Ukraine renewables feed-in tariff reduction could lead to investor action

The new law, which came into force in July, provides for a reduction of feed-in tariffs in line with a number of factors. The feed-in tariff will be reduced by a certain percentage every year retroactively from 2015. The size of the reduction depends on the source of energy, the plant's capacity and commissioning.

For onshore wind plants with a capacity of two megawatts or more, the new law introduces reductions between 2.5% and 7.5% of the feed-in tariff, depending on the commissioning date of the plant. The same applies for solar plants with a capacity of less than one megawatt. Big solar plants with a capacity over one megawatt must expect retroactive reductions between 2.5% and 15%, depending on the commissioning date. Operators commissioning big solar plants from 31 October 2020 onwards must even expect reductions of between 30% and 60%, depending on their capacity, said Alice Boldis, an energy projects expert at Pinsent Masons, the law firm behind Out-Law.

"Operators may face significant recovery claims as one can expect the Ukrainian government to demand repayment," Boldis said.

Energy projects expert Christian Lütkehaus, also of Pinsent Masons, said the impact of these reductions will be severe for foreign investors, who have a strong presence in the energy sector in Ukraine. "Operators of solar and onshore wind power plants have relied on a specific feed-in tariff when making their investment decisions," he said.

"In view of these reductions, foreign investors are assessing potential legal remedies against the Ukrainian government, in particular whether arbitration proceedings under the German-Ukrainian Bilateral Investment Treaty or under the Energy Charter Treaty might have a chance of success," said Boldis. Investors have initiated investment arbitration proceeding based on similar measures introduced by Spain, Italy and the Czech Republic in the past.

Nevertheless, Germany and Ukraine recently signed an energy partnership. The partnership commits the countries to cooperating more frequently in the energy sector.

According to the German Federal Ministry of Economic Affairs and Energy the energy partnership aims to increase energy efficiency in buildings and in the industry, to modernise the electricity sector, to expand and integrate renewable energies and to reduce CO₂ emissions.

Co-written by Franziska Graf of Pinsent Masons.