to maintain grid stability.

Use of the old-fashioned wind turbines creates additional balancing problems in the grid, especially taking into account the absence of special practices that could minimize the negative influence of the wind intermittent generation.

7. Reductions of the green tariff

According to current legislation, the base value of green tariffs for electricity generated on power facilities that are commissioned (or significantly upgraded) after 2014, 2019 and 2024, should be reduced to 10%, 20% and 30% respectively.

Tariff degression is a concept widely employed across the EU to translate to the society a share of the benefits achieved through cost reductions (via technological improvements). Several examples of this were presented in section 3.3.2.1.

In this sense, tariff degressions must be estimated on technology specific basis to take into account the level of maturity across different technologies (for example, solar PV is still an infant technology and important cost reductions are expected in the future; on the other hand, hydro power generation is an already mature technology in which cost reductions are very difficult to achieve).

If tariffs degressions are not technology specific, then the current system faces the risk of seriously hampering the development of mature technologies (wind inclusive) based on the application of a “too severe” tariff reduction coefficient.

5 RECOMMENDATIONS 1. E-RES versus Alternative Sources of Energy

Separate renewable energy sources from other (non-renewable) energy sources following the definition in the Law on Alternative Energy Sources. Replace the term “alternative sources” for “renewable energy sources” in Article 17-1.

Define the Green Tariff as “tariff approved by the National Energy Regulatory Commission of Ukraine for electricity produced by power generators using the following energy sources: solar energy, wind, geothermal, tidal and



wave energy, hydropower (<10 MW), biomass, landfill gas, sewerage gas and biogas.”

Other (non-renewable) sources arising from the definition of alternative energy sources in the Law on Alternative Energy Sources (namely, blast furnace, coke gases, methane gas from degassing of coal mines and transformation of waste power from industrial processes) must be promoted separately from RES sources (either on a different article of the Law on Electricity or as a part of a different Law).

2. Local share content

Develop and approve a methodology to determine the share of raw materials, capital assets, works and services of Ukrainian origin in the cost of building the power generation facilities that produce electricity from RES.

Taking into consideration that Ukraine has still not developed a competitive E-RES power equipment industry, particularly on wind power, the implementation period of local share content rule (after 2012 and 2014) should be revised.

3. Purchase of electricity at green tariff by consumers

This issue will be specifically addressed in other Tasks under this project.

4. The definition of ‘biomass’

Harmonize the definition of biomass in the Law on Electricity with the provision of EU Directive 2009/28/EC.

To achieve this, the Consultants recommend to replace the definition of biomass in Article 17-1 of the Law on Electricity with the following definition:

‘biomass’ means the biodegradable fraction of products, waste and residues from biological origin from agriculture (including vegetal and animal substances), forestry and related industries including fisheries and aquaculture, as well as the biodegradable fraction of industrial and municipal waste.

Alternatively, the definition used in the Law on Alternative Types of Fuel for biomass is also suitable:

“biomass is a renewable biological substance of organic origin, undergoing biological decomposition (waste products of agriculture (of crop and livestock), forestry and technology-related industries, as well as an organic component of industrial and domestic waste)”

In addition to the definition of biomass, a rigorous categorization of either excluded or allowed types of biomass should be developed to prevent:

o The incineration of hazardous materials for which this type of practice is non-recommended (e.g.: waste wood contaminated with polychlorinated biphenyls (PCB) or polychlorinated terphenyls (PCT)); and

o the incineration of materials which are suitable for recycling purposes (e.g.: paper, clothes)

5. "Green" tariff for biogas

Biogas tariffs should be fuel-wise, the recommended categories to be included in article 17-1 of the Law on Electricity are: landfill gas plants, sewage gas plants and biogas plants.

o where:



Landfill gas plant is a power generation facility that uses as primary fuel the gas generated from the decomposition of organic material at landfills or other waste disposal sites.

Sewage gas plant is a power generation facility that uses as primary fuel the gas generated from the decomposition of organic material from sewage sludge.

Biogas plant is defined as a power generation facility using biogas as primary fuel produced in digesters using any of the following waste: industrial biodegradable waste; industrial waste water; municipal solid waste; livestock waste; agricultural waste; or other residue which is applicable to this anaerobic digestion process.

As a consequence, green coefficients for biogas technologies must be defined. In the drafts previously discussed, different alternatives are proposed. So far, we have not developed quantitative studies to fully support a set of green coefficients for biogas technologies (this will be addressed as part of our assistance to NERC in the implementation of these recommendations) but we have provided an international benchmark (EU based) of biogas Feed-in tariffs. Based on that benchmark and the different proposal, we suggest including in Article 17-1 of the Law on Electricity the following provision:

o The level of green tariff applicable to biogas should be set at the retail tariff level of second voltage level consumers as established on January, 2009, multiplied by the corresponding coefficient for electricity produced from biogas:

1,7 – for electricity produced from landfill gas plants;

2,5 – for electricity produced from sewage gas plants.

2,3 – for electricity produced from biogas plants;

6. Green tariff for wind energy

Amend Article 17-1 of the Law on Electricity to provide a clear definition for wind power plant (wind farm) and associate the green tariff value with the smallest nominal power capacity of a single wind turbine within the wind farm.

7. Reductions of green tariff

Replace the current green tariff reduction path as determined in Article 17-1 of the Law on Electricity for a technology-specific degression system which defines specific green tariff reduction coefficients for each E-RES technology covered within the Law on Electricity.

Until such technology-specific green tariff reduction coefficients are defined the Consultant recommend to suspend current reduction mechanism.



ANNEX A. PRIMARY LEGISLATION OF UKRAINE RELATED TO THE ALTERNATIVE ENERGY SOURCES DEVELOPMENT The Law of Ukraine on Alternative Energy Sources:

Determines the legal, economic and organizational principles for using alternative energy sources (AES) and mechanisms to promote their use in fuel and energy complex;

Provides a definition of AES; establishes the main principles for regulation and governance AES; provides a list of sources of financing activities in the field of AES and provides the operating conditions of AES.

Establishes the main principles for the national policy in the field of AES which consist in increasing the production and consumption of energy from alternative sources. Also, defines the terms for rational consumption of and saving of the energy produced from alternative sources. Includes guidelines: on safety procedures to curve the negative environmental impact during construction and maintenance of the alternative energy facilities; scientific and technical development of AES, etc.

