30 March 2015
Kyiv Post Legal Quarterly Publishes a Commentary of Oleksandr Volkov on Unfavorable Tariffs on the Alternative Energy Market

Alternative energy market faces unfavorable tariffs

The energy market regulator reduced the green tar­iff - the amount paid for electricity produced from renewable sources - by SO percent on Feb. 27.

Previously, on Jan. 31, it reduced the tariff for solar pow­er production by 20 percent.

Market players now view these as unfriendly moves against alternative-energy development in Ukraine.

The green tariff has long been criticized for being a ba­sis for corruption. Though it was introduced a year be­fore President Viktor Yanukovych came to power in 2010, it was closely overseen by people in his circle, says Yaroslav Petrov from Asters law firm.

“There were attempts to limit access to foreign inves­tors and midsized Ukrainian investors in the market,” he explains.

The development of the alternative energy sector is supported by the European Bank for Reconstruction and Development, says Nataliia Slobodian of the International Center for Policy Studies in Kyiv.

Slobodian says that the “creation of unfavorable finan­cial conditions for renewable energy will inevitably lead to the re-division of the market. Small companies will either leave or freeze their development strategies and the wind power giants will win. Then, the giants will get their favor­able conditions back."

Energy Minister Volodymyr Demchyshyn told Focus magazine in a Feb. 23 interview that “alternative energy is interesting, but expensive. At the mo­ment, Ukraine is not financially ready to devel­op such projects.”

Demchyshyn seems to favor extracting available resources, mostly coal and gas.

Guerman Ainbinder, head of DTEK’s subsidiary, Wind Power, believes the recent move by regulators will fail to stimulate production adequately to reach the 11-percent target set for energy produced from renewable sources by 2020.

"With the reduction of the tariff, producers of renewable energy will not be able to service their loans denominated in foreign currency,” Asters’s Petrov says. “If such a reduc­tion will last for a long period of time, new projects will be frozen or cancelled."

Oleksandr Volkov, legal expert at Egorov Puginsky Afanasiev & Partners Ukraine, says that if a state promises some­thing significant to attract foreign investments, and the later ignores that promise, it should expect lower investor confidence.

“In a similar case with Guatemala’s change of its elec­tricity tariff, the state was found liable for its failure to meet the established procedure of changing the tariffs," he says. “While in Ukraine there was no such procedure at all, allowing the state to unilaterally change the tariff.”

"It would take about a year to start arbitration against Ukraine and about three years to complete it," Volkov adds.

Maksym Sysoiev, an expert on energy law with Dentons, says lawsuits will follow soon and court rulings will bring serious losses to the state budget, as the decision by regu­lators to cut tariffs is poorly judged. Wind Parks of Ukraine, an energy company, has already filed lawsuits against the tariff commission.

Meanwhile, politicians believe that the nation’s alterna­tive energy market is a mess. Yuriy Chyzmar, a member of parliament with Oleh Lyashko’s Radical Party, says it’s cor­rupt and overseen by poorly qualified staff.