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LL.M., Partner, DLF attorneys-at-law
Following his successful graduation from the University of Augsburg (Germany), Igor has been advising international commercial enterprises in Ukraine for over twelve years. He has managed a significant number of M&A transactions, guided numerous clients through the due diligence process, merger applications and the subsequent structuring of transactions, advised clients on labor, agriculture and renewable energy law matters as well as in relation to assertion and enforcement of creditors’ claims.
Associate, DLF attorneys-at-law
Dmitriy advises international corporations on a wide range of labor, corporate, contract law issues. He can boast substantial experience in legal and tax consulting in complex cross-border transactions. Dmitriy‘s legal practice also covers representing clients before domestic commercial and administrative courts of all instances (including the Supreme Court of Ukraine), as well as in arbitration proceedings on all issues related to the commercial activity of clients in Ukraine.
Renewable Energy in Ukraine
The alternative energy sector in Ukraine is considered by many as one of the most fast-growing and attractive industries for investment. This is explained, to a large extent, by the advantageous geographical conditions in Ukraine as well as increases in the prices of communal services, such as electricity and heating in the last two years and favourable legal framework. The positive trend in this area will continue in 2017.
Current state of play in the field
Following a couple of years of relative silence on the alternative energy market in Ukraine, a substantial increase in the number of commissioned renewable energy projects was observed in 2016 and the beginning of 2017. Thus, a couple of dozen projects, mainly in relation to wind, solar and biomass energy, have already been completed in 2016 or are at their final stages of completion. Many of these projects are carried out by foreign investors, who turned to the Ukrainian market following introduction of legal reforms in relation to feed-in tariff regulation in mid-2015.
The plans to construct high capacity solar power stations in the Chernobyl Exclusion Zone announced by the Government of Ukraine also present a great opportunity for foreign investors.
Feed-in Tariff: Main Attraction for Investors
For many years, Ukraine has been making efforts to stimulate financially the generation of electricity from alternative sources of energy. Such stimulation results in legislative provision for the feed-in tariff, i.e., the guaranteed obligation of the state to purchase generated ‘green’ energy from producers of alternative energy.
The feed-in tariff is fixed in euro until 2030 and is paid in the national currency. All generated electricity, except for volumes for personal needs, shall be paid under the feed-in tariff (except for blast furnace and coke gas, and for hydro plants with capacity of up to 10 MW).
It is the obligation of the wholesale electricity market of Ukraine to purchase “green” energy produced under the feed-in tariff and make full payment for the cost of electricity, regardless of the installed capacity or volume of supply.
The amount of the feed-in tariff depends on the commission date of the object of electricity generation, including the construction phase of the electricity station, which produces electricity from alternative energy sources.
The feed-in tariff for different types of renewable sources of energy is shown in the table below (in EUR).
Premium to Feed-in Tariff
The use of equipment of Ukrainian origin by investors is stimulated by the relevant premium to the feed-in tariff (throughout all term of its validity), if the electricity objects are commissioned by 31 December 2024.
Therefore, if equipment of Ukrainian origin is used at least at the level of 30%, the premium to the feed-in tariff shall be 5%.
If equipment of Ukrainian origin is used at least to the level of 50%, the premium to the feed-in tariff shall be 10%.
The level of use of equipment of Ukrainian origin at power plants that generate electricity from alternative energy sources is defined as the sum of respective percentages of specific items of equipment. The Law of Ukraine On Electricity provides an exhaustive list of equipment for each type of alternative energy source that qualifies for the feed-in tariff premium.
However, it is worth noting that such premium to the feed-in tariff is not applicable to the electricity objects of private households.
Private Households: a Popular New Trend
According to the State Agency for Energy Efficiency and Energy Saving of Ukraine, the rise in the number of solar panels installed by households is the latest trend in the alternative energy sector of Ukraine. This is attributed to the positive legislative changes made in 2015, which allowed private households to not only sustain their electricity needs by means of using renewable energy sources, but to also sell any such excessive energy generated under the feed-in tariff. The trend has been growing continuously for the last two years.
Thus, pursuant to the Law of Ukraine On Electricity, private households are entitled to set up electricity generating facilities with a capacity of up to 30 kW and sell electricity produced from solar or wind energy under the feed-in tariff to the electricity distribution company in the amount that exceeds monthly consumption of electricity by such private households.
For a number of years, the producers of “green” energy in Ukraine have enjoyed quite substantial tax benefits. However, amendments made to the Tax Code of Ukraine in late 2014 cancelled many tax privileges for producers of electricity from alternative energy sources, specifically in relation to income and land taxation. Currently only those entrepreneurs constructing renewable energy objects in the Chernobyl Exclusion Zone enjoy tax privileges; the rent for land use in the exclusion zone is paid at 15% (i.e., with an 85% discount).
Nevertheless, some tax benefits are still available for renewable energy producers. Thus, pursuant to the Tax Code of Ukraine, no VAT is applicable to transactions on import to the territory of Ukraine of:
— equipment which is functioning on the basis of alternative energy sources, energy saving equipment and materials, means of measuring, control and management of energy resources, equipment and materials for production of alternative types of fuels or electricity from renewable energy sources;
— materials, equipment, components for manufacturing equipment, which is functioning on the basis of renewable energy sources; raw materials, equipment and components for production of alternative types of fuels or electricity from renewable energy sources; energy saving equipment and materials, products whose operation provides saving and rational use of energy resources; means of measuring, controlling and managing energy resources.
In addition, pursuant to the Customs Code of Ukraine, the above-mentioned goods are exempt from import and export duties, provided that the taxpayer uses them for its own production and that no identical goods with the same qualities are produced in Ukraine. Nevertheless, this tax benefit, while being settled on paper, cannot be actually implemented in practice due to the failure of the Cabinet of Ministers of Ukraine to approve the list of such goods with specification of codes under the Ukrainian Classification of Foreign Economic Activity Products.
Furthermore, the Tax Code of Ukraine provides that any transactions regarding the sale of electricity generated by qualified cogeneration units and/or from renewable energy sources are not subject to excise tax.
|Type||Capacity (kW)||Date of commissioning|
|01.07.-31.12.2015||2016||2017 — 2019||2020 — 2024||2025 — 2029|
|Ground-mounted solar power plant||0.1696||0.1599||0.1502||0.1352||0.1201|
|Rooftop solar power plant||0.1804||0.1723||0.1637||0.1475||0.1309|
|Solar power for private households||<30||0.2003||0.1901||0.1809||0.1626||0.1449|
|Wind turbine for private households||<30||0.1163||0.1045||0.0932|