According to this Law, government control envisages the development of national, sector and local programs in the field of alternative energy, their scientific, technical, financial and economic support, development and approving of the regulatory-legal acts, state norms, rules and standards for using AES.

Organization support foresees issuing different types of licensees for production and transmission of energy from alternative sources, development of statistical databases and evaluating the conformity of power generating facilities to AES.

Also, by this Law, it is foreseen the implementation of measures related to the standardization, financing and promotion of development of this energy field. Specified procedures according maintenance of the alternative energy facilities are determined. However, only the basic principles and general rules of operation of alternative energy sources in Ukraine are foreseen by the Law. Nowadays mechanisms, methodologies, rules and other sub-laws according the above mentioned are absent and should be developed for an appropriate functioning and application of this Law.

The Law of Ukraine on Energy Saving determines legal, economic, social and ecological frameworks of energy saving for all enterprises, associations and organizations located within the territory of Ukraine and for citizens also.

State policy in the field of energy saving consists in creation of economic and legal conditions of the personal interest in the energy saving, realization of the governmental control, setting of norms and stimulation of the rational use of fuel and energy resources, implementation of the system of the power marking of the domestic electrical equipment, standardization and other.

In this Law are listed economic measures for providing of the energy-saving, namely:

Complex application of the economic instruments and promotion of the rational use of and saving of fuel and energy resources;

Creation and use of the system of state standards in the field of energy efficiency;



Introduction of economic sanctions for inefficient use of the fuel and energy resources;

Realization of state power expertise and energy auditing;

Providing tax incentives to producers of equipment for alternative energy sources, and the companies that use equipment manufactured on the basis of alternative energy sources, and release of these companies from paying customs duties;

Use of tax incentives - setting accelerated depreciation rates of fixed assets from equipment for energy efficiency;

Definition of the terms of prioritized lending for investments in technology for alternative energy sources, production of alternative fuels;

Providing of the state subsidies for scientific and research works in the field of alternative energy sources.

For providing the financial measures related to the efficient use of fuel and energy resources is founded the State Energy Saving Fund (hereinafter – SESF).

By the Article 13 of this Law are determined the following sources for founding the SESF:

Money collected from punitive sanctions for violation of the legislation on efficient use of power resources;

A proportion of charges for use of the natural resources, in an amount to be determined by the Verkhovna Rada of Ukraine;

Money received for licensees issued by NERC;

Voluntarily deposits from enterprises, institutions, organizations and citizens.

By the Law of Ukraine on Energy Saving is determined that funds of SESF should be used not only for financing the measures according the effective and rational use of fuel and of energy resources, but also for the development of unconventional energy and alternative energy projects, for production of alternative types of fuel, the development of power standards, norms and regulations in the sector, etc.

However, it should be noted that, so far, the order for distributing funds received by SESF as it is required by the legislation has not been developed. Therefore it is not clear how and in what amounts the money from SESF are used for the development of alternative energy sources.

The Law of Ukraine on Alternative Types of Fuel determines the economic, environmental and organizational principles for production and use of various types of alternative fuels, including biomass and other solid fuel produced from biomass.

This Law presents the definition of alternative types of fuel, the mechanisms for their promotion, their uses, etc.

This Law foresees:

Phased increases of biofuel production (up to 20% of gross fuel consumption in Ukraine on 2020);

Development of regulations, rules and standards for production and consumption of alternative types of fuel;

Support for development alternative types of fuel and international cooperation in the sector;



Reduce the negative impact on fuel consumption for the environment promoting the safety regulations for production, transporting, storage and consumption of alternative fuel;

Preventing the creation of artificial monopolies in the alternative types of fuel market.

Also this Law foresees economic mechanisms for promoting the sector that consists of:

Determination of financial sources and targeted areas;

Application of economic promotion measures such as subsidies, grants, tax, credit and other privileges for production of alternative types of fuel;

Promoting investment activity by developing a favorable framework for foreign investments, granting state guarantees to develop the industry.

According to the amendments and additions introduced to the Law 5/21/2009, several important requirements for production and use of biomass were established:

Mandatory confirmation of the solid fuels and biomass origin for alternative fuels;

Biofuels are subject to mandatory certification;

Companies and other private entrepreneurs, whose outcome is biomass used for biofuels production, must keep records of such biomass following the procedure established by the Cabinet of Ministers of Ukraine (CMU);

Biofuel producers must keep records of their outputs.

According to the Law of Ukraine on Alternative Types of Fuel, Cabinet of Ministers of Ukraine by its Resolution from 10.05.2004 № 1307 approved the issuance of certificates origin.

National Agency of Ukraine for Efficient Use of Energy Resources (NAER) issue certificates of alternative origin of fuel in ten (10) days upon receipt of the application and expert opinion about the quality of the alternative fuel. Certificate of alternative fuel origin is valid for two (2) years from the issuance date.

Resolution of the State Committee on Energy № 183 from 10.12.2004 details the methodology for monitoring and certification process for approving alternative fuels.

After issuing the Certificate alternative fuel origin, NAER makes an entry in the Register of alternative fuel, which is maintained by them.

The Law of Ukraine on Combined Heat and Power (Cogeneration) and Use of Waste Energy Potential foresees the following:

The aim of the Law is defining the legal principles for promoting energy efficiency in industrial processes, the development and implementation of Combined Heat and Power (CHP) technologies boosting investments for the construction of cogeneration plants.

The state policy in this field is directed to provide assistance to transform existing heat generation facilities into CHP units with aim to decrease carbon emissions while improving the energy efficiency. Governmental control in this field foresees the issuance of licenses and defining preferential tariffs for electricty produced by cogenerating plants; this process will be developed by NERC.

In the Law, it is defined some basic principles for connecting cogenerating plants to the electric and thermal networks.



In addition, the Law determines the basic mechanism for governmental control in the field of cogeneration; this includes the qualification process for cogenerating plants and foresees the following measures to foster their use:

Owners of cogeneration plants, regardless their electric installed capacity, have the right of access the (local) power networks and sell their electricity to individual consumers based on their contracts, including the right to supply electricity during peak and half-peak hours simultaneously with the incumbent;

Owners of cogeneration plants have the right to sell all or part of their total electricity to the Wholesale Electricity Market (WEM), to the local energy suppliers in which they are connected, as well as to end customers with whom the have signed contracts throughout Ukraine at the tariff set by the NERC.

