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State support of alternative energy in Ukraine

Support of alternative energy in

Ukrainian Biofuel Portal prepared the overview of the state support of alternative energy in Ukraine, implemented through certain tax benefits and legal safeguards.

According to Ukrainian legislation, alternative energy is the industry producing heating, electric and mechanical energy from renewable sources. Today the government supports the producers of energy from alternative sources, as well as the producers of the products used in generation of this energy, by specially established guarantees and tax benefits.

The following special forms o alternative energy support by the state may be distinguished:

- "Green" tariff;

- Tax benefits;

- The obligation of the state to purchase electricity from renewable sources at the established rates.

Tax benefits in alternative energy:

  1. The company working in the field of alternative energy, in which energy is generated exclusively from renewable resources, is exempt from income tax until January 1, 2021.
  2. VAT is not paid by the companies importing the following products to the customs territory of Ukraine: equipment, components and materials used in the production of energy from alternative resources, materials and equipment for the production of alternative fuels; equipment operating on alternative fuels.
  3. The equipment and the materials used in the own production of alternative fuels are exempt from duty when imported to Ukraine if those goods are not produced in the country. Also the duty is not paid during importation of the equipment operating on alternative fuels.
  4. The producers of energy from alternative sources pay the tax on the land, on which the facilities are located, in the amount of 25% of the tax paid at the general approach.
  5. The rents during operation of the municipal or state lands, on which the facilities for producing energy from renewable resources function are located, should not exceed 3% of the normative monetary evaluation of these land areas.

The specialists of Ukrainian Biofuel Portal compiled the list of normative acts on regulation of alternative energy in Ukraine:

The law of Ukraine "On Alternative Energy Sources" from 20.02.2003 – 555-IV;

The law of Ukraine "On Electric Power Industry" from 16.10.1997 – 575/97-VR;

The law of Ukraine "On Amendments to the Law of Ukraine" On Electric Power Industry "on the promotion of the use of alternative energy sources" from 20.11.2012 – 5485-VI;

The law of Ukraine "On alternative fuels" from 14.01.2000 – 1391-XIV.

We may distinguish the following special forms of alternative energy support by the state:

  1. "Green" tariff.

"Green" tariff is a specially established rate for purchasing electricity produced from alternative resources. It should be noted, that this rate does not apply to the energy received from the blast furnace and coke oven gases, as well as generated by large hydropower plants. Generated electricity can be sold directly to the consumers, at the same time the wholesale market is obliged to buy the electricity from renewable sources, which was not sold to the consumers or energy supply companies at contracted prices, as per "green" tariff.

For determining the size of "green" tariff the coefficients separately set for each energy source are used. The coefficient is multiplied by the retail electricity tariff for the second class of customers as of January 1, 2009. The size of "green" tariff is revised monthly by the authorized government regulator, at the same time hryvnia's exchange rate against euro, set by the NBU, is taken into consideration.

The condition of "local component".

For information: Ukrainian "green" tariff is one of the highest in Europe, it far exceeds the rate at which the energy from traditional resources is purchased. However, in order to sell energy at this tariff, the producers must meet the condition of a so-called "local component". According to this requirement, "green" tariff can be used only by those power generation companies, which provided an appropriate share of domestic equipment in their projects.

So for the power plants which started their work before July 01, 2013, the size of the local component must be not less than 15%. If the power generating company is commissioned after July 1, 2013, the share of local component should be not less than 30%, if the company is launched after July 1, 2014 this figure will have to be not less than 50%. If the electricity is generated from biogas, the local component at a power plant must be not less than 30% (if the company started working after January 1, 2014) and not less than 50% if the plant was launched after January 1, 2015. The households using solar power plants up to 10 kW are exempt from the requirements of local component.

The local component in the amount of 5-32% is also set for the production of equipment used for generating and utilizing alternative energy.

2. The obligation of the state to power plants to purchase the full amount of electricity from renewable sources at the established rates. The power plants may independently and directly sell energy to power supply companies. However, for the former the energy at "green" tariff is economically disadvantageous.

Thus, we can conclude that today in Ukraine a rather good system of alternative energy support by the state is declared, it is realized in the form of financial benefits and established legal safeguards. However, a very small number of companies that produce alternative energy or necessary equipment may use these benefits and guarantees, in particular "green" tariff. Most likely, this is due to the novelty of the support mechanism, as well as the imperfection of Ukrainian legal system as a whole.

Author: Ivan Prokhorov

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State support of alternative energy in Ukraine