Stakeholders’ Comments

Development of Solar Energy in the World

Key Stereotypes and their Refutation

Modes of Facilitation for PV Development

Ukrainian Market: Key Barriers to Development

Steps towards Removing the Barriers2 6

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Today its clearer than ever that the use of traditional energy sources is becoming increasingly connected with various risks of dramatic environmental character. Last year the world suffered from unprecedented oil spill in the Gulf of Mexico, now Japan fights against outcomes of the recent technological disaster on the nuclear power plant Fukushima and the world hold its breath. On the other hand, renewable energies demonstrate needed safety, sustainability and economic output. We believe they will shape the whole energy landscape of the world in the nearest future.

Sharp is one of the leading photovoltaic manufacturers in the world. We observe carefully new developments and announcement in all countries and it was a pleasure to learn about the new Energy Strategy for Ukraine to 2030 and the adoption of a law on subsidized tariffs for electricity produced from non-conventional sources.

However, we see some serious challenges for the development of PV market in Ukraine.

Starting from January 1st, 2012, the share of materials and components of Ukrainian origin in solar modules that are used in a PV project is not less than thirty per cent. We understand that the intention of course is a good one, but from our point of view not fair against worldwide trade. That’s why we would like to ask the Ukrainian government to revise the local content rule as we believe it slows down market development in this promising future PV market.

Solar energy of one of the most perspective markets of renewable energy. It is technically possible that the share of solar energy will reach 10% of Ukraine’s energy balance till 2030. And though equipment for generation of solar energy is still quite expensive, the world experiences a trend of decreasing production costs of such equipment. In the last 7 years, production costs of solar heaters have decreased threefold.

This equipment is becoming increasingly affordable, but the payback period of solar power plants is still quite long. To support the development of solar energy at current stage, the Government of Ukraine creates attractive conditions, among them - the feed-in tariff. When the “green” tariff will finish its force, we will have ready-to-use energy sources. This will be one of the cheapest sources of energy for future generations.

I sincerely welcome the participants of this round table for development of solar energy market!

While this segment of alternative energy is at the initial stage of development in the today’s Ukraine, this country sees favorable situation for expansion of solar energy sector.

This, in particular, is evidenced by “green” tariff for electricity produced by solar panels and tax preferences, which provide incentives for private sector to implement this energy type.

The geography of Ukraine shows great potential for development of solar energy market and this potential shall be realized.

Beyond doubt, expansion of solar energy in Ukraine will favorably affect the general trend towards reduction in greenhouse gas emissions, which have already started showing positive developments.

The world chooses solar energy as an alternative to use of fossil fuel for a reason and I am positive that, Ukraine will not remain aside of those progressive processes.

Barbara Rudek, Manager of Strategy & Governmental Policy Affairs, Sharp Energy Solution Europe

Mykola Pashkevych, Head of the State Agency on Energy Efficiency and Energy Saving

Sergiy Orlenko, Head of the State Environmental Investment Agency of Ukraine

«Sharp believes in the PV potential of Ukraine since it has very good environmental conditions and the “green” tariffs for PV are excellent.»

We would also appreciate to see a clear rule of how and until when a grid operator has to connect a PV system and who has to pay for it. Furthermore, the lack of practical experience in preparing technical documentation for grid-connection of PV systems is an obstacle. “Red tape” is a topic as well as there are several permissions needed to start system operation.

From our point of view, it is not sure if the awareness and interest of the population for renewable energies (especially for photovoltaic) is well developed and if the tariffs themselves are and will be promoted at all. Therefore, Sharp recommends promotion campaigns for renewable energies and the green tariffs itself in Ukraine.

Sharp believes in the PV potential of Ukraine since it has very good environmental conditions and the “green” tariffs for PV are excellent.

Stakeholders’ Comments

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With the adoption by the Verkhovna Rada of Ukraine of the Law “On Introduction of the Amendments to the Law of Ukraine “On Electric Energy” In Respect of the Incentives for Use of Alternative Sources of Energy” on 1 April 2009, solar energy development in Ukraine should have already gained its momentum by this moment; however, in practice, provisions of the mentioned law are not sufficient to make investors interested to invest money in extremely capital-intensive projects in solar energy.

