Legal and tax incentives for solar and wind projects in Ukraine
May 2013 | EXPERT BRIEFING | SECTOR ANALYSIS
In recent years, Ukraine has witnessed unprecedented interest from foreign and local investors towards Ukrainian renewable energy projects. Apart from the global trend of increasing the share of renewable energy sources in overall electricity generation, this is also due to specific legislative support for renewable energy projects provided by the Ukrainian government.
In particular, according to the State Program of Energy Efficiency for 2010-15, Ukraine undertakes to increase the share of renewable energy sources in the total balance of energy generation to 10 percent by 2015, up from the current share of 0.5 percent. Market reports suggest the total installed capacity of power facilities that generate power from renewable sources increased by 57.5 percent in 2012 and, as of 1 January 2013, constituted 645.1 MW.
Under the Law ‘On Electric Power Industry’, a special ‘green’ tariff applies to electricity produced from renewable energy sources including solar energy and wind power. The purpose of the green tariff is to motivate development of renewable energy facilities in Ukraine.
The minimal value of the green tariff for electricity generated from solar energy is calculated by multiplying the retail tariff for consumers of second class voltage as of January 2009 (determined based on the peak tariff index for three-zone tariff classification) by the green tariff index for electricity produced with the use of solar energy.
The retail tariff for consumers of second class voltage is set at 0.5846 UAH per kWh and the green tariff index for electricity produced with the use of solar energy varies from 3.7 to 3.5 depending on the type of solar energy facility and its capacity.
Also, starting from 1 April 2013, a special green tariff index (3.7) applies electricity produced by solar elements mounted on the roofs of private buildings (household facilities) with the capacity not exceeding 10 KW.
The minimal value of the green tariff for electricity from wind power is calculated on the same basis as the tariff for electricity from solar energy, but without applying the peak tariff index, and in addition using the decreased green tariff indices in the range of 2.1 to 1.2 depending on the type of wind power facility and its capacity.
For renewable energy facilities put into operation after 2014, 2019 and 2024, the green tariff indices applied will drop correspondingly by 10, 20 and 30 percent. Overall, the concept of the green tariff will exist until 1 January 2030.
In order to sell electricity under the green tariffs, owners of renewable energy facilities must ensure that the value of Ukrainian sourced materials, fixed assets and services in the total capital expenditures of the renewable energy facility totals at least: (i) 15 percent starting from 1 January 2012; (ii) 30 percent starting from 1 January 2013; and (iii) 50 percent starting from 1 January 2014.
The local content share of materials, fixed assets and works and services of Ukrainian origin is to be confirmed by the Ukrainian Chamber of Commerce by issuing the Certificate of Origin of the goods, works and services. Starting from 1 July 2013, specific requirements were introduced with respect to the share of local content in particular equipment elements (e.g., blades, rotors of wind plants, etc.) for each particular kind of renewable energy production.
Connecting renewable energy facilities to the electricity grid is to be performed under an agreement with the relevant local electricity distribution company. Local electricity distribution companies are prohibited from refusing to connect a renewable energy facility to the grid provided the latter complies with the relevant technical requirements. Also, the cost of constructing new voltage power lines must be reimbursed to the investor. In practice, however, due to the lack of adequate electricity infrastructure and the lack of clarity in the reimbursement procedure, the connection of renewable energy facilities to the grid remains problematic.
The Tax Code of Ukraine provides for a number of tax incentives for renewable energy production projects.
In particular, up until 1 January 2021, a full exemption from corporate income tax (CIT) is envisaged for profits from core activities of companies generating electricity solely from renewable energy sources. Also, a partial CIT exemption (applicable to 80 percent of the profits) applies to profits of companies from the sale of certain self-produced goods (the list of which is approved by the Ukrainian government) including: (i) equipment powered by renewable energy sources; (ii) raw materials, equipment and components used in renewable energy production; and (iii) energy-saving equipment and materials use which enables rational consumption of fuel resources.
Also, the importation of certain renewable energy power equipment and energy-saving equipment and materials may be exempt from VAT and customs duties, provided certain conditions prescribed by the Tax Code of Ukraine are met by the importers of such equipment.
Finally, there is a partial exemption from land tax applicable to land plots used for the purpose of placing power energy facilities producing electricity from renewable energy sources.
Alexander Boboshko is a senior associate at Schoenherr. He can be contacted on +38 044 220 10 46 or by email: firstname.lastname@example.org.
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