In general, this law is very progressive and stimulating for the development of alternative energy in the country. It has provided almost one of the highest tariff in the world for the industry, which was and is the best incentive for investment, including foreign investment.
At first sight at the comparison of the Ukrainian "green" tariff with those of other European countries rates, we can conclude that we are firmly among the leaders at it`s size.
But is everything so simple and attractive as it seems at first sight?
Once Mark Twain was asked how he sees the difference between mistake and blunder. The answer was almost a genius: If you take someone`s else silk umbrella in the locker room instead of your cotton, it would be a mistake.
And if instead of your own silk you take another cotton - it will be a blunder.
This phrase of famous writer the best characterizes current situation in Ukraine on the strategic level in the field of renewable energy.
Having considered a simplified energy balance consumption in Ukraine and comparing it with the performance of the euro area and the average indicators for the world as a whole, can be considered some preconditions for law adoption establishing one of the most attractive in the world "green" tariff.
As seen from the information provided in the above balance sheet there is a significant proportion of the consumption of natural gas, which is almost two times higher than in the euro area. And the share of renewable sources is almost 3 times lower than in the EU and 4 times lower than the world average. What does it mean?
In fact, this significant imbalance of consumption is explained simply enough, the main reason for this is not only obsolete capacity of key industries with high consumption of natural gas (chemistry, metallurgy, etc.), but government subsidies, accordingly stimulating consumption of natural gas by the country's population at non-market tarrifs.
This situation creates an almost complete lack of investment appeal of switching to alternative sources of household energy, as natural gas is cheap enough for them, there is no need for additional investment in re-home ownership, and in fact, until recently, households have not been able to get a "green tariff" on account of the established legal restrictions.
Furthermore, the use of alternative energy sources in the absence of the possibility of transferring surplus energy in the network, increases the payback period of transition to this sources. It also should be noted that the subsidies not only raise significant "holes" in the budget and underfunding of many of his articles because of the need of systematic compensation from the same budget colossal gap between the selling price to the public and the market price of natural gas, but is, in fact, a slowdown to the development of renewable energy in the country.
Particularly extraordinary was the situation, that until recently Ukraine was established almost a forbiddance on the ability of households to obtain green tariff, that is the owner of the generating capacity could be entirely legal entity - a business entity, which was required to be a member of the WEM (wholesale electricity market) and sell all received electricity in the WEM according to green tariff.
As it`s known, in Europe there is about 60% of electricity from alternative sources produced by households, that makes them a major player on the renewable energy market. In this key the legislative efforts to stimulate the creation of a base for increasing the share of alternative energy in Ukraine is an attempt to treat seriously ill by gluing wallpaper in the House and replacing plaid curtains on "striped".
That is, in fact, state contradicts itself - on the one hand trying to increase the share of renewable energy by introducing high "green" tariffs, and on the other - creates a slowdown for the main consumer and producer rolled into one - the population of a possible move to alternative sources energy. Where is the logic you ask?
However, does so illogical and shortsighted looks household`s non-admission to become a major player in this market? Not at all. Good old principle of "Look who benefits" will give an immediate answer to such a controversial policy of the state in this matter.
Because stimulation of increased consumption of natural gas, certainly, is beneficial to owners of gas networks that charge for its transportation to the end user, as well as to owners of the largest projects in renewable energy, which are not interested in section of the pie with the assistance of anyone else. But that's not all.
It is also not profitable to the owners of generation and energy network companies that have same principle - if people consume less, they will pay less, and therefore earnings of these companies will decrease, which to the owners opinion just have to bring them the usual rate of return.
But besides these reasons should be mentioned a several other. First of all, the energy system of the country is not rubber and not physically able to withstand covering the difference between the standard and substantially overstated "green" tariffs to the public for the account of other areas of generation.
In addition, the country's energy system (for various reasons) can not provide the most important thing - creating an alternative and autonomous system of production and consumption by the main energy consumers - people.
The main reason for such a situation the officials indicate is, first of all, the lack of funds from the population and the government required to move to alternative energy sources and energy efficient technologies. Excuse me! What about money that government spends each year to cover the difference in tariff of natural gas?
Because these amounts are annually calculated as tens of billions of hryvnia, in 2010 the state took about 34 billion hryvnia (about 3,3 billion Euro) to cover the difference. These amounts would be quite sufficient to create a system of state subsidies to transfer the main consumer (the public) to renewable energy sources. And then, having state subsidies in the form of compensation for the costs of equipment (as it happens in most European countries, where compensation averages about 30 percent of the equipment costs), while having the opportunity to give the surplus energy in the network according the "green" tariff system and getting payback in a few years, a large part of the population would not only thought about it, but would actively begin to transfer their ownership to alternative energy sources.
On this background the IMF's recommendations about necessity of introduction of market prices for household consumers seem quite reasonable and economically efficient. But who cares, except of the State and the most of people who often do not realize that the current situation is going nowhere, and reminds the good old saying about pulling the blanket, and in this case obviously not in favor of residents.
