Ukraine: improving the standard Power Purchase Agreements to boost financing of renewable energy projects
CMS Cameron McKenna,
Kyiv, Ukraine, Wed, Now 15, 2017
On 14 September 2017, the National Commission for Regulation of Energy and Public Utilities Sectors of Ukraine (the “Regulator”) has introduced several major amendments to the standard Power Purchase Agreement (“PPA”) to create favourable financing conditions and incentivising investments in renewable energy projects in Ukraine. These amendments will be effective after the publication of the Resolution by the Regulator in the official journal of the Government.
The PPA is a contract entered between a producer of electricity collected from renewable resources and the off-taker - the State Enterprise “Energorynok”, which has a legal obligation to purchase all electricity collected from renewable energy resources at the guaranteed “green” (feed-in) tariff. International financial institutions (IFIs) rely on the PPA as a fundamental instrument to guarantee a stable legal framework throughout the project’s lifetime and duration of the renewable energy support scheme and secure the cash-flow arising from the project.
Work on the amendments was initiated jointly by the European Bank for Reconstruction and Development and the International Finance Corporation (both biggest investors in the green energy industry in Ukraine), and supported by other investors, such as the Overseas Private Investment Corporation. After consulting the IFIs, which responded with extensive proposals, the Regulator has decided to implement the following new provisions:
- Pre-PPA: the PPA may now be executed before the power plant is effectively operational, the power generation license is obtained and the “green” tariff is set. This measure will allow developers to have a ‘pre-PPA’ with some conditions precedents when they seek the project financing;
- Long-term: the PPA may now be concluded for the entire duration of the green tariff support scheme, i.e. until 1 January 2030. As the new electricity market model should go live in 1 July 2019, current PPAs will be assigned to new off-takers (the Guaranteed Buyer), to ensure the continuity of the agreements already in place;
- Force-Majeure: the list of the force majeure events is extended, though some provisions protecting the producers from system failures and emergencies were not fully taken into account by the Regulator;
- Arbitration: the PPA now allows the parties to choose the international arbitration court in Paris and the ICC Rules of Arbitration as an alternative to Ukrainian courts. However, under Ukrainian law, parties can only resort to international arbitration if one of them has at least 10% of its charter capital detained by foreign investors.
- Mediation: the PPA parties may also apply to the Dispute Resolution and Negotiation Centre of the Energy Community Secretariat for mediation of their disputes. This mechanism should stimulate the parties to settle disputes amicably;
- Step-In Rights: the PPA now also provides for step-in rights in favour of creditors.
Regulation of the National Commission for Regulation of Energy and Public Utilities Sectors “On Approval of Amendments to Model Electric Energy Sales Agreement between the State Enterprise "Energorynok" and Business Entity, which Produces Electric Energy Using Alternative Energy Sources”
Vitaliy Radchenko , Partner, firstname.lastname@example.org