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  • description of changes in legislation that may affect PV business.
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Martial law has expired / Grid connection costs formula / Auctions = updated information on the situation in Ukraine and legislation – December 26, 2018.

Dear associates,

Between the New Year and Christmas vacation we believe, that all of the important new fro Ukrainian solar market should be delivered to You, so we decided to briefly cover main changes so You know what questions to ask before entering the project.

As always, answers are provided on the consulting agreement basis, but we believe that question themselves will be valuable enough to avoid unnecessary risks.
So, there are 3 main big news in the market:
1) Today, martial law has expired.
2) Grid connection costs formula was adopted by the National Energy Regulating Commission;
3) Law on renewables auctions was adopted by the Parliament.

1. Today, martial law has expired.
During the martial law in the country there were no changes, all processes took place as before – the conclusion: martial law was a short-sighted adventure to cancel the presidential election. Fortunately, all is well.
In addition, interesting news from the EBRD during martial law in Ukraine – EBRD and the Black Sea Trade and Development Bank (BSTDB) will provide a € 18 million debt each for the Rengy Solar B.V project company to build a project in the Nikolaev region of three solar power plants.
The total installed capacity of the PV plants will be 47 MW.
Rengy Solar B.V belongs to Scatec Solar and Rengy Development (Kiev).

2. As for the grid connection, we would like to point following:
2.1. The costs of the grid connection will be calculated for 10-35 kV connection voltage as 3400 gryvna/ kW x AC capacity x voltage coefficients + costs of linear part (power lines). Different method and coefficients are applied for 100+ kV connections.
Our calculations shows, that the grid connection costs for the projects will raise from 1,5 (for hight voltage project) to 5 (10 kV projects) times.
2.2. for this reason, Investors should be aware of the costs of the grid connection agreements, signed in the next year and of the grid connection agreements signed before, that had a paragraph of applicability of such formula if it is adopted (we saw quite a few grid policies with such clause).
As conclusion we now have a conflict between speed of execution (on the lower voltage) and costs efficiency (on the higher voltage) of the projects, that should be properly balanced. From our perspective 35 kV connection will be optimal, if signed according to formula, for 2019th. For those of You, who are going to participate in auctions or build projects in 2020 under FiT (by dividing them in smaller ones) 110 kV may be preferable from the costs efficient perspective.

3. As for the renewables reform.
3.1. Parlament proposes auctions on the tariff from the year of 2020 on solar projects bigger than 10MWac (on one legal entity in one site).
3.2. The FiT will be reduced for the projects below 10MWac to 0,1125 Euro / kWh.
3.3. PPA duration under auctions will be 20 years, under FiT – to the end of 2029.
3.4. Auction will require investor both providing a project (land lease and grid connection) and 2 types of bank guarantees, more details further:
= To participate in auction the investor/developer should provide a Guaranteed Buyer with an irrevocable bank guarantee for each MWac of PV project. The size is EUR 5,000 per 1MWac.
= Before the conclusion of PPA with the Guaranteed Buyer, the winner of the auction provides an additional irrevocable bank guarantee issued in favor of the Guaranteed Buyer, as a guarantee of the fulfillment of obligations* under PPA. The size of the additional irrevocable bank guarantee for each MWac of capacity is EUR 10,000.
Fulfillment of obligations* – investor / developer is obliged to build a PV project in 2 years. If the PV plant is not commissioned in the specified 2 years – both bank guarantees are transferred in favor of the guaranteed buyer.

Other comments:
= At the initiative of the investor / developer the term of construction and commissioning of PV plant into operation may be prolonged for one year after the amendment of PPA between the guaranteed buyer and the project SPV, and the provision of an additional irrevocable bank guarantee by investor / developer in the amount of EUR 30,000 per MWac.
= Irrevocable bank guarantee provided for participation in the auction is returned to the investor / developer who has not won the auction.
= After the completion of PV project construction – the investor / developer provides the Guaranteed Buyer with a certificate of PV plant availability for operation – after that, the previously provided bank guarantees are returned to the investor / developer.

Merry Christmas and Happy New Year!