Legislative stability is the first and most important challenge our market is facing. Indeed, the Law “On Electric Energy” contains a declaration that Ukraine shall guarantee that the incentives regime for production of electricity from alternative sources of energy is stable. However, with Ukrainian political realities in mind, investors are concerned that such guarantee may be cancelled by Ukrainian Parliament as easy as it usually does. In addition, investors believe that neither the Government, nor the market regulator (NERC) clearly understand how the “green” tariffs system would function in the environment of the bilateral agreements and balancing market, to which Ukraine has committed to transition by the end of 2014. Under such conditions, the question of: “How do we ensure that our investments pay back?” becomes extremely pressing to all investors.

So far, notwithstanding some illusion of production of solar panels in the territory of Ukraine, their import is still less expensive and, hence, a more profitable alternative. At the same time investors face yet another problem here: customs clearance of the equipment for solar power plants, which is being imported to Ukraine. The new Tax Code of Ukraine specifies that equipment for production of energy from renewable sources shall be exempt from import duty and VAT; however, for this to happen an importer should undergo the procedure of import approval with the Ministry of Economic Development and Trade, which upon proposals of the central executive authorities (!) shall

draft the resolution to be made by the Cabinet of Ministers of Ukraine on introduction of the relevant amendments into the List of Equipment, which shall be exempt from the import duty and VAT and on inclusion of an individual batch of such equipment (!) into such List and shall duly send the same for consideration to the Cabinet of Ministers of Ukraine, which shall then make its special resolution to that effect.

In addition to the above, I would like to underline the importance of the issue of share of raw and other materials of Ukrainian origin in the production cost of solar modules (i.e., local content requirement, “LCR”). The Law specified that as of 2012, LCR shall amount to at least 30%. That notwithstanding, firstly, no clear procedure has been adopted so far as to how exactly such LCR shall be calculated. Secondly, the worldwide practice shows that before introduction of the LCR, the domestic environment shall meet two pre-conditions: availability of large and stable domestic market and functioning of clear and consistent legislation governing this sector, so that the investors understand the rules of the game and know what to expect of the Government and its policy. Unfortunately, we have to note that Ukraine does not meet either of those pre-conditions. Thirdly, the requirement applicable to LCR for solar energy implies only photovoltaic technology, leaving aside concentrated solar power plants. If we are to add to all of these circumstances the fact that a clear procedure for connection and reimbursement of investors’ costs of the solar power plant interconnection to the grid has not been adopted yet and the existing problems with allocation of land plots - the prospects would not look to good.

On the bright side, however, extremely high investment appeal of “green” tariffs for solar energy in Ukraine urges us and our clients anyway to seek solutions to those issues or, at least, to minimize their negative effect and unpredictability on the economics of the solar power projects so we are slightly, but successfully, progressing further.

Vitaliy Radchenko, Coordinator of Energy and Projects practice, CMS Cameron McKenna

«The new Tax Code of Ukraine specifies that equipment for production of energy from renewable sources shall be exempt from import duty and VAT.»

Availability of well prepared projects is a priority condition precedent to market development. EBRD has been operating in Ukraine for long time and examined many projects. According to my observations, today not so many solar projects are submitted in general and even if they are, those projects are unprepared. The barrier is lack of Western approach towards preparation of projects, understanding of all parameters: cash flow, NPV, payback period and general project management as such. Many applications are based on unjustified, non-commercial technologies. An additional problem is availability of own capital in investors. EBRD is ready to provide loans if an investor is able to invest own funds in a project at the level of at least 30%. This, unfortunately, is also not the case frequently. Many come up with ideas and no money.

Many matters in the area of renewable energy are not regulated legislatively. Many normative acts in support of those projects implementation are only at a stage of drafting, in particular those on origin of energy certification, keeping of energy, connection to the grid etc. At the moment, EBRD provides technical assistance to the NERC in the said areas; however, a lot should be done yet so that renewable energy market became sufficiently regulated and gained even more momentum for further development.

As for financial infrastructure, Ukrainian banks are not ready to support projects based on project finance schemes as they used to work with the corporate sector, making available simple loans mostly secured by pledges. A project financing oriented towards future cash flow is non-existent in Ukraine altogether. Some banks are only seeking to operate in this area; however, development remains a thing of the future. This is why EBRD acted as the originator so that to exemplify how financing for such projects may be provided and to prove that their risk exposure is not as high.

