Auctions for allocation of support quotas in the green energy sector

"Auctions for allocation of support quotas in the green energy sector" - read in the article of EVERLEGAL partner Andriy Olenyuk and junior associate Liidia Vatutina for GetMarket.

Content:

• Who can participate in the auctions?
• Design of auctions in Ukraine
• Determination of the winner of the auction
• Conclusions

Read the article below or on the GetMarket website.

Learn more about EVERLEGAL's expertise in Energy and Natural Resources Practice at the link.

In April 2019 Ukrainian Parliament adopted several legislative changes aimed at introducing competitive conditions for the production of electricity, in particular by holding auctions to grant support quotas for renewable energy projects. The auction system aims to replace current support scheme in a form of feed-in tariff and introduce more competitive rules in the renewable energy sector.

  Auctions are a dominant tool stimulating the growth of electricity production from renewable energy sources. The auctions enable the government to control time and scope of support for the renewable energy sector and, as a result, regulate its growth, as well as increase competition among renewable energy projects.

Who can participate in the auctions?

The procedure for holding the auctions is provided by the Law of Ukraine "On Amendments to Certain Laws of Ukraine on Ensuring Competitive Conditions for Electricity Production from Renewable Energy Sources" No. 2712-VIII dated 25 April 2019 (the "Law on Auctions") and the Resolution of Cabinet of Ministers of Ukraine "On Implementation of competitive conditions for the promotion of electricity generation from alternative energy sources" No. 1175 dated 27 December 2019 that entered into force on 31 January 2020 (the "Auction Procedure").

  According to the Law on Auctions, starting from 2020 auctions will be the only option of support for the following categories of electricity producers generating electricity from alternative energy sources:

• wind power plants (except for those with three wind turbines, regardless of the installed capacity of such wind turbines) with a total capacity exceeding 5 MW; and
• solar power plants with a total capacity exceeding 1 MW.

  Electricity producers from any other type of alternative energy source may participate in auctions on a voluntary basis.

  If an electricity producer has commissioned a facility generating electricity from alternative energy sources by 1 January 2020 or has concluded a power purchase agreement for the feed-in tariff by 31 December 2019 (pre-PPA), it is not obliged to participate in the auction.

Design of auctions in Ukraine

According to the Auction Procedure, SE "Prozorro. Sales" will be responsible for ensuring the functioning of the electronic auction system. State support quotas will be allocated among investors in such electronic auction system as follows.

  The guaranteed buyer announces the auction and determines the share of annual support quota for a particular type of alternative energy, date, time of an auction and deadline for applying for participation, as well as terms of allocation of annual support quota.

  An auction lot is the capacity (kW) within the support quota for each renewable energy source or the total amount of support quota in case of technologically neutral auctions.

  Electricity producers as potential participants in the auction should submit an application with certain qualification documents, in particular, a bank guarantee of EUR 5 per 1 kW for at least 50 business days after the auction date, a document confirming the land title for a project, a copy of grid connection agreement and corporate documents of such participant. The participant's application must include a bid (price proposal) and the capacity of the power plant.

  The auction is held directly in the electronic system "Prozorro. Sales" on the day and time specified in the announcement, but not earlier than 30 days and not later than 60 days after the announcement of the auction.

  After activation of the auction, the participants can review information about the auction within 10 minutes, as well as to reduce their price proposal (the amount of power should not change).

  The participants' bids are ranked in increasing order. As a result of the auction, a protocol is formed. It determines the rating of the participants, indicating their bids and capacity.

Determination of the winner of the auction

The criteria for determination of the winner is the bid. The winner is the participant who has submitted the lowest price for the declared capacity according to the compiled rating. In case the bids are the same, the participant who submitted the bid earlier will be considered as the winner.

  The total amount of allocated support quota cannot exceed 80% of the total capacity proposed by all qualified applicants.

  The winner of the auction is entitled to support and enters into a PPA (power purchase agreement) with the guaranteed buyer. In order to ensure the fulfilment of the obligations under PPA, the winner of an auction must provide a bank guarantee in favour of the guaranteed buyer.

Conclusions

In general, "green" auctions are expected to improve the investment attractiveness of the Ukrainian alternative energy market. This is due to the fact that, in particular, there is no need to submit paperwork or to be physically present during the auctions. The auctions will also promote competition in the market and introduce transparent procedures for determination of the auction winners.

  According to the Ministry of Energy and Environment Protection of Ukraine, the first auctions for the allocation of support quotas to renewable energy projects are scheduled for April 2020, so the success of the new support system for "green" energy producers is currently in question.