Rates set by NERC for qualified cogeneration plants do not include a target surplus established by Laws of Ukraine on Electricity and of 25.06.1991 № 1251-XII "On taxation", as well as other acts of 2015.

Qualification of cogeneration plants is conducted by NAER on the basis of the CMU Resolution from 29.11.2006 № 1670 "On approval of the qualification of a cogeneration plant" (hereinafter - Resolution of qualification).

Based on the Resolution of qualification, on March 30, 2007 NAER by its Order № 56 approved the competitive selection of research institutions and organizations that carry out technical examination of cogeneration units, and a detailed procedure for qualification of cogeneration plants.

The tariff for electricity and thermal energy is calculated according to the procedure of tariff calculation for electric and heat energy produced by cogeneration plants, approved by NERC Resolution from 12.11.2005 № 897.



ANNEX B. LATEST RESOLUTIONS OF CMU RELATED TO THE ALTERNATIVE ENERGY SOURCES DEVELOPMENT

The next regulations have been recently adopted by CMU:

Resolution of CMU from 12.02.2009 № 217-p "On the question of production and use of biogas," which includes, among other, measures such as the development of a simplified procedure of construction of AES facilities, providing amendments to certain legislative acts to promote the production and use of biofuels; development of drafts to simplify the preparation, approval and implementation of projects under the Kyoto Protocol.

Resolution of CMU from 04.02.2009 № 102-p "On measures for alternative energy sources utilization" provides organizational support for the production and use of alternative energy sources in Sumy Region.

Resolution of CMU from 11.02.2009 № 159-p "On some issues of public policy in the efficient use of energy resources".

Resolution of CMU from 12.02.2009 № 276-p "On approval of the concept of state target program of scientific and technological development of production and use of biofuels".

Resolution of CMU from 19.02.2009 № 126 "On peculiarities of connection to the power networks of power energy facilities that produce power energy with use of alternative sources".

Resolution of CMU from 12.02.2009 № 276-p includes the following: NERC, along with other state agencies and the National Academy of Sciences of Ukraine develops the appropriate state program for 2 months (by this time no government program has been approved).

State program includes the development of biogas production and its use, including use on small steam turbine power plants.

During State Program (2010-2014) it is expected to increase the share of biofuel in total energy balance up to 5-7%.

All the afore mentioned Resolutions of CMU mainly support the development and production of biogas and biofuels without focusing on the production of electricity. Thus, they apply only to the extent the biogas and/or biofuel is used for electricity generation or cogeneration process.

According to the Resolution of CMU of 19.02.2009 № 126 as amended and supplemented by the Resolution of CMU of 07.01.2010 № 57, NERC has to approve standard contracts, which will be concluded within power producers from alternative sources of energy. By Decree of 16.07.2009 № 838:

Standard contracts for connecting the power facility using alternative sources of energy to the grid. The Technical Specifications for grid connection should be an annex to the contract.

Standard contracts for the purchase and sale of electricity between consumers, suppliers and power generators using alternative sources of energy;

Standard contracts for the purchase and sale of power energy between the State enterprise "Energorynok" and power generators using alternative sources of energy.

Thus, following the Resolution of CMU of 19.02.2009 № 126, a power generator using alternative sources of energy may sell its electricity over balance-of-planned



consumers at the wholesale energy market, power suppliers, or directly to end consumers in the order set by the legislation according purchase and sale agreements.

The same Resolution recommends NERC to identify connection costs for power producers using alternative sources of energy and include them in the investment programs’ approval process for Ukrenergo and Oblenergos.

Lastly, in accordance with the mentioned Resolution, it is recommended to regional government authorities to facilitate land access for the development of power projects using alternative sources of energy as well as for the construction of connection lines in shortest terms.



ANNEX C. TAX INCENTIVES FOR POWER PRODUCERS FROM ALTERNATIVE ENERGY SOURCES

Profit tax

The Law of Ukraine on Profit Tax (28.12.1994 № 334/94-ВР) provides incentives on Profit Tax for the acquisition of equipment used in power generation with alternative sources of energy.

According to the Law on Profit Tax, profits received from the sales of the following Ukraine-originated products within Ukraine are exempt from taxation:

Equipment (functioning) for its use with alternative sources of energy;

Energy saving equipment and related materials that allow energy efficiency;

Metering equipment;

Equipment for the production of alternative type of fuels.

This tax incentive is provided for 5 years from the moment of the first profit from the increased sales of electricity from alternative sources of energy. The tax payer has to use the tax exempt proceeds for the increase of electricity production. In case of the inappropriate use of these proceeds the tax payer is liable to pay profit tax and fines according to the regulation.

In addition, the Law on Profit tax provides tax exemptions for companies included into the State Registry of companies that conduct development, implementation and use the energy efficiency measures and energy efficiency projects. However, the profit of these companies is tax exempt only up to the 50% of taxable profit.

Also, the Law of Ukraine on Amending laws to Promote the Production and Use of Biofuels of 21.05.2009 № 1391-VI (hereinafter - the Law on the promotion of biofuels) provides profit tax exemption for 10 years starting from 1 January 2010, for the following types of profits:

Profits of biofuel’s producers derived from the sale of biofuel;

Profits derived from CHP activities or heat production using biofuels;

Profits of the equipment manufacturers used for power generation, derived from the sale of such equipment, only if the equipment has been produced in Ukraine. The taxpayer must allocate the funds received in connection with granting tax exemptions to reduce the cost of production. The inappropriate use of funds by taxpayer leads to the payment of the tax in the fiscal period and the penalty in the amount and period specified by law.

Value Added Tax (VAT)

Law of Ukraine on Value Added Tax of 03.04.1997 № 168/97-VR (hereinafter - VAT Law) provides incentives to import into Ukraine the following equipment:

Equipment that runs on alternative sources of energy, energy-saving equipment, materials and equipment for the production of alternative fuels (hereinafter - goods), provided these products are used by the taxpayer for its own production, and if identical goods with similar quality indicators are not produced in Ukraine;

Materials, equipment and components used to manufacture the equipment that runs on alternative sources of energy or that produces alternative sources of energy, energy-saving equipment and other goods, which allow energy efficiency in fuel operation, if those goods with identical quality indicators are not produced in Ukraine.



