Practice Areas Review: Energy Efficiency

Energy Efficiency: Implementation of EU Standards in Ukraine

Alexander BURTOVOY

Alexander BURTOVOY

Partner, Antika Law Firm, Member of the Public Council of the State Agency on Energy Efficiency and Energy Saving of Ukraine

PROfile

ANTIKA

Address:
12 Khreschatyk Street,
2nd Floor, Kiev, 01001
Tel.:
+38 044 390 0920
Fax:
+38 044 390 0921

Antika Law Firm was founded in 2010. The firm provides legal services to national and international companies that do business in Ukraine and abroad. 

Main areas of practice: antitrust, litigation and arbitration, criminal defense for business, construction & real estate, subsoil use, energy & energy efficiency, project financing, corporate/M&A, legal expertise.

The firm has been recognized by authoritative international and Ukrainian guides such as The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, and is recommended in the area of antitrust, dispute resolution, corporate/M&A, banking, finance and capital markets, real estate, land, subsoil use, energy, energy efficiency and energy savings.

Antika’s team includes 15 lawyers, who have significant experience in various fields of legal practice.

Our lawyers are professionals with broad experience and skills to provide comprehensive and creative solutions. We follow traditions in law. Meanwhile, having a good understanding of today’s challenging business requirements and a deep knowledge of the legal environment we bring an innovative, creative and practical problem-solving approach to all of our work.

The firm’s main principles are high quality and timely legal services, strict confidentiality and a bespoke approach to every client’s project.

Antika serves Ukrainian and international companies doing business in telecommunications, heavy machinery, chemical and food industries, pharmaceuticals, automotive, construction, real estate and complex development, energy, oil and gas, subsoil use, wholesale and retail, media and sports, banks and financial services market.

The firm also advises the World Bank, EBRD, NEFCO, KfW, USAID on energy efficiency, utility and other infrastructure projects in Ukraine.

The firm is a member of the Ukrainian Chamber of Commerce and Industry, the American Chamber of Commerce in Ukraine, the Canada-Ukraine Chamber of Commerce, the European Business Association, and the International Turkish Ukrainian Businessmen Association.

 

There are good reasons to talk about amendments to the legislation of Ukraine in the field of energetics and energy efficiency in terms of analysis of the extent to which Ukraine has completed the execution of its obligations under international agreements.

In accordance with the provisions of the Association Agreement between Ukraine and the European Union, the European Atomic Energy Community and their Member States, Ukraine pledged to bring domestic legislation to the acquits of the EU, inter alia in the sphere of energy and energy efficiency. The parties to the Agreement have agreed to continue and strengthen existing cooperation in the energy sector in order to increase energy efficiency.

Article 338 of the Agreement settled areas of cooperation, including the implementation of energy strategies and policies; the procurement of energy efficiency and energy saving; the cooperation within the European and international standards bodies in the energy sector, etc. As for specific actions that must be taken, according to the provisions of Directive 2006/32/EC, one of the priority objectives of the state is to achieve energy savings of 9% of the total public index for the ninth year of application of the Directive. In particular, energy distributors or retail energy sales companies should reach 1.5% of energy savings per annum by implementing energy efficiency measures. Our state has committed itself to adopt a number of legal and strategic documents. For example, to develop and adopt a national energy efficiency action plan, and to implement a building certification and product labeling system, etc.

In addition, Ukraine has to fulfil obligations as a member of the Energy Community. The Treaty establishing the Energy Community, which Ukraine joined in February 2011, creates a legal framework within which Ukraine ratified the relevant EU legislation provisions to ensure the conditions for increasing investments, impro- ving energy security and energy efficiency, as well as improving the competitive environment as a key economic factor.

In pursuance of international commitments in Ukraine the National Energy Efficiency Action Plan through 2020 was developed and the Cabinet of Ministers of Ukraine approved a plan on implementing the provisions of the Association Agreement.

To date, several legal documents have been adopted; under consideration by the Verkhovna Rada of Ukraine there is a series of draft laws that will ensure the implementation of standards of EU legislation in Ukraine. For example, the Draft Acts On Energy Efficiency of Buildings, On Energy Efficiency, on the introduction of unbundling in the field of thermal energy and so on.

Attention should be specifically drawn to acts already adopted. First of all, a set of acts on ESCO market establishment in the public sector. The set consists of two interconnected Acts: the On Introduction of New Investment Opportunities, Ensuring the Rights and Legal Interests of Business Entities to Conduct Large-Scale Modernization Act of Ukraine, No.327-VIII and the On Amendments to the Budget Code of Ukraine on the Introduction of New Investment Opportunities, Ensuring the Rights and Legal Interests of Business Entities to Conduct Large-Scale Modernization Act of Ukraine No. 328-Viii.

The main purpose of the acts is to attract private investment to improve energy efficiency of state and municipal property (schools, kindergartens, hospitals, etc.). A peculiarity of the model to attract private capital in the public sector is the conclusion of a particular type of contract, which provides the start of the payments under the contract with a private company only after real energy savings have been made due to the introduction of energy efficiency measures.

Act No.327-VIII defines the notions of energy services and energy performance contract, settles the essential terms of the contract, the conditions and procedures for procurement of energy services, etc. An energy performance contract is defined as an agreement, the subject of which is energy performance. That is, achieving energy savings as a result of the implementation of energy-efficiency measures. In pursuance of the provisions of the law, on 21 October 2015 the Cabinet of Ministers of Ukraine approved the Standard energy performance contract, which consists of the main text and seven annexes.