We should understand that this is a new area, a new sector as only two years have passed since the adoption of “green” tariff legislation. Therefore, time is needed for banks and project managers to reach understanding of this market.

Sergiy Maslichenko, Principal Business Development Manager, Energy Efficiency and Climate Change Team, EBRD

«The Government of Ukraine creates attractive conditions, among them - the feed-in tariff. »

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Consumption of polycrystalline silicon for solar energy needs doubled in a matter of 2 years from 23,000 ton in 2006 to 46,000 ton in 2008. The unprecedented demand for polysilicon even resulted in scarce supply of trichlorosilane (raw material), which in 2007 amounted to 150,000 ton given the total global consumption of 460,000 ton. The situation somewhat improved with the commissioning of new production capacities in 2009.

Since 2003, the total production of photoelectric modules has grown approximately 10 times, yearly growth rates fluctuated from 40% to 80% and averaged at 90% a year for thin film technology (Source: European Commission). The share of thin film modules grew from 6% (2005) to 12-14% (2008) and 15% (2010).

Investment in solar energy are second only to wind energy and in 2008 amounted to USD 33.5 bln. or 21.6% of total capital investment in renewable energy. The corporate acquisitions reached USD 11 bln. participation of venture and private capital was USD 5.5 bln., and government investment accounted for 6.4 bln. USD (Source: UN Environment Program).

Most solar modules manufacturing companies are based in Asia: China, Taiwan, and Japan. In 2010, 8 out of 12 market leaders were Chinese or Taiwanese producers. JASolar (China) was a leader in photocell supplies in Quarter III, 2010. MotechIndustries, a large Taiwanese producer, showed the highest growth rates. According to the European Commission, China’s share in the world market will grow from 11.9% in 2005 to nearly 32% in 2012. However, notwithstanding this positive development, the country will continue exporting most their products (98% in 2007).

In 2010, the total solar modules’ shipments grew by 80% and amounted to more than 13 GW. The demand was mainly provided by Germany (8000 MW), Italy (1500 MW), Japan (1000 MW), USA (800 MW), and Canada (250 MW). (Source: Activ Solar)

European market accounts for the highest share of global solar energy market or nearly 70% of total installed capacity. As estimated by European Photovoltaic Industry Association (EPIA), over 3 million households in the today’s Europe use electricity fully or partially produced by solar modules. In 2010, the total installed solar capacity in Europe grew to 16 GW while the world’s total capacity increased approximately to 40 GW. Just as investments in the industry, which amounted to over EUR 50 bln., the mentioned indicators exceeded the most optimistic forecasts. Installed PV capacity for the first time left behind wind plants and approached 22% of the total generation capacities installed in 2010 in the EU.

In futurE, solAr EnErgy wIll provIdE gEnErAtIon of up to 25% of globAl ElEctrIcIty consuMptIon

In 2008-2013, the average annual growth rates of European photovoltaic industry will reach 32% or, under a less optimistic scenario, 17% (according to the EPIA forecast).

In 2018, the core alternative energy technology market will expand approximately 3 times as compared to 2008 (64% growth). The growth will reach by 63% in solar energy market with 63% and 67% for wind energy and biofuel market, accordingly (according to AS Marketing).

In a matter of 40 years, solar energy will generate approximately 9,000 TWh or 20-25% of the global electricity consumption (according to the International Energy Agency).

1. 1,100 MW First Solar2. 704 MW Suntech3. 595 MW Sharp4. 586 MW Q-Cells5. 525.3 MW Yingli6. 520 MW Ja Solar7. 400 MW Kyocera8. 399 MW Trina Solar9. 397 MW Sunpower10. 368 MW Gintech

Source: Photon International

Development of Solar Energy in the World

Top 10 Solar Cell Producers in the World (2009)

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Ukraine has not enough Sunny Days

A low number of solar days never mean that solar panels use is impossible. The core solar energy market in the European Union is Germany, hardly a very sunny country. Czech Republic, where the number of solar days is comparable with Ukraine, was ranked third.

Solar heat energy in Ukraine may fully provide a house’s hot water demand in summer. In autumn and spring, solar energy may provide up to 30% of the heat energy consumption and up to 60% of the hot water supply consumption.

Solar Panels Payback Period is Too Long

The detailed estimates would prove that sometimes use of solar cells in Ukraine is less expensive compared to traditional method of electricity generation. While the cost of off-grid solar facilities is rather high, they do not require payment for connection, cable and board installation. This takes no account of the cost of electricity, which shall be paid every month and whose price has grown by one third in Ukraine since the year beginning.