Incentives established by the Law on VAT are valid until the 1st of January 2011.

According to Article 5 of the Law on the promotion of biofuels, starting January 1, 2010, the above benefits will not apply to the equipment and facilities for the production of biofuels and for equipment and facilities used for the production of equipment and facilities for the production of biofuels.

Custom tariffs exemption

Law of Ukraine on Uniform Customs Tariff of 05.02.1992 № 2097-ХІІ (hereinafter Law on UCT) exempts from custom tariffs payment the equipment noted in Law on the VAT.

Custom tariffs exemption established by the Law on UCT was active untill the 1st of January 2011.

List and quantity of such goods are defined by CMU from 14.05.2008 № 444 "On the issue of entry into the customs territory of Ukraine energy-saving materials, equipment and components.”

Similar to VAT regulation, starting 1st of January 2010, custom tariffs exemption will not apply to equipment and machinery used for biofuel production and those used for its manufacturing.

However according to article 2 of the Law on Biofuel Production Incentive in the period from 1st of January 2010 till 1st of January 2019 custom tariffs exemption will apply to equipment and machinery used for reconstruction of old and the construction of new facilities for biofuel production and for production and reconstruction of equipment and vehicles powered by biofuels if such goods (equipment, machinery etc.) are not produced and have no alternatives in Ukraine.

Tax privilege - accelerated depreciation

Law of Ukraine on Energy Saving states accelerated depreciation for energy efficiency capital funds as one of the mechanisms for energy saving promotion.

Along with this, the Law on Promotion of Biofuel Production provides the opportunity to apply for accelerated depreciation starting from 1st of January 2010 until 1st of January 2019. Under this law, accelerated depreciation will be applied to the equipment that operates on alternative type of fuel or used for the production of alternative sources of energy, at the level of 50% of book cost of such equipment according to the results of the first reporting period when such basic equipment is put into operation.

The right to use accelerated depreciation is transferred to the new owner of the asset in the case of selling or leasing.

The Law on Profit Tax determines the grounds for application of accelerated depreciation exceptionally for certain fixed assets. The current version of this Law does not foresee the establishment of such tax privilege for energy saving equipment.

According to the Law of Ukraine on Energy Saving, accelerated depreciation is applicable to the list of energy saving equipment has to be defined by the CMU. However, this list has not been developed yet.

Concessionary lending

According to the Law of Ukraine on Energy Saving, lending on the investments for developing technologies for alternative energy sources and production of alternative type of fuel is provided at subsidized interest rates under the condition there is a positive expert conclusion from relevant government authorities in



energy saving. The losses incurred by financial institutions as a result of subsidized interest rates are paid at the expense of the SESF.

Based on the Law of Ukraine on Energy Saving, CMU was obliged to develop a procedure for scoring lending of activities related to energy efficiency, alternative energy sources and production of alternative fuels.

NAER by its Order #59 (17.04.2007) accepted the approval procedure for innovation projects on implementation of energy efficient technologies and technologies for the production of alternative fuels that are sold to entities within the concessional lending (hereinafter - the concessional lending procedure).

Lending is considered as concessional if projects are funded from the public account within the limits established by the State budget.

According to the Procedure of concessionary lending, NAER should approve the project within fourteen (14) calendar days from receipt of necessary documentation. NAER may decide to extend the approval deadline for up to 10 days.

Concessional lending procedure has defined the following requirements that the applicant should meet in order to obtain concessionary lending. At the same time the project must conform to:

Energy Strategy until 2030;

Action Plan for the period of 2006-2010 for implementation of Energy Strategy until 2030;

Relevant governmental, industrial and regional energy saving programs.

In addition, under the Law of Ukraine on Energy Saving, the applicant must obtain the endorsement of competence in the field of energy efficiency, which is issued by the State Energy Saving Inspection.

State subsidies

The use of budget funds to implement energy saving initiatives is provided by the "Procedure of energy efficiency projects selection and allocation of funds for their implementation at the expense of state budget", that was approved by CMU directives № 241 form 14.03.2001 and № 2145 from 25.11.1999 "On the procedure of the evaluation and selection on the competitive basis of investment projects that involve the state budget funds utilization".



ANNEX D. APPROVAL DECREE OF THE GREEN TARIFF RATES FOR 36 FACILITIES

NATIONAL ELECTRICITY REGULATORY COMMISSION OF UKRAINE

D E C R E E

23.12.2010 No. 1958

On Approval Of Green Tariff Rates For Power Energy as of January, 2011

(With amendments born pursuant to Decree No. 2019 dated 30.12.2010 of

National Electricity Regulatory Commission of Ukraine)

According to the plenary powers given by the Law on Electricity, by the Decree of National Electricity Regulatory Commission of Ukraine, ratified by the Executive Order of President of Ukraine No. 213 dated from 14.03.95 (release of the Executive Order of President of Ukraine No. 335 dated from 21.04.98), and pursuant to the Procedure for setting, reviewing and termination of validity of the green tariff for economic entities, ratified by Decree of NERC of 22.01.2009 No. 32, National Electricity Regulatory Commission of Ukraine DECREES:

To set as of January, 2011 rates of green tariffs for power energy produced by the economic entities at the power energy facilities that use alternative energy sources according to annex.