If people will consume less gas, they will accordingly pay less for it and, therefore, the State will have to pay more for its citizens who choose to invest their "blood" to create an opportunity to pay less for gas and electricity. It means no less than that the State in this case will simply be forced to put its strategic interests and the interests of its citizens higher than the specific interests of the business structures, who believe that in fact climb into their pockets, what such business structures are not definitely interested in.
Thus, initially for strategic decisions in government circles was admitted a fault. Through an oversight was admitted this mistake or intentionally is not so important. The main thing is that while this mistake will not be eliminated and the interests of the State and its citizens do not prevail over the interests of a small number of specific business structures, flywheel start of alternative energy in the country will work with the lowest efficiency, both for the country and for its citizens.
In the current situation, as often happens in our country, not a bad idea at first sight got a lot of problems not only in the form of insufficient studying of the technical implementation aspects of the projects in this area, but also strategically wrong approach to the creation of state stimulus for renewable energy.
Now a little about the main technical difficulties. So, any expert in the field will tell you that there are two major issues related to the implementation of projects in this area - it is land and connectivity issues of generating capacity to the existing energy network.
Land issues pose the greatest mass of problems, since their settlement enters the plane of one of the most corrupt sectors of the local officials, and are not only a significant increase in time required to process the necessary legal documents, but also a significant increase in the expensive part of budget project. Sometimes, without an appropriate approach considering Ukrainian realities, issues of obtaining necessary documents can take years.
With regard to questions of connectivity, there is necessary to consider that most of the energy network companies are privately owned and for the owners of these companies there are special rules and requirements for the connection to generating capacity, that are tend to be established.
These rules create additional costs in addition to a number of technical questions, and the developer of the project simply has to accept the terms of connection to networks, provided by a network company, which often take into account not only the technical features of connectivity, but also profit margins of energy network company.
The next point characterizing non-perfection and a low degree of legislative regulation rationality is the fact that Ukraine has practically non-existent difference in the procedure of the necessary documentation preparation for the "green" tariff, depending on the capacity of the project - that means, if you're going to run the station at 100 kW or 300 MW - the procedure is the same.
This approach greatly limits the economic expediency scope, to make project investments attractive for investors.
Also the cornerstone of obtaining possibility of "green" tariff is appropriate legislative restrictions on the ability of its receipt. Major limitation is a specified percentage of the so-called "national component" that means the part of the work and equipment produced by Ukrainian companies in the ongoing projects in renewable energy field. Thus, under the current legislation the percentage of such component must be at least 30 percent for facilities set into operation in 2013, and in 2014 this percentage will make up already 50.
And all would do but Ukraine is at the moment, and most likely before 2014 also, does not have and will not have the necessary and sufficient operating production facilities, which will enable project developers to perform data legislative conditions. Thus, we can assume that in the next one or two years, the market of energy production from alternative sources will be effectively closed to new players who, even if they wanted, could not fulfill the requirements of the law. Besides the percent of "national component" it`s also necessary to consider the term limiting the activity of "green" tariff until 2030, and the size of the discount rate applied to the rates since 2014.
Shown schematically the overall situation of tariff formation is as follows (before new Law):
And yet, despite all of the above mentioned difficulties and specifics, technical aspects that are resolved not properly and other not very positive features of the Ukrainian market of energy production from alternative sources, investors do not refuse to participate in such projectsand even there is an extensive and a real interest in this projects in Ukraine, including the part of foreign investors.
According to the official statistics in 2012-2013 it is assumed that about 100 business entities will receive "green" tariff introduced in this period generating capacities.Accordingly, investors have not just idle interest, but there are also signs of the actual implementation of such interest by investors. However, the legislator considered that the existing regulations do not fully take into account all the important aspects and at the beginning of this year there was an apropriate bill.
It should be noticed that, despite the difficult procedure of esteblishment, Verkhovna Rada adopted a Statute № 10183 on 21 November this year, which introduced significant changes in the regulations of alternative energy sources market. This Statute adopted by Verkhovna Rada was signed by the President on 05 December 2012, and accordingly the alternative energy market is expected to has following significant changes:
- introduction of "green" tariff for electricity from solid waste and biogas. Coefficient for biogas is on the same level as for biomass - 2.3;
- differentiated tariff for hydropower stations depending on capacity: micro (200 kW - coefficient 2), Mini (200 kW to 1 MW - coefficient 1.6), small (1 - 10 MW - coefficient 1.2)
- energy distribution companies are required to buy surplus electricity from households (starting in 2014) produced by roof solar stations up to 10 kW in the volume exceeding of the monthly consumption of private households according to the "green" tariff. No need to obtain licenses for private households and the requirement of a "national component". The redemption procedure will be determined by the regulator;
- A new calculating method of the "national component": establishing the percentage of each type of equipment and work for each type of energy production stations and there is no requirement of local component in the cost of modules for solar power stations.
Now review more details about the proposed changes. First of all, the legislation finally established the right to get the green tariff for energy generating stations from solid wastes and biogas, which is certainly a progressive step and offers great potential for this type of generation.