In addition, cost of solar panels drops year to year whereas the energy output, operation life and quality grow. In the last year alone, the average solar panel cost in Germany, Spain and Italy reduced three times. According to EPIA, the payback period for all types of photoelectric panels ranges from 1 to 3 years while their average operation life is 25 years or longer.

Owing to considerable reduction of the production costs and use of solar panels for household needs, it’s expected that PV installations in Europe will be booming in as little as 5-7 years. Experts forecast highest rates of solar energy use in southern Europe for 2020-2025 and, for northern Europe, for the 2030s (Source: EU Energy Institute).

Key Stereotypes and Their refutation

1. 5,605 MW EU2. 484 MW Japan3. 477 MW USa4. 168 MW South Korea5. 160 MW China6. 143 MW rest of the World7. 70 MW Canadaа8. 66 MW australia9. 30 MW India

1. 3,806 MW Germany2. 711 MW Italy3. 411 MW Czech republic 4. 292 MW Belgium5. 185 MW France6. 69 MW Spain7. 63 MW rest of EU8. 36 MW Greece9. 32 MW portugal

Worldwide and European Photovoltaic Markets (2009), MW

Average Household Energy Consumption and Solar Panel Area Required to Meet the Demand (2010)

Source: The EPIA Global Market Outlook for Photovoltaics (PV) from 2010 to 2014

Toxic Agents are Used in Solar Panel Production

The level of pollution in production of photoelectric cells never exceeds the level allowable for microelectronic industry companies. While use of such agents, in particular cadmium, raises a question of due utilization, such cells are not widespread and a suitable replacement has already been found for cadmium compounds.

Last year IBM announced that they managed to produce a solar cell using only the materials available on Earth in large quantities. A composite of copper, tin, zinc, sulfur and selenium provides efficient energy transformation at the level of 9.6% that is 40% higher than the previous result for such materials. In addition, the invention enables producing electricity at low cost that will allow using it broadly.

City, Country Annual consumption (kWh) Area for Solar Modules (m2)Copenhagen, Denmark 4 400 33Kuala Lumpur, Malaysia 3 700 15London, UK (2008) 3 300 24Munich, Germany (2008) 4 000 25New York, USA 11 000 45Rome, Italy 2 700 14Seoul, South Korea 3 600 16Sidney, Australia 8 000 30Tokyo, Japan 3 500 20

Source: EPIA, IEA PVPS

World (7,2 GW)

Europe (5,6 GW)

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Advanced countries support development of renewable sources of energy. In 2009, global government support of green energy and biofuel programs totaled USD 57 bln.; in particular, USD 37 bln. were spent to research and development. By 2035, the total amount of funds will grow to 205 bln. USD, or 0.17% of global GDP. Renewable energy and biofuels will account for 63% and 37% of those funds, accordingly (Source: International Energy Agency).

“green” tariff is initiated by European countries. In early 1990s, they proposed a preferential tariff for electricity produced by wind generators. Feed-in tariffs were in force in 14 countries in 2000 and in 37 countries in 2005, not only in Western countries, but also China, India, Brazil, South Korea. At the moment, this mechanism is in use by over 50 nations.

renewable Energy support policy provides for clear targets and time frames. G8 countries decided to reduce global emission of greenhouse gases twice by 2050 and the EU countries plan to lead the share of renewable sources of energy in their energy balance to 20% by 2020. In 2010, as many as 85 nations set their official targets, which specify the share of renewable sources of energy in the total balance at the average level of 5-25% until 2020.

GermAny. Effective from 1999, a feed-in tariff of EUR 0.34-0.47 per kW is in force, which is fixed for 20 years, depends on a system’s type and capacity. No yearly limit of installed capacity is specified. Due to the efficient “green” tariff system, over 80% of European PV facilities are installed in Germany, where the insolation level is much lower than in Mediterranean countries.

SPAin. A preferential purchase tariff of EUR 0.41-0.44 per kW is in force, which is fixed for 25 years; however, the rate has been re-ducing gradually since 2009. The yearly installed capacity is limited to 400 MW. Spain’s Renewable Energy Plan for 2005-2010 pro-vides for 12.1% coverage of total demand and 30.3% of electricity consumption for the account of renewable sources.

iTALy. The “green” tariff rates are EUR 0.36-0.49 per kW, which are fixed for 20 years and vary with the system type and capacity. The rates have been reducing by 2% a year since 2009 and the annual installed capacity is limited to 1200 MW.