Chairman of the Comission S. Titenko

Annex

to Decree of NERC

23.12.2010 No. 1958

RATES

of green tariffs for power energy produced by the economic entities at the power energy facilities that use alternative energy sources

Item No. Power Producing Companies Rates of green tariffs without VAT, copecs/kWh

1 2 3

Producers of Power Energy from Wind Energy

1 "28 Chief of the Works Direction" Institution 122,77

2 PPA "Vitroenergoprom" 122,77

http://zakon.nau.ua/doc/?code=v2019227-10�




1 2 3

3 SOE “Maintenance Engineering Administration “Vodenergoremnaladka” 122,77

4 SE NNEGC “Energoatom”, “Donuzlavska WPP” 122,77

5 SE "East-Crimean Wind Power Plant" 122,77

Producers of Power Energy from Biomass

6 OJSC "Kirovogradoliya" 134,46

7 "Smilaenergopromtrans" LLC 134,46

Producers of Power Energy from Solar Energy

Surface Facilities

8 "Crimea Solar 1" LLC 505,09

9 "Crimea Solar 2" LLC 505,09

Facilities installed at the roofs up to 100 kW and on facades independent of capacity

10 "Vinnitsa energoservice" LLC 463

Producers of Power Energy at Small Hydro Power Plants

11 "Agropromenergo" LLC 84,18

12 "Aquanova Investment" LLC 84,18

13 "Altern" PSC 84,18

14 CE "Water of Donbass" Company" 84,18

15 "Datex-Energo" LLC 84,18

16 "Hydroresource-K" LLC 84,18

17 "CTC "Edelveis" LLC 84,18

18 "Energy of Carpathian" LLC 84,18

19 " Energy -1" LLC 84,18

20 "Energoinvest" LLC:

Bratslavska HPP 84,18

Galdgbiyivska HPP 84,18




1 2 3

Glybochanska HPP 84,18

Dmytrenkivska HPP 84,18

Sabarivska HPP 84,18

Skalopilska HPP 84,18

Sniatynska HPP 84,18

Sutisska HPP 84,18

Cherniatska HPP 84,18

Petrasharivska HPP 84,18

Yavirska HPP 84,18

21 Firm "Energostar" LLC:

Kutsnivska HPP 84,18

Ostapivska HPP 84,18

Opishnianska HPP 84,18

Sukhorabivska HPP 84,18

22 "PKS "Energotek" LLC:

Boguslavska HPP 84,18

Dybenetska HPP 84,18

23 "Zhitomir Auto International" LLC 84,18

24 "EC "Zakarpattiaoblenergo" OJSC:

Onokivska HPP 84,18

Uzhgorodska HPP 84,18

25 "Zakhidenergo"OJSC, "Ladygynska HPP" 84,18

26 "Kirivigradoblenergo" OJSC:

Gayvoronska HPP 84,18

Krasnokhutirska HPP 84,18

Ternivska HPP 84,18

Novoarkhangelska HPP 84,18

27 "Martynkivska HPP" LLC 84,18




1 2 3

28 Sole proprietor Mironiuk V.V. 84,18

29 EЕА "Novosvit":

Bodnarivska HPP 84,18

Velykokugelivska HPP 84,18

Gordashivska HPP 84,18

Zvenygorodska HPP 84,18

Korgivska HPP 84,18

Korsun-Shevchenkivska HPP 84,18

Korsun-Shevchenkivska mini HPP 84,18

Koropetska HPP 84,18

Lotashivska HPP 84,18

Novokonstantynivska HPP 84,18

Sandratska HPP 84,18

Steblivska HPP 84,18

Schedrivska HPP 84,18

Yablunitska HPP 84,18

30 "Podilska energy Company" LLC:

Bilousivska HPP 84,18

Kamianobridska HPP 84,18

31 "Rayenergo" LLC:

Liubarska HPP 84,18

Pedynkivska HPP 84,18

32 "Sumyoblenergo" OJSC:

Malo-Vorozhbianska HPP 84,18

Mykhaylivska HPP 84,18

33 "Ukrainian energy development" LLC 84,18

34 "Ukrtransrail" LLC 84,18

35 ЕC "Chernigivoblenergo" OJSC 84,18




1 2 3

36 "Agroprom-energo" PE 84,18

MERCADOS EMI – EXERGIA - RAMBOLL


ANNEX E. SELECTED EU EXPERIENCE IN BIOMASS E-RES

Spain Renewable energy in Spain is promoted through Royal Decree 661/07. In this Decree, E-RES with biomass is divided in three categories:

Group b.6. Plants using biomass as primary fuel from energy crops, waste from agricultural or gardening, or residues of forest harvesting and other operations in woodlands and green spaces. The group is divided into three subgroups:

o B.6.1. Plants using biomass as primary fuel from energy crops.

• Agricultural energy crops: biomass from agriculture, produced expressly and solely for energy purposes, through the activities of cultivation, harvesting and, if necessary, processing of raw materials collected. Depending on their origin are divided into herbaceous or woody.

• Forest energy crops: biomass from the forest, from the main use of forests, caused by activities of cultivation, harvesting, and if necessary, processing of raw materials collected and the final destination is the energy.

o B.6.2. Plants using biomass as primary fuel waste from agricultural activities or gardening.

• Wastes from agricultural activities.

i. Residual biomass originated in the growing and primary processing of agricultural products, including from the process of removing the peel when appropriate. This includes the following products:

• Herbaceous agricultural waste

• Cereal crop: straw and others.

• Horticultural products, greenhouse crop residues.

• Crops for agro-industrial purposes, such as cotton or linen.

• Vegetable crops and oilseeds.

• Agricultural waste wood, from pruning woody crop species (olives, vineyards and orchards).

• Waste gardening activities:

i. Residual biomass generated in the cleaning and grounds maintenance.

o B.6.3. Plants using biomass as primary fuel residues from forest harvesting and other operations in woodlands and green spaces.

• Forest harvesting residues and other silvicultural operations in woodlands and green spaces.



• Residual biomass produced during the conduct of any silvicultural treatment or use in forests, including bark, as well as generated in the cleaning and maintenance of green spaces.

Group b.7. Plants using biomass as primary fuel from manure, biofuels or biogas from anaerobic digestion of agricultural and livestock waste, biodegradable waste from industrial plants or sludge from wastewater treatment and the recovery in landfills. The group is divided into three subgroups:

o B.7.1. Facilities that use landfill gas as primary fuel.

o B.7.2. Facilities that use biogas as primary fuel produced in digesters using any of the following waste:

• Industrial biodegradable waste.

• Sewage sludge or industrial waste water.

• Municipal solid waste.

• Livestock waste.

• Agricultural waste.

• Other which is applicable to this anaerobic digestion process.

o B.7.3. Facilities that use manure as a primary fuel by combustion and liquid biofuels.

Group b.8. Plants using biomass as primary fuel from industrial plants. The group is divided into three subgroups:

o B.8.1. Plants using biomass as primary fuel from industrial plants in the agricultural sector.

