Ukraine`s new 2009 green tariff

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Ukraine’s government has been quite proactive during the first half of 2009 with regard to the renewable energy and carbon sectors. In April, the President approved a 'revised' Green Tariff rate calculation methodology, resulting in even higher prices than before for alternative energy producers.

Also the government has been working to complete Ukraine’s Green Investment Scheme through the National Agency for Environmental Investments, and has sold 30 million AAUs to Japan. In the coming weeks, Ukraine will most probably complete transactions for over double this amount to additional buyers.

The higher Green Tariff rate schedule, along with the government’s activity to complete Ukraine’s Green Investment Scheme and to undertake ambitious AAU trades, means that right now we see the most fertile environment for Ukraine’s alternative energy sector growth since the country’s 1991 independence.

New Green Tariff prices are paid directly by Ukraine's Wholesale Energy Market as the counterparty buyer, which is good. It means that under the present Green Tariff mechanism there is no necessary 'purchase price negotiation' (at this moment) between local alternative energy providers and the local oblenergos – distribution companies – that power providers must link into.

As one can see from the current price calculations below, alternative energy sales prices make it very attractive to invest in Ukraine right now. It is important to note that these rates are only available to new projects that are built from 2009 onwards.

Ukraine’s Green Tariff Rates in Euros per kWh (July 2009)
Alternative Energy Source Type Old Green Tariff (Jan – April 2009) NEW Green Tariff Rates
Wind Power < 0.6 MW € 0.0659 € 0.0646
Wind Power > 0.6 MW but less than 2 MW € 0.0659 € 0.0754
Wind Power > 2 MW € 0.0659 € 0.1131
Biomass Power € 0.0659 € 0.1239
Solar Power on land/ground € 0.0659 € 0.4653
Solar Power on building roofs > 0.1 MW € 0.0659 € 0.4459
Solar Power on building roofs < 0.1 MW € 0.0659 € 0.4265
Solar Power on fronts of buildings € 0.0659 € 0.4265
Small Hydro Power € 0.0659 € 0.0775

Answer to the Question “What Are Green Tariffs?”
Green Tariffs are an important factor in alternative energy investment decision making. Nations seeking to incentivize alternative energy investment, such as European Union countries and Ukraine also, establish higher electricity sales prices (and therefore revenues) for alternative energy power producers compared to traditional fossil fuel based power producers.

From a project investor's point of view, an alternative energy business plan must be financially attractive and typically must 'stand on its own two feet' aside from any carbon credit component. Carbon credits are expected and documented, but an investor does not typically invest into an energy power project to collect carbon credits alone.

Green Tariffs increase the sales revenues from alternative energy power projects; likewise, they reduce the payback period and investment risk for such projects in emerging market economies. Alternative energy projects that otherwise would be regarded as difficult or risky for technology, cost or country risk reasons can experience refreshed interest and activity levels due to corresponding Green Tariff revenues. It is clear, for instance, that Ukraine's new Green Tariff has sustained foreign investors' interest in its clean and renewable energy markets during the present financial downturn.

Countries develop Green Tariffs on an independent basis. In Ukraine, the Green Tariff is set by the National Electricity Regulatory Commission (NERC). It covers alternative energy production facilities such as wind power plants, hydropower, biomass, biogas, and other methane utilization projects (except blast-furnace and coking gases). There is no present capacity cap on Ukraine's Green Tariff except for hydropower plants, where an eligible facility cannot exceed 10 MW in capacity.

Carbon credits and Green Tariffs together create an excellent incentive stew for new alternative energy project finance. In countries like Ukraine, where the Green Tariff roughly doubles historic project revenues and a streamlined Track 1 JI approval process eliminates international bureaucracy, investment conditions have never been better.

Please feel free to contact the Foundation for the Development of Environmental and Energy Markets (www.fdeem.org.ua) to discuss specific questions or opportunities with regard to European Green Tariff structures and alternative energy markets.

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