Green investments are under threat

In recent decades, the world has been actively stimulating the development of alternative energy, primarily solar and wind-driven. In general, in 2019, two thirds of the new generating capacity in the world were “green”. At the same time, Ukraine is under the risk of losing billions of foreign investments in alternative energy: according to the state company responsible for investments attraction and support UkraineInvest, the amount of foreign investments in renewable energy projects over the last two years reached almost $ 1.15 billion. Meanwhile, there are some challenges with the financial investments in the future. Promote Ukraine found out what’s the reason.

According to various estimates, the share of renewable energy sources (RES) in the world will increase from 10% to 20-40% by 2050. In approximately 50 countries it already exceeds 50%, many others are reaching this level soon. For example, last year Germany, which was not the sunniest country, managed to boast of 46%.

Thus, by 2050 the share of RES in the world could increase dramatically, while the coal and environmentally dirty generation are to be abandoned at all.

According to the Energy Efficiency and Energy Saving State Agency in 2019, 4.5 GW of new capacity were installed in Ukraine. This has tripled the total capacity to 6.8 GW. Totaly, these stations can generate more than 8.4 billion kWh of electricity, or 5.5% of the total energy volume. All this happened due to 3.7 billion euros of foreign investment. But actually this is the issue, which can meet some difficulties very soon.

«Under the current legislation, in order to obtain a green tariff another 4.8 GW of wind-driven farms (WDPs) should be built in 2020-2022,” Yuri Kubrushko, a managing partner of Imepower stated. – Though a maximum of 1.2 GW can be really built according to the most optimistic scenario. This is about the investments of EUR 1.8 bln, a significant part of which will go to the local construction companies. WDPs should be completed in 2020, but due to the quarantine and logistics failures both in Ukraine and around the world, some of the works will be postponed to 2021».

In the zone of turbulence

The problems with foreign investments stemmed not only from the quarantine. According to experts, the new electricity market launch on July 1, 2019 exposed all the problems of the Ukrainian energy sector – worn-out infrastructure, the lack of development strategy, chaotic management in the sector, the debts of the «guaranteed buyer». In order to solve these problems, the government has decided to change the “rules of the game”, which had attracted the green investments, retroactively.

For example, the Ministry of Energy and Environmental Protection has proposed all the market participants to restructure voluntarily the green tariff by reducing its rates but increasing its duration by 5 years. In particular, a 17% reduction was proposed for the solar power plants (SES) and a 10% reduction for wind power plants. For the projects planned for the implementation under the signed contracts of purchase and sale of electricity – by 15% and 10%, respectively.

Besides, the Ministry’s proposal contained penalties against the companies that would not admit such a restructuring. It also proposed a significant reduction of the duration during which investors could complete their wind-driven farms and SES. Correspondingly, this has caused difficulties in the implementation of plenty of big projects, which construction had been planned for 2020-2022.

A bit later, a draft bill, which proposed to provide green tariff decrease by 5% for the actual wind-driven farms and by 7.5% for those, who were put into operation in 2020-2022, was registered. A reduction for the existing SES was supposed at the level of 10%, for the future SES – at the level of 15%.

«The majority of market participants supported the innovation. The document improved the financial position of the “guaranteed buyer” and at the same time kept the industry attractiveness for foreign investors» the Ukrainian Wind Energy Association believes. The project was also supported by the European-Ukrainian Energy Agency.

However, the Ministry of Energy opposed the draft bill. And the State Regulation of Energy and Utilities National Commission has proposed to reduce previously guaranteed tariffs both for existing and for the new stations.

«The regulator’s letter stated: “in order to protect the rights of the investors, it is necessary to suppose the possibility to transfer RES facilities to the state ownership with the compensation for the owners». Industry experts perceived this as a sign of nationalization with an unclear terms and incomprehensible expenses” Yuri Kubrushko highlighted.

The position of the investors

Earlier, the Ukrainian oligarchs, in particular, Rinat Akhmetov and Andriy Klyuyev, were the most active players in the green energy market. Nevertheless, in recent years, many commissioned facilities have been built at the expense of a variety of mostly foreign investors. Anyway, the RES sector is one of the most competitive now. According to the forecasts, the share of the big foreign investors will exceed 30% of all RES power plants in Ukraine in the second quarter of 2020. Besides, there are also hundreds of the small and medium investors in the market. In total, their share achieves up to 2000 MW. Also the noticeable role on the Ukrainian RES market is played by home solar stations, which number exceeded 20,000, while the capacity reached 618 MW in 2020.

According to the State Service of Ukraine, the companies of the renewable energy sector paid taxes in the amount of almost UAH 20 bln in 2019. Among them, VAT amounted to UAH 11,69 bln, corporate profit tax reached UAH 6.18 bln. Totally, the Greens transferred UAH 93.62 bln to the budget from 2009 to 2019.

Simultaneously, according to «UkraineInvest», the amount of the foreign investments in the renewable energy projects, accompanied by the office, almost achieved $1.15 bln (more than 20% of the total foreign direct investments in 2018- 2019) over the past two years. Another $1 bln was invested by international financial institutions. According to experts, the total amount of foreign investments will reach EUR 2.5 bln as of summer 2020.

But the fate of further investments is still unknown. Nowadays it depends entirely on the extent the Ukrainian government can prove to be a reliable business partner and offer a solution to the problems which many RES investors would accept really voluntarily.

«Changing the terms of the green tariff and setting up the penalties for those investors who do not agree to the proposed restructuring will hurt not only the budget of Ukraine (due to possible international arbitration), but also jeopardize the investment future of all the sectors of our economy» Alina Sviderska, the Member of European-Ukrainian Energy Agency Board, Scatec Solar Business Development Manager. «That’s why it’s very important now to put all our efforts and find the investor’s compromise and the industry stabilization».

Natalia Tolub