• Wastes from the production of olive oil and olive pomace oil.

• Wastes from the production of olives.

• Residues from the extraction of seed oils.

• Wine industry waste and distillery.

• Canning wastes.

• Industry waste beer and malt.

• Industry waste production of nuts.

• Industry waste rice production.

• Waste from processing of algae.

• Other agro-industrial waste.

o B.8.2. Plants using biomass as primary fuel from industrial plants in the forest sector.

• Forest industry waste first processor.

• Forest industry waste secondary processing (furniture, doors, carpentry).

• Other wastes from forest industries.



• Waste from lignocellulosic material recovery (containers, pallets, furniture, building materials)

o B.8.3. Plants using black liquor as the main fuel of the paper industry.

In addition, the Royal Decree determines which specific types of products shall not be considered biomass or biogas for the purposes of E-RES power:

1. Fossil fuels, including peat, and its products and byproducts.

2. Wood waste:

a) Chemically treated for industrial production processes.

b) Mixed with chemicals inorganic origin.

c) Otherwise, if the thermal use is prohibited by law.

3. Any type of biomass or biogas contaminated with toxic substances or heavy metals.

4. Paper and paperboard.

5. Textiles.

6. Animal carcasses or parts thereof, where the law provides for a different management of this waste to energy recovery.

The tariff scheme developed is presented in the following exhibit:

Exhibit 13 – Tariff scheme for E-RES biomass in Spain

Group Subgroup Capacity Duration

Feed-in Tariff

c€/kWh

Premium

price

c€/kWh

Price cap c€/kWh

Price floor

c€/kWh

b.6

b.6.1

P≤2 MW first 15 years 15,8890 11,5294 16,6300 15,4100

Afterwards 11,7931 0,0000

2 MW ≤ P first 15 years 14,6590 10,0964 15,0900 14,2700


b.6.2

P≤2 MW first 15 years 12,5710 8,2114 13,3100 12,0900


2 MW ≤P first 15 years 10,7540 6,1914 11,1900 10,3790




b.6.3

P≤2 MW first 15 years 12,5710 8,2114 13,3100 12,0900


2 MW ≤ P first 15 years 11,8294 7,2674 12,2600 11,4400


b.7

b.7.1 first 15 years 7,9920 3,7784 8,9600 7,4400


b.7.2

P≤500 kW first 15 years 13,0690 9,7696 15,3300 12,3500


500 kW ≤ P

first 15 years 9,6800 5,7774 11,0300 9,5500


b.7.3 first 15 years 5,3600 3,0844 8,3300 5,1000


b.8

b.8.1

P≤2 MW first 15 years 12,5710 8,2114 13,3100 12,0900


2 MW ≤ P first 15 years 10,7540 6,1914 11,1900 10,3790


b.8.2

P≤2 MW first 15 years 9,2800 4,9214 10,0200 8,7900


2 MW ≤P first 15 years 6,5080 1,9454 6,9400 6,1200


b.8.3

P≤2 MW first 15 years 9,2800 5,1696 10,0200 8,7900


2 MW ≤ P first 15 years 8,0000 3,2199 9,0000 7,5000


Source: Royal Decree 661/07

Germany Renewable energy in Germany is primarily promoted through the Act Revising the Legislation on Renewable Energy Sources in the Electricity Sector (2008). For biomass, this act considers the provisions detailed in Ordinance on Generation of Electricity from Biomass (Biomass Ordinance – BiomasseV) of June 2001.

According to this ordinance, biomass is defined as:



1. Biomass means fuels made of phytomass and zoomass. This shall also include products, by-products, residues and waste from phytomass and zoomass whose energy content comes from phytomass and zoomass.

2. Biomass within the meaning of the paragraph above includes in particular:

a. Plants and their fractions;

b. Fuels made from plants or parts of plants whose components and intermediate products have all been produced from biomass within the meaning of bullet 1;

c. Waste and by-products of plant and animal origin from agriculture, forestry and commercial fish production;

d. Biological waste within the meaning of Art. 2 No. 1 of the Biological Waste Ordinance (Bioabfallverordnung);

e. Gas produced from biomass within the meaning of bullet 1, by gasification or pyrolysis and all resulting products and by-products;

f. Alcohols produced from biomass within the meaning of bullet 1, whose components, intermediate products, products and by-products have been produced from biomass.

3. Without prejudice to bullet 1, the following shall also be considered biomass:

a. Waste wood, comprising used wood (used products made from wood, wood materials and composites with a proportionally high wood content) or industrial waste wood (waste wood from woodworking and wood processing operations and waste wood from operations in the wood materials industry) which is considered waste.

b. Gas produced from waste wood within the meaning of No. 1.

c. Plant-oil methyl ester.

d. Flotsam from water management and from shoreline management and cleaning.

4. Substances from which electricity is produced in old installations within the meaning of Art. 2 (3) sentence 4 of the Renewable Energy Sources Act, and for which compensation has been received for electricity produced from biomass prior to 1 April 2000, shall continue to be recognized as biomass in these installations.

Excluded Biomass:

The following will not be considered biomass for E-RES promotion scheme in Germany:

1. Fossil fuels and products and by-products made from them.

2. Peat.

3. Mixed municipal solid waste from private households and similar waste from other source areas.

4. Waste wood:

a. that contains more than 0.005% by weight of polychlorinated biphenyls (PCB) or polychlorinated terphenyls (PCT) within the meaning of the provisions of the PCB/PCT Waste Ordinance (Abfallverordnung) of 26 June 2000 (Federal Law Gazette I p. 923);



b. that contains more than 0.0001% by weight of mercury;

c. other types, if its thermal exploitation as waste for recovery is prohibited under the Closed Substance Cycle and Waste Management Act.

5. Paper, cardboard, pasteboard.

6. Sewage sludges within the meaning of the Sewage Sludge Ordinance (Klärschlammverordnung).

7. Harbour sludge and other waterbody sludges and sediments.

8. Textiles.

9. Animal carcasses or parts thereof and products within the meaning of Art. 1 (1) of the Animal Carcass Disposal Act (Tierkörperbeseitigungsgesetzes), which are to be disposed of in slaughter houses pursuant to ordinances enacted thereunder, and substances which occur through their disposal or through other means.