With regard to Act No. 328-VIII, it introduces a new concept of “long-term obligation for energy services”. This Act provides the right to take a long-term obligation for energy services to managers of budge- tary funds, who belong to the operational management of the buildings. The Ministry of Finance of Ukraine also made changes to the budget classification of services that can be purchased with budget funds.

New government regulations and stan- dards have been adopted in the area of design and construction. In particular, changes were applied to the State construction norms (DBN) V.2.6.-31:2006 “Thermal insulation of buildings”, which bring the standards essentially closer to EU requirements. The classification of buildings is being implemented according to their energy efficiency grading from A to F, where A is the highest class and F is the lowest. In the project assignment the energy efficiency class of the building must not be less than class C. New stan- dards for maximum heating costs for residential and public buildings are being set. On 1 January 2016, the new State Standard BA-2.2.12:2015 “Energy efficiency of buil- dings. The method of the energy consumption calculating for heating, cooling, ventilation, lighting and hot water” came into effect.

Attention should be drawn to the electricity market, where significant changes took place in the regulation of alternative energy. On 4 June 2015 the Verkhovna Rada adopted the On Amendments to Some Laws of Ukraine regar- ding the Maintenance of Competitive Conditions for Production of Electricity from Alternative Energy Sources Act of Ukraine (No.2010-d), which significantly changes the rules of “green” tariff application and may boost the development of electricity production from renewable energy sources. The Act amends the Acts On Alternative Fuels, On Electric Power Industry and On the basis of Ukrainian Electricity Market Functioning.

Green tariff is a traditional name for an electricity tariff which is used for power plants that use wind, solar, biogas and biomass. This rate is higher than the rate applicable to energy producers based on traditional energy sources. There are power plants to which the “green” tariff is not applicable. These include hydroelectric, blast-furnace gas and coke gas power stations. The green tariff is mea- sured by a special rate, and is set for each alternative source separately. The tariff rate depends on the time the power station was put into operation. The green tariff is set considering the local component (origin of source), which is regulated and approved at the legislative level. The law stipulates that the “green” tariff is set by the National Commission, which carries out state regulation in the areas of energy and utility services.

The innovation has increased the available installed capacity to 30 kW. Previously, the maximum capacity for a private solar power was 10 kW. The “green” tariff for electric power facilities put into operation before 31 December 2024, and private households, contracts for the sale of electrical energy of which are concluded before 31 December 2024, should not be less than the fixed minimum rate of the “green” tariff. This minimum rate is converted into national currency at the average official exchange rate of the National Bank of Ukraine for the last 30 calendar days preceding the date of the last quarter meeting of the Natio- nal Commission, which carries out state regulation in the areas of energy and utilities. Also, the rule of “local content” is abolished; instead, a “green” tariff extra charge is introduced, when the domestic equipment is used in the amount of 5% (localization of 30%) or 10% (localization of 50%) as a stimulating factor. Thus, now it is possible to use solar panels of any manufacturer, not only Ukrainian, as it used to be.

For all types of renewable energy sources, with the exception of solar energy and energy produced from biogas and biomass, the rates of “green” tariff stay on the same level as in the current Act On Amendments to the On Electric Power Industry Act of Ukraine on the Stimulation of Electri- city Production from Alternative Sour- ces of Energy as of 20 November 2012, No.5485-VI. According to the Act, from 1 July 2015 the “green” tariff is reduced for industrial solar power plants to a level of 0.17 Euros/kWh. For solar power stations built in 2016 the “green” tariff will be EUR 0.16, in 2017-2019 — EUR 0.15. This figure is double the average European rate, therefore, the solar energy market will retain its relevance in Ukraine. In addition, the law temporarily (until 1 January 2017) reduces the “green” tariff for solar power stations of over 10 MW, which were commissioned before 1 July 2015. The Act also allows households to install not only solar but also wind power plants with a capacity of up to 30 kW with the sale of surplus electricity to the network. Connecting to networks does not require the project to be included in the 10-year development plan of the United Energy System of Ukraine. The subsidies on compensation for new connections costs are eliminated as being ineffective.

As for industrial generation, the “green” tariff rate is still pegged to the Euro. The “local component”, as mentioned previously, is cancelled. Yet, if Ukrainian equipment is used during the construction of solar power station, the “green” tariff extra rate is charged. In the event of the facility being built with a local component of 30% to 50%, the rate is increased from 5% to 10%, respectively.

As mentioned above, the state gives significant encouragement to the commercial production of alternative source electricity by applying special tariff conditions.

According to the On Amendments to the Act of Ukraine on Electric Power Industry Act of Ukraine No. 1220/VI on stimulation of the use of alternative energy sources, the green tariff rate for legal entities is prescribed on electricity, produced by renewable energy sources, by multiplying the current retail electricity prices by a factor of:

4.8 — for the energy of solar radiation of electric power surface facilities;

4.6 — for the energy of solar radiation of electric power facilities installed on the roofs of houses and buildings, with a capa- city of more than 100 kW;

4.4 — for the energy of solar radiation of electric power facilities installed on the roofs of houses and buildings, with a capacity of not more than 100 kW and on facades.

The “green” tariff is prescribed for the period prior to 1 January 2030 for all business entities producing electricity from renewable energy sources.