Energy Energy Energy

Ukrainian government and parliament have introduced a number of measures to prevent proliferation of COVID-19 disease as well as to counter its impact for people and businesses. Find out more at KPMG COVID-19 portal. We will be monitoring the changes that affect energy sector and updating our materials. 

Changes in the license auction procedure.

In early February changes were made in the provisional procedure for sale of subsoil use licenses.

The changes now allow foreign companies to participate in the auctions directly, i.e., without registration of subsidiary or representative office in Ukraine.

Approval procedure for licenses and draft PSAs has changed

Regional councils no longer give consent to issuance of licenses for exploration and production of oil and gas and approve drafts PSAs. Draft PSAs are no longer subject to environment impact assessment. The assessment needs to be done only before commencement of work.

New license auctions and PSA tenders were announced

Head of State Geology and Subsoil Service announced new oil & gas auctions and tenders, including:

•  Over 30 E&P license auctions; 
•  5 PSA tenders.

Blocks that are up for PSA tenders include 2 offshore blocks – Northern and Southern Dolphin – with total area of 15 thousand sq. km. Dates of the auctions and tenders are expected to be announced in March.

Fighting against “sleeping licenses”

In early March, two draft laws, nos. 3187 and 3188, were submitted to the parliament aiming to combat “sleeping licenses”. The draft laws suggest imposing additional payments upon holders of such licenses.

New services by gas TSO

Gas TSO of Ukraine presented short-haul product, which allows for discounted transportation between dedicated interconnection points with adjacent countries. TSO has already transported natural gas from Hungary to Slovakia through Ukraine for the first time.

Developing of a new subsoil code

New subsoil code is still being developed. Recently, Head of State Geology and Subsoil Service announced that new subsoil code is expected to allow transfer of E&P licenses subject to prior approval by state authorities.

Feed-in tariff restructuring

Changes in feed-in tariff scheme are pressing issue in Ukraine. Mediation in the Energy Community between RES market players and the Ministry of Energy and Environmental Protection so far has not led to any noticeable results. The latest draft law (2543-1) concerning restructuring of feed-in tariff has been sent back with comments. The ministry has developed another draft law on restructuring of feed-in tariff.Based on available information, new draft being developed by the ministry will contain stricter provisions than those in the draft law 2543-1, in particular:

• reduction of feed-in tariff rates by 15-25% for solar (depending on project capacity) and 10% for wind in exchange for 5-year extension of its effect in case of voluntary restructuring;
• restructured projects will bear full liability for imbalances starting from 2022; they may be subject to non-reimbursable curtailment (up to 200 hours per year) if there is threat to safe operation of the integrated power system;
• non-restructured projects will bear full liability for imbalances starting in 2020; margin of tolerance will not apply to these projects; they may be subject to non-reimbursable if there is threat to safe operation of the integrated power system;
• to remain eligible for feed-in tariff, so-called pre-PPA projects have to be commissioned by July 2020 for solar or the end of 2020 for wind.

Official text of the draft developed by the ministry is yet to be published.

Energy storage

Another pressing issue in the RES sector is lack of energy storages, which results in balancing problem and hinders integration of RES into Ukrainian power system. To tackle this issue, two draft laws, nos. 2582 and 2496, were developed and submitted to the parliament. Both draft laws aim to regulate legal status of energy storages and facilitate development of respective infrastructure. Draft law 2582 is currently being considered by the parliamentary committee, while draft law 2496 was sent back with comments. Furthermore, it is also expected the International Finance Corporation may present a draft law on mechanism for stimulating investments in electricity storage systems in near future.

Imbalances settlement rules changed

On 1 March 2020 imbalances settlement rules were changed. Payment for imbalances is now calculated using increased or decreased coefficient:

• Negative imbalance DAM price or imbalance price (whichever is higher) increased by the coefficient
• Positive imbalance DAM price or imbalance price (whichever is lower) decreased by the coefficient

The recent Coronavirus disease (COVID-19) outbreak has created new challenges for the business environment that require a thoughtful, practical and informed approach from leaders. We have prepared a web-site page with materials how to embed resilience and help your business to face this challenging times. KPMG in Ukraine is ready to help you find the answers to your business questions related to coronavirus.

Please write your questions with the subject “Business request as of coronavirus” to us by mail — info@kpmg.ua.