France E-RES from biomass sources in France are promoted through different primary and secondary legislation. In this annex, the consultant highlights key aspects of those legislative acts in which the promotion of biomass in developed.

Limits in the installed capacity provisions (12 MW limit) – which are concurrent for biomass and biogas plants – are presented in the framework law for E-RES (art. 10 par. 2 Loi n°2000-108; art. 2 Décret n°2000-1196).

Biomass

Provisions for (solid) biomass burning are presented in the Decree of 28 of December of 2009: “Conditions for purchase of electricity produced by plants using, primarily, the energy released by burning of non fossil plant or animal origin as referred to in section 2 of Decree Nº 2000-1996”

According to this decree the following products are eligible for E-RES biomass:

Green algae harvested and residues from processing these resources

Eligible industrial waste:

o By-products of the paper industry such as black liquor and paper sludge;

o Waste from the food industry.

Waste and residues from agriculture are eligible including straw and energy crops.

For waste and residues from forestry, are eligible the following five categories:

o By-products of the timber industry with alternative use within the industry (slabs, edgings, inserts non-forest, sawdust);

o By-products of the timber industry without alternative use within the industry (bark, scraps, etc.).

o Homogenates from classification processes of recyclable industrial waste;



o Homogenates from classification processes of recyclable non-hazardous industrial waste;

o Any biomass from forest, and by extension, hedges, bushes and street trees.

o All supplies, partial or full, original forest biomass described by categories 1, 2, 3, 5 above shall entail, for the corresponding share of supply, a proportion based on the fifth category above or equal to 50% (by LHV14

Household wastes are not eligible. In addition, the maximum share of fossil resources is 15%. This calculation is based on the LHV of the resources.

inputs in electricity generation plant).

The tariff for the energy supplied with biomass burning is equal to T + X, wherein:

( ) kWhcVX

kWhcT

/€10

508

/€5.4

−+=

=

Where V the energy efficiency of the installation. V must be calculated on an annual basis.

V is defined as follows:

p

thelec

EEEV +

=

where:

Eth is the thermal energy recovered by means other than electricity production, home consumption or processing of the incoming biomass;

Eelec is the net electricity generated, that is to say, the total electricity produced which is removed from the auxiliary power consumption;

Ep is the primary energy input in plant calculated on the basis of the LHV of the inputs.

The premium X is paid if all the following conditions are satisfied:

i) The biomass used meets the requirements of Annex B, the producer annually providing the buyer with a sworn statement certifying compliance with Annex B. The producer shall keep the certificate and corresponding evidence available to the prefect (Regional Director of the Industry, Research and environment);

ii) V is greater than or equal to 50%;

iii) The installed capacity (electricity) of the plant is greater than or equal to 5 MW.

If V drops below 50% between the 3rd and 10th year after commissioning of the facility due to the cessation of activity of a purchaser of heat, X is fixed at 8 c€/kWh for 2 years then X is equal to 7.4 c€/kWh each year when V is less than 50%.

From the 11th year after commissioning of the facility, X is fixed at 8 c€/kWh each year when V is less than 50%.

14 Lower Heating Value



The procedures for verification of the calculation of V are specified in the purchase contract.

Biogas

Provisions for biogas are presented in the Decree of 10 of July of 2006: “Terms for purchase of electricity generated by facilities that use biogas”

Electricity shall be generated through combustion of gas, which shall be produced through:

Decomposition, pyrolysis or fermentation products, waste and residues from:

o Agriculture (including vegetal and animal substances);

o Forestry and allied industries (including food industry); or

o Water treatment.

Biogas from municipal waste or similar mentioned in Articles L. 2224-13 and L. 2224-14 general code of local authorities, mentioned in 1 of Article 10 of the Act of February 10, 2000.

The active electrical energy supplied by the producer is charged to the buyer on the basis of the rates specified below. They are defined in terms of the maximum installed capacity of the facility and may include a premium for energy efficiency called M and a bonus called methanation (PM). They are expressed in c€/kWh excluding VAT.

Therefore, the tariff for the energy supplied is equal to: T + M + PM, where:

T is the reference rate based on the maximum installed power, defined according to the tables below:

Installed Capacity T (c€/kWh) ≤150kW 9

150kW < x < 2MW Linear interpolation ≥2MW 7.5

M is the premium on energy efficiency, calculated in accordance with the following provisions:

Value of V M (c€/kWh) V ≤ 40% 0 V ≥ 75% 3

Table in which:

V = (thermal energy recovered [self-consumed or sold] + electricity valued [sold or consumed on]) / (Primary Energy Biogas × 0.97).

Intermediate values are obtained by linear interpolation.

The procedures for verification of the calculation of the premium M are specified in the purchase contract.

PM is the premium for methanization and is equal to 2 c€/kWh. This premium is applied to all biogas facilities, with the exception of storage facilities for hazardous waste.

Denmark In Denmark biomass is defined according to the Danish Act no. 638 of July 3 1997 on biomass waste. (Danish: Bekendtgørelse om biomasseaffald). It defines which



types of solid biomass that can be used as a fuel and combusted in ordinary combustion plants.

This classification includes waste from agriculture, forestry and companies working with biomass such as sawmills and furniture manufacturers.

Any type of biomass or mix of biomass that is not mentioned in the annex to the act is defined as waste and must be handled and approved according to the EU Waste incineration directive in terms of temperature and retention time in an incineration plant.

The list of biomass defined in Act no. 638 is:

1. Raw wood, including bark, forest wood chips and untreated milled chips.

2. Clean wood, including shavings and saw dust, not containing: adhesives, lacquer, paint, varnish, impregnants (besides any mill stamps, etc.), foil, laminates, nails, screws, fittings, etc.

3. Wood waste from the production and treatment of clean, laminated wood, with an adhesive content (phenolresorcinolresin, polyvinyl acetate resin, ureaformaldehyde resin, polyurethane resin, and melamineurea-formaldehyde resin) not exceeding 1% on dry weight basis.