SwiTzerLAnD. “Green” tariff is in effect at the level of EUR 0.30-0.56 per kW, which is fixed for 25 years and also depends on type and capacity of installed systems.

FrAnce. By 2020, France plans increasing photovoltaic capacity 400 times, to reach 5.4 GW of in-stalled capacity. To meet this goal,

the feed-in tariff is set to EUR 0.30 per kW (EUR 0.40 per kW in over-seas departments and Corsica), which is fixed for 20 years. How-ever, higher rate (EUR 0.45 per kW) applies to commercial real estate; no limit is set to capacity of roof-top mounted facilities. In addition, 50% of the cost of solar modules installation in residential buildings (not more than EUR 8,000 for sin-gles and EUR 16,000 for families) shall be exempt from taxes; lower 5.5% VAT shall be payable on ma-terials and service costs.

chinA. The feed-in tariff in force is set according to the follow-ing formula: cost + reasonable markup. Therefore, the Chinese Government seeks to support domestic consumer market, espe-cially in remote provinces. At the beginning of 2009, the Ministry of Finance and the Ministry of Housing and Urban-Rural Devel-opment of China announced a solar energy support program. At the time of the program launch, tariff markup for photovoltaic plants was EUR 2.1 per kW. The document specifies no limits to in-stalled capacity either for individ-ual projects or the entire market. In addition, the National Energy Administration set a EUR 0.115 per kW markup for electricity pro-duced by using solar energy.

USA. Tax preferences are set at the federal level (up to 30%) for installation of solar systems and at the level of states for produc-ers of the relevant equipment. In most states, grid operators shall

purchase a part of electricity from renewable sources. The leader of development is California, whose Solar Initiative program provides for financial incentives of PV systems installation, so that to reach 1.75 GW installed capacity by 2017. The government invest-ment is equally impressive at the federal level. In 2009, President Barack Obama signed American Reinvestment and Recovery Act, under which more than 467 mln. USD was spent to provide incen-tives to development, installation and use of geothermal and solar energy. The Department of Energy will spend USD 117.6 mln. to raise commercial appeal of PV technol-ogy; USD 51.5 mln. will be spent directly for development of PV technology and USD 40.5 mln. for projects on removing non-technical barriers for expansion of solar energy industry. On the last President’s Obama initiative, up to USD 2 bln. will be spent for construction of several large solar energy plants.

SoUTh KoreA. The “green” tariff of EUR 0.46-0.48 per kW is guaranteed for 15-20 years; the rate depends on the installed system capacity. Since 2009, the tariff has reduced by 4%. In ad-dition, Korea provides grants to finance project, up to 60% of the cost. The objective is to bring the share of renewable sources in the energy balance to 4.3% (2015), 6.1% (2020), and 11% (2030). Photovoltaics is to reach 1.3 GW installed capacity in 2012 and 4 GW in 2020.

By 2012, the Korean government plans equipping 100,000 residen-tial houses and 70,000 public/pri-vate buildings with photovoltaic systems. Large projects may be qualified to receive Clean Devel-opment Mechanism units, which may be traded within the frame-work of the Kyoto Protocol.

JAPAn. Japanese Recovery Plan includes a specific project to reach the status of world’s leading nation in the area of photovoltaics and energy sav-ing technologies. The plan provides for steep acceleration of generation capacity of solar energy by 2020. Japan set a tar-

get of 100 GW installed capacity for 2030.

iSrAeL. The country has a feed-in tariff of EUR 0.40 per kW, which is fixed for 20 years. Effective from 2011, the rate will be reduced by 4% a year. In addition, Israel cancelled the tax

on income earned by owners of solar cells from sales of surplus energy. Kibbutzim (collective agricultural farms) enjoy pref-erences for land use provided that photoelectric modules are installed on a land parcel.