Permission ranking in hydropower also creates some positive trend for the project with the minimum power (up to 1 MW capacity), which would significantly increase their investment attractiveness in the eyes of investors. And an innovation about the possibilities of households, in fact is a half-measure because in spite of the norm about no necessarity to obtain a license limits the power stations of households (up to 10 kW) and does not include the possibility of using other household sources of alternative energy except the sun.
Furthermore, the obligation to purchase surplus electricity produced by such households, is limited to the following legislator`s phrase: "in amounts exceeding the monthly consumption of the household," and in addition to this limit the order of such redemption must be developed and implemented by a controller that may remove implementation of this innovation for an indefinite period.
Thus one of the most important aspects of the alternative energy sources market was not actually radically changed and resolved appropriately.
Also the substantial changes have been introduced in relation to "national component".
The main changes relate first of all to this method of calculating component - this methodology accordingly set percentage for each species and the type of equipment and labor. For example, for solar power percentage of polycrystalline silicon is 32%, production of ingots - 13%, wafer manufacturing - 7%, production of photovoltaic cells - 20%, the assembly of PV modules - 23% Construction - 5%. Furthermorethe legislator established the absence of necessarity to respect the local content for hydropower facilities and households.
All these innovations not only have no single interpretation, but also greatly complicate the compliance procedure of the above requirements for project developers, as they require more detailed compliance indicators for each type of equipment and the labor, which is a field of mixed interpretations and, as a consequence, a possible increase in the volume of officials impact on the implementation of projects in this field. All the above mentioned innovations are very ambivalent and rather look like a collection of half-measures and the result of lobbying by certain areas of alternative generation.
In general, the law can not be called revolutionary, and even evolution, but at the same time it will make significant adjustments to plans of project owners, which starting up is scheduled for 2013-2014 and subsequent years. So, to sum up the above, we should clearly focuse on the main tangible aspects of alternative energy sources market in Ukraine:
- The State stimulates and subsidizes the increased gas consumption at non-market rates, and, as a consequence, households are not interested (and will not be interested until the natural gas is the cheapest fuel) in the transition to alternative energy sources and energy efficient technologies.
- With the correct approach to the development and implementation of government programs in stimulating households transition to alternative energy sources (compensation of a significant part of the equipment costs, higher tariffs for the purchase of surplus energy output, etc.), households can become the major producers and users of energy produced by alternative sources - focusing on European figures - up to 60 percent of the total amount produced and consumed energy obtained from alternative sources.
- The existing legislative regulations of alternative power engineering basically protects the interests of big businesses, rather than protect the interests of the State and its citizens.
- Land issues, connectivity issues to power networks create the largest number of problems and, therefore, unexpected costs (both financial and time) for project owners in the area of alternative energy, that is hardly percieved especially by foreign investors.
- Regulatory restrictions in the form of compliance with the percentage of "national component" of 15 - 30 - 50 percent without an appropriate production capacity in the country that can implement the requirements, pose a threat to the success of the ongoing projects and create, in effect, conditions of preferences for the already started projects controlled by multiple players.
- Nominal households admission to the possibility of obtaining "green" tariff with significant restrictions on capacity and type of alternative energy sources, as well as the volume of repayment of surplus energy produced - is a half-measure that does not create the necessary basis for the mass transfer of households to alternative energy sources.
Answering to our question "Whose fault?", Go to the answer - "What shall we do?".
The current situation in the alternative energy can not and will not fundamentally change the context in the balance of energy consumption in the country, nor the situation in terms of increasing the share of alternative sources in the above balance sheet. But how much do you need to change overall situation? In fact, not so much.
First of all, there must be the political will to radical change of the market. Situation without this will the situation will not move from the place. And eventually it will turn into a feeder for a limited number of "right" players.
The second most important step is to phase out the practice of government subsidies and stimulus of natural gas consumption at non-market tariffs while developing and implementing a real national program promoting a transition of households to alternative energy sources, with clear and understandable mechanism of support by the state - a significant compensation of the equipment costs at least 20-40 percent, a full and unconditional access of households to "green" tariff, which will be redeemed by the surplus energy produced by households, the reduction of tariff and non-tariff barriers to suppliers of equipment, etc.
The next important step is to review reduction of the "national component" percentage based on analysis of actual availability of production capacity in the country and comparison with the volume of equipment and labor on projects in the field of alternative energy that are already under construction and / or placing on production.
Undertake a detailed elaboration of large and medium-sized projects in the field of alternative energy "turnkey" by State (or its authorized entity) with the solution of all the documentary and technical aspects of the projects - land issues, the connection to power networks, financial calculations of efficiency and investment attractiveness of the project etc. That means, in fact, to develop a base of almost finished projects to create the most favorable conditions to attract the investors.
In many ways, these simple and at the same time effective steps can allow our country not only to reduce the dependence of the economy on the gas component, to get a higher level of energy security, but also to create the most effective, modern and practically autonomous power system for one of the most important groups of consumers - population, release significant financial resources in the budget, which could be aimed on those industries that for various reasons were significantly underfunded.
But all this is possible only due to a political will, and only in the case of the predominance of the state and its citizens interests over the interests of a small number of large business structures.