4. Untreated grain seeds

5. Untreated cotton flax

6. Lolly sticks with a content of paraffin approved for use in food not exceeding 1% on dry weight basis.

7. Straw (including baling cord from straw bales)

8. Green pellets (dried grass, clover, etc.)

9. Kernels and seeds from fruits and berries

10. Malt

11. Fruit residues (dry parts of fruits)

12. Thatched roofing

13. Nut and seed shells (including grain and seed screenings)

14. Tobacco waste in the form of whole or broken tobacco leaves, tobacco stalks, etc.

15. Untreated cork

16. Fuel pellets and fuel briquettes produced exclusively from wastes in this attachment

For electricity produced by plants that only utilise biogas, gasification gas produced from biomass, stirling engines and other specialised electricity production plants using biomass as an energy source, the price supplement shall be determined so that this and the market price together amount to DKK 0.745 per kWh.

For this electricity, a price supplement of DKK 0.405 per kWh shall be granted for the share of electricity produced through these energy sources.

The sum of price supplements and the market price shall be index-adjusted on 1 January annually from 2009 on the basis of 60% of increases in the net price index in the previous calendar year in relation to 2007.



For the electricity produced by burning biomass, a price supplement of DKK 0.15 per kWh shall be granted regardless of whether the electricity is produced by plants that only use biomass, or by installations where biomass is used with other fuels.



ANNEX F. SUPPORT SCHEMES IN EU MEMBER STATES Source: EC SEC(2009)503 final; Legal sources on renewable energy – German Federal Ministry of

Environment, Nature conservation and Nuclear safety

FIT Feed-in tariffs TER Tax exemption and/or Rebates PPB Price premium or bonuses TGC Tradable Green Certificates ISS Investment Subsidies and Support Schemes TEN Tendering Procedures

Win

d

PV

Sm

all H

ydro

Geo

ther

mal

Wav

e an

d t

idal

Bio

mas

s

Det

ails

AT FIT FIT + IS FIT - FIT differentiated per source - Investment subsidies with available funding only for small hydro and small PV

BE TGC + IS + TER

- Green certificate mechanism (quota obligation on energy suppliers set at regional level) with guaranteed minimum price. - Wallonia: Income tax reduction for businesses producing RES-E, investment subsidies for private and public sector - Flanders: Grants differentiated per technology and size

BG FIT + TER - FIT differentiated per source - Loans: public-private partnership partly funded by EBRD and EIB

CY FIT + IS

- FIT, single for all sources - Investment subsidies, differentiated per source (with cap) for private households, non-profit organisations and private entities - Specific subsidies for desalination using RES

CZ FIT/PPB + IS + TER

- choice between FIT and price premium (both are differentiated per source) - subsidy (higher for non-profit organisation and public bodies), also EU aid programmes - exemption from income tax

DK PPB/TEN + IS*2 PPB + IS

- PPB differentiated per source (sum with market price is capped) - investment subsidies for small-scale plants - favourable loans for feasibility studies of wind farms - tendering procedures for large offshore wind farms

EE FIT/PPB - choice between guaranteed minimum tariff and price bonus

FI TER + IS TER + IS + FIT

- Tax benefits - Subsidies only for businesses not covered by EU-ETS (aid for wind only in case of projects using innovative technology) - FIT for biomass (peat)

FR FIT + TER

+TEN FIT + TER

FIT + TER

+TEN

- FIT differentiated per source (duration: 15 to 20 years); support to wind only if located in some identified zones* - Tender procedures for wind and biomass - Income tax credits for all sources, reduced VAT for PV

DE FIT - FIT differentiated per source (for biomass, also differentiation per size and additional bonus according the fuel)

GR FIT + IS - FIT differentiated per source - subsidy differentiated per region and increased for SME - subsidy from the Community Support Framework

HU FIT + IS - FIT differentiated per source and season (price yearly updated) - Loans on favourable terms by national and European funds

IE FIT - FIT differentiated per source

IT TGC/FIT + TER

PPB +

TER TGC/FIT

- Green Certificates system for all sources but PV (small-sized plants may alternatively opt for FIT), differentiated value per technology - Price premium for PV - Reduced VAT for PV and wind



W

ind

PV

Sm

all H

ydro

Geo

ther

mal

Wav

e an

d

tid

al

Bio

mas

s

Det

ails

LV FIT +TEN FIT none FIT

- FIT within a given quantity cap (no cap for biomass at some conditions) - Tendering procedure for large-size wind parks.

LT FIT + IS*2 FIT + IS

- FIT (minimum price) differentiated per source - loans for all technologies (with cap) - subsidy for small farms on farmland provided the electricity in sued in agricultural processes

LU FIT

FIT + IS +

TER

FIT none FIT - FIT for all technologies - Subsidies and tax exemption only for PV

MT IS + TEN

IS +

PPS none

- capital grants for domestic PV and small wind - net metering with price premium for excess electricity from domestic PV - call for expression of interest for offshore wind

NL FIT + IS + TER - Bonus payment - subsidies for research and development - Exemption from environmental tax and other fiscal benefits

PL TGC + IS + TER

- Green certificates obligation on energy suppliers - national grants and preferential loans plus additional funding for environmentally sustainable projects - Exemption from the tax on electricity consumption

PT FIT

+TER + TEN

FIT + TER

FIT +TER

+ TEN

- FIT differentiated per source - reduced VAT rate - tendering procedures for large wind parks and biomass plants

RO TGC/FIT + TER

- quota system with tradable green certificates (price within a set range) - FIT only for small-size production sites - tax exemption if reinvesting profits in the RES sector

SK FIT + IS + TER

- FIT differentiated per source (tariff reduced if adding to EU or State aid) - Subsidies from the European Structural Fund - Exemption from consumption tax

SI PPB + IS - Choice between FIT and a uniform premium on the market price (both are differentiated per technology) - Subsidies through public calls for application

ES FIT/PPB + TER - Choice between FIT and Price Premium differentiated per source and size (with cap according market price) - tax deduction from business tax

SE TGC + TER +

IS

TGC + IS

TGC

- Tradable Green Certificates - additional support for wind parks (real estate tax reduction and subsidies) - grants for PV

UK TGC + TER

TGC +

TER + IS

TGC +

TER

TGC +

TER + IS

TGC +

TER

- Tradable Green Certificates - Exemption from Climate Change Levy - Capital grants for small hydro, wave and tidal power

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