Source: EPIA

Photovoltaics Support Regimes in the EU Countries (2010)

1,167

56

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272

3,386

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34

24

64

465

18

53

8

9,785

363

5

8

5

1

1

Feed-in tariff Green Certificate Trading Other (tax preferences, subsidies etc.) Installed PV capacity, MW

Modes of Facilitation for pV Development

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Ukrainian Market: Key Barriers to Development

Feed-in Tariff Legislation. The relevant article 17-1 of the Law “On electric energy” was adopted in spring of 2009. NERC Resolution of 23 July 2009 No. 857 set fixed minimal “green” tariff rates for solar power plants: UAH 5.0509 for ground level facilities; UAH 4.63 for up to 100 kW rooftop facilities and UAH 4.8404 for facilities with capacity more than 100 kW.

However: companies face considerable difficulties with obtaining of “green” tariff due to cumbersome permit requirements (licenses, statements, certificates, extracts and the like) and underdeveloped or plainly non-existent secondary legislation.

exempts for Solar energy Producers. Under the Tax Code adopted in December 2010, profits from sales of electricity produced from renewable sources shall be exempt from the profit tax up to and including 2020. In addition, the Tax Code grants VAT exempt for imports of equipment and materials for production of energy from such sources provided that the relevant products with similar performance data are not manufactured in Ukraine. In July, the parliament adopted the Law “On Land for Energy Facilities and Legal Regime of Special Zones of Energy Objects”, under which the land rental for renewable energy facilities is reduced by 70%.

Under Art. 158 of the Tax Code, 50% of profits earned from energy efficient operations and implementation of energy efficient projects of companies included in the registry of the State Agency on Energy Efficiency and Energy Saving (NAER) shall be exempt from the profit tax.

however: this procedure has been ineffective so far as the NAER’s list contains only 2 companies: Semiconductor Plant OJSC (Zaporizhzhya) and Kvazar PJSC (Kyiv). The producers shall invest the funds saved on the exempt for target programs that is rather difficult to monitor.

Connection to Electric Grids. Under the Law “On Electric Energy” (in particular, p. 3 Art. 18 and p. 7 Art. 24) and the Cabinet of Ministers Decree of 19 February 2009 No. 126, energy suppliers shall connect to grids the companies producing electricity from alternative sources of energy.

however: this is complicated due to unavailability of consistent procedure for connection and reimbursement of the investor’s costs of construction (reconstruction) of those grid segments, which shall be transferred to local operators (oblenergo) or NPC “Ukrenergo”.

investment programs. Along with the government support, more and more international financial institutions provide funds to Ukraine. IFC announced its intent to invest nearly USD 500 mln. in 2010 to support projects (including those applicable to energy sector). European Bank for Reconstruction and Development (EBRD) launched Ukraine Sustainable Energy Lending Facility (USELF), which provides for EUR 50 mln. in loan finance for Ukrainian companies, which invest in renewable sources of energy. The World Bank and NAER agreed on opening of long term USD 350 mln. loan facility.

however: Low liquidity of grid operators complicates access to financial resources, which form a source of funds for investment programs. Therefore, according to “ECU” NJSC, “Krymenergo” OJSC plans spending over UAH 115 mln. in 2010-2011 on operations for connection of three solar power plant sites. The sources of finance for the investment program include corporate profits and UAH 60 mln. bank loan. They had to include the loan servicing costs in the electricity tariff thus making any and all costs expenses payable by customers. This being said, according to the Autonomous Republic of Crimea Committee for Fuel, Energy and Innovation Policy, the grid load up to 2015 will grow by 250 MW.

more ‘howevers’:

Absence of development and modernization of grids. According to NAER, 250 UAH mln. will be spent in 2011 for reconstruction of electricity grid to receive energy from small sources. At the same time, according to the Ministry of Energy and Coal Industry, every year Ukrainian power grid loses up to USD 460 mln. due to imperfection of technology and wear of fixed assets, and over USD 800 mln. due to wear of circuits and transformers.

Local content requirement. Under the Law “on electric energy” (Art. 17-1), the share of raw and other materials, fixed assets, work and services of Ukrainian origin in the cost of construction of power plants on renewable sources shall amount to 30% effective from 1 January 2012 and 50% effective from 1 January 2014. Moreover, solar energy is subject to a supplementary requirement: starting from 1 January 2012, the green tariff may be accorded only to those facilities, which use modules, in the production cost of which the share of raw and other materials of Ukrainian origin is at least 30%. Today, no procedure is set for estimation of Ukrainian content. The decision, which is being drafted in NERC, will be based on the data of the State Customs Office and the project documentation.

