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Wednesday, June 15, 2011

Ukraine Parliament Supports Green Tariff With New Legislation Addressing Future Uncertainty

In recent years there has been equal optimism and skepticism about the long-term impact of Ukraine's Green Tariff for the country's alternative energy producers and investors. While almost everyone is pleased with the nominal tariff rates and the potential revenues earned thereby, several market observers have raised prior questions about the feasibility of maintaining these tariffs in the future under the current energy market mechanism. The government has made a recent legislative move to address these questions directly, as reported in the article below by Cameron McKenna law firm. We will see what the market reaction is, at minimum this news shows that the government is concerned about promoting green energy investment in Ukraine and is working on methods to continuously address and allay market uncertainty.

Ukraine: Stabilisation Clause Introduced For Renewable Energy Feed-In Tariffs

 09 June 2011
Article by Olexander Martinenko, Vitaliy Radchenko and Volodymyr Kolvakh

The Parliament of Ukraine has recently amended the Law "On Electric Power Industry" No. 575-97-BP, dated 16 October 1997 (the "Law") , by introducing into Article 17(1) of the Law, an additional state guarantee of renewable energy off-take. This amendment has been perceived by industry experts as another preparatory step towards sector reform, bilateral contracts and balancing the electricity market. The Law is now awaiting the President's signature and will become effective on the day after its official publication.
This so-called 'stabilization clause' provides that the State shall guarantee that for the whole duration of the feed-in tariffs (i.e. until 2030), that there will always be legislation in place which provides for:
  • a mandatory off-take obligation that would apply feed-in tariffs to all volumes of the electricity generated from eligible renewable energy sources (e.g. excluding blast furnace, coke gas and 10 MW+ hydro), and which volumes have not been sold to consumers or power distribution companies directly; and
  • full and timely monetary settlements for such electricity, as per procedure established by the law.
To this effect, the National Electricity Regulatory Commission of Ukraine (the "NERC") will now be entitled to implement the state policy aimed at boosting renewable energy production by virtue of, inter alia, the approval of renewable energy power purchase agreements with the Wholesale Electricity Market of Ukraine.
Legislation: Law of Ukraine: "On Introducing Amendments to the Law of Ukraine "On Electric Power Industry" (Guaranteeing the State's Obligations to Encourage the Utilisation of the Alternative Energy Sources)"
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Monday, June 13, 2011

World Bank Loans Ukraine $200 Million To Promote Energy Efficiency

The World Bank agreed to lend $200 million to the State Export-Import Bank of Ukraine to help implement the country's long-term energy reduction strategy. Original article available at http://www.bloomberg.com/news/2011-06-10/world-bank-lends-200-million-to-ukreximbank-for-energy-savings.html.

“To reduce Ukraine’s energy intensity by 50 percent by 2030, as the government plans, will require around $20 billion in investments,” Martin Raiser, World Bank Country Director for Ukraine, Belarus and Moldova, said today in an e-mailed statement. He added that “these would easily pay for themselves through improved competitiveness, reduced import needs and greater energy security.”

Ukraine, which has a population of 46 million, relies on Russian natural gas imports for more than 50 percent of its needs. The country plans to purchase 40 billion cubic meters of gas this year, according to Energy and Coal Minister Yuriy Boyko.

Thursday, June 9, 2011

UKRAINE: FISCAL INCENTIVES FOR ENERGY EFFICIENCY AND ALTERNATIVE ENERGY

Original article available at: www.usubc.org

Asters law firm, Kyiv, Ukraine, Monday, May 30, 2011
KYIV - Sustainable energy use has a significant place in Ukraine's energy policy. The Energy Strategy to 2030 and the Economic Reform Programme for 2010 to 2014 both identify switching to alternative energy sources and achieving greater energy efficiency as key priorities.
The first incentives for implementing energy efficiency measures were introduced in 2008 by amendments to the Law on Energy Efficiency and the Law on the Unified Customs Tariff, which granted a number of tax privileges to companies involved in the development and use of energy-efficient technology and alternative energy sources. The recently adopted Tax Code provides significant incentives for companies and transactions in these areas.
CORPORATE PROFIT TAX
The code provides that 80% of an eligible company's profit from sales of its own goods within the Ukrainian customs territory is exempt from charged at 23% corporate profit tax, provided that the goods are on a list approved by the government. The code generally identifies the following types of goods as being subject to this exemption:
  1. equipment for working on renewable energy sources;
  2. raw materials, equipment and components for renewable energy generation;
  3. energy-efficient equipment and materials, and goods whose use results in a more efficient and controlled use of fuel and energy resources;
  4. devices for measuring, controlling and operating fuel and energy resources; and
  5. equipment for producing alternative fuels.
The code also exempts 50% of all profits derived from the implementation of measures and projects relating to energy efficiency. In order to qualify for the exemption, a company that conducts such activities must be registered with the special state registry of companies, agencies and organisations that are involved in the use, development and implementation of energy efficiency measures and projects.
These incentives are effective for five years from the first year in which a profit is made from the manufacturing processes related to energy efficiency.
In addition, a general tax exemption to January 1 2020 will apply to:
  1. biofuel producers' profits from sales of such fuel;
  2. profits from the generation of electrical and heat energy with the help of biofuels; and
  3. manufacturers' profits from sales of machinery and equipment produced in Ukraine for manufacturing and converting vehicles powered by biofuel.
Energy companies are exempt from corporate profit tax on the sale of electricity from renewable energy sources for 10 years from January 1 2011.
VALUE-ADDED TAX
Imports of the following goods are generally exempt from charged at 20% VAT:
  1. equipment for work on renewable energy sources;
  2. energy-efficient equipment and materials;
  3. devices for measuring, monitoring and operating fuel and energy resources;
  4. equipment and materials for producing alternative fuels or generating energy from alternative sources; and
  5. materials, equipment and components required for the production of:
    1. equipment that runs on renewable energy;
    2. raw materials, equipment and components for producing alternative fuels or generating energy from renewable sources;
    3. energy-efficient equipment and materials;
    4. goods whose use results in a more efficient and controlled use of fuel and energy resources; and
    5. devices for measuring, controlling and operating fuel and energy resources.
The code also provides a temporary VAT exemption, effective until January 1 2019, for:
  1. the supply on Ukrainian territory of machinery and equipment specified in the Law on Alternative Fuels;
  2. imports of equipment and machinery for the construction and reconstruction of enterprises producing biofuel and biofuel vehicles; and
  3. imports of biofuel-powered vehicles.
However, these import exemptions apply only if identical goods are not produced in Ukraine.
LAND TAX
Generators of electricity from renewable sources enjoy a 75% discount on land tax.
COMMENT
It is too early to say whether the incentives will help Ukraine to become more energy efficient and less reliant on conventional fuels in the long term. However, green tariffs, customs and tax incentives should encourage foreign investors to consider Ukraine's investment potential.

INFORMATION: For further information please contact, Yaroslav Petrov, Associate, yaroslav.petrov@asterslaw.com or Kostya Solyar, Associate, kostya.solyar@asterslaw.com .
NOTE: Asters law firm is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.USUBC.org.

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