This way, Ukraine in fact closes the solar energy market for foreign producers of not only silicon raw materials but also the equipment. If this sector needs investment, advanced global expertise, technologies and purchase of the required production equipment, such protectionism is unjustified and contradicts the obligations of Ukraine in the area of international trade. By way of example, Japan has already sought consultations from the WTO Dispute Settlement Body in respect of the Ontario Green Energy Act adopted in Canada, asserting that the requirements applicable to local solar cells “contradict WTO regulations and form an act of protectionism”. The USA and the EU made a request to join the consultations.

Low Public Awareness of the Prospects of renewable Sources of energy and, in particular, PV Technology. The interest of the customers is vital to the domestic market development. The evidence for lack of demand for photovoltaics in Ukraine is that over 90% of solar modules produced in Ukraine are exported to European countries, where such demand exists. Moreover, potential exists not only in large photoelectric project segment. According to FuelAlternative, 1120 small-sized off-grid solar facilities with a total capacity of 1.1-1.2 MW operate in Ukraine. In the recent 2 years only, nearly 200 off-grid facilities based on solar modules have been installed.

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Steps towards removing the Barriers

Feed-In Tariffs for PV in Ukraine (March 2011)Energy generating companies Feed-in tariffs net of VAT, kop./kWh

Manufacturers of energy produced from solar radiationGround facilities

Crimea Solar 1 Ltd. 506,81Crimea Solar 2 Ltd. 506,81Crimea Solar 3 Ltd. 506,81Crimea Solar 4 Ltd. 506,81Crimea Solar 5 Ltd. 506,81

Rooftop mounted facilities up to 100 kW and façade mounted facilities of any capacityVinnytsia-Energoservis Ltd. 464,58

Source: NERC Resolution of 24 February 2011 No. 269

Awareness campaigns on renewable Sources of energy and “Green” Tariff mechanism in Ukraine. Targeted and coordinated information policy with incentives for solar energy shall be combined with the government microlending program for households, which would like to install photoelectric modules on the roof or grant of subsidies to those, who had already did so.

We should mention that in due time Germany, which is now among the leaders in installed capacity of photoelectric systems, started market development with a pilot government program for installation of solar modules on a total of 1,000 buildings. Ukraine has already crossed this line and is prepared for mass deployment of photovoltaics in residential sector, which is only possible with the government support.

Removal of at least some of the mentioned barriers, movement towards more liberalization and openness, rejection of excessive protectionism in favor of flexible regulation, strengthening of competition and incentives for domestic demand form the key priorities for young yet extremely dynamic solar energy market in Ukraine.

cancellation of Local content requirement. This would be the most market-oriented solution and would provide incentives for competition. However, such solutions as further prolongation of the requirements’ taking effect or reducing the local content to 5-10% are also possible. After all, the problem can be solved by adopting the detailed procedure of local content estimation drafted by NERC as early as in September 2010.

introduction of non-Discriminatory Preferential Treatment. This applies to not only tax and customs exempts but also government subsidies, lending. Equal participation of all companies in the market (Ukrainian and foreign alike) in tenders, competitions and distribution of investment funds out of the state budget shall be ensured. This would be made possible by civil scrutiny of drafting and compliance with legislative acts, incentives for market participants to follow best practices, streamlining of requirements applicable to submission of the relevant applications, easing of fiscal pressure, expansion and high quality keeping of state registries (in particular, NAER Registry), transparency and accountability of government authorities’ proceedings.

Amendments and Supplements to the Feed-in Tariff Legislation in Force. Reliable and long term rules of the game will enable investors to have their invested payback and will ensure that customers receive high quality products.

Availability of “Green” Tariff for electricity Produced from Alternative Sources of energy for All market Participants. This will require that the regulator be more flexible and simplify the permit procedures by reduction of the list of documents to be submitted and requirements applicable to documentation.

Drafting and Adoption of consistent Procedure for connection of PV Facilities to Grids, which shall be based on the principle of priority and financial aspect of the matter. A specific term (20-25 years) shall be set for reimbursement of the grid operators’ costs of connection. In approval of investment programs of oblenergos, NERC shall take into account the costs of solar energy facilities’ connection to grids.

© DiXi Group, 2011, Design and Layout: Taras Mosienko, Print: Syla LTD