European‐Ukrainian Energy Agency

Market Overview

Ukraine’s Solar Energy: Current Status

prepared with support of Rentechno Company

Kyiv, November 2011 www.euea‐energyagency.org Table of contents

BACKGROUND ...... 4

CURRENT STATUS ...... 4

LEGISLATION ...... 4

Green tariff (GT): ...... 4

Local component: ...... 5

Taxation: ...... 6

Electricity grids: ...... 6

Poor project development: ...... 6

Infrastructure...... 7

INSTITUTIONAL FRAMEWORK ...... 7

National Electricity Regulatory Commission of Ukraine (NERC) ...... 7

State Agency on energy efficiency and energy saving of Ukraine (NAER) ...... 8

Energy Community Treaty ...... 8

KEY MARKET PLAYERS ...... 9

PJSC “Semiconductor Plant” ...... 9

JSC Pillar ...... 9

Silicon LLC ...... 10

PJSC “KVAZAR” ...... 10

Activ Solar ...... 10

RENTECHNO ...... 11

MANAGESS AG ...... 12

SUNELECTRA ...... 13

Schneider Electric ...... 13

Solarig ...... 14

FUNDING FOR PV PLANTS ...... 14

1 EXPERT OPINIONS ...... 15

Appendix I ...... 19

Appendix II ...... 20

2

Dear colleagues,

Given the rapid development of Ukraine’s renewable energy market in the past two years and high activity in the solar power market segment, we decided to share with all of you the brief overview of the Solar Energy Market in Ukraine. During the past months we have witnessed number of small and medium size players establishing activities in Ukraine and exploring the project development opportunities. Whereas there are numerous challenges to overcome, European‐Ukrainian Energy Agency does see a huge potential in solar PV development in projects between 1‐10 MW and will actively contribute to market growth, promote fair rules of the game for all stakeholders, transparency in energy sector and more secure investment climate.

This overview highlights some of the most active players on the market at this stage, and even we have not been able to identify all of you yet, we will be happy to include the information about your plans and projects in our further updates of this market overview. Please, contact us any time!

Special thanks to Rentechno Company for support in the report preparations and we look forward to hearing more news from all you!

We hope you find this information useful!

Sincerely,

Dave Young Chairman, European‐Ukrainian Energy Agency

European‐Ukrainian Energy Agency (EUEA) ‐ is a non‐profit Association founded in Kyiv in 2009 with the goal to establish a solid platform for joint EU‐ Ukrainian actions to create sustainable society, support the efficient use of energy resources as well as promote the energy friendly technology transfer. EUEA aims to address the issues of energy efficiency and development of renewable energy sector at each stage of the energy chain, (from generation to consumption, including transport) by providing up‐to‐date information, promoting adoption of EU legislation and standards in Ukraine as well as initiating and supporting projects at the initial stages. Today EUEA brings together the key stakeholders within the areas of energy efficiency in buildings and district heating systems, biomass, biogas, wind energy and project financing. Among the priority issues for EUEA is also Ukraine’s fulfilment of the obligations in frames of the Energy Community Treaty. www.euea‐energyagency.org

3 BACKGROUND

The geography of Ukraine shows a great potential for the solar energy market development, thus the potential of solar energy in Ukraine is high enough for the wide application of solar equipment (please, see Appendix I and Appendix II). The incidence of solar radiation increases from northwest (1070 kW/m2) to southeast (1440 kW/m2) with the highest potential on the Crimean peninsula. The time period for the efficient usage of solar collectors in the southern regions of Ukraine is 7 months (from April to October), in the northern regions ‐ 5 months (from May to September). Photovoltaic equipment can operate effectively during the year. Currently solar collectors for water heating are widely implemented in the southern part of Ukraine and their volume is growing.

According to National Agency for Energy Saving and Energy Efficiency (former NAER) the solar potential of Ukraine is much higher than that of Germany and it is technically possible that the share of solar energy will reach 10% of Ukraine’s energy balance till 2030. Despite the fact that the equipment for generation of solar energy is still quite expensive, the world experiences a trend of decreasing production costs of such equipment.

CURRENT STATUS

According to EBRD, Ukraine appears to be ready to become a leader in Europe’s clean energy economy soon, especially with regard to the solar energy market which seems to be one of the most perspective markets of the renewable energy. Currently, Ukraine became a host for the biggest solar‐ power plant in Europe and it is projected that solar energy market of Ukraine will grow by 90% annually until 2015. Ukraine has all the prerequisites for the successful development of the solar energy market: high indicator of DNI (Direct Normal Irradiance), high feed‐in “green” tariff, possibility to use JI under the Kyoto Protocol for solar power projects and favorable tax exemption provisions. Additionally, Ukrainian energy strategy aims to grow up to 20% of energy from renewable sources by 2020 and Ukrainian feed‐in tariff for alternative energy is nearly twice as of some G8 members.

LEGISLATION Over the last couple of years Ukraine has been quite ambitious about its alternative energy policies: Verkhovna Rada of Ukraine adopted 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 April 1, 2009 and in August 2010 Viktor Yanukovych, President of Ukraine, committed that the construction of wind and solar power plants will be among ten priority national projects. Such rapid changes and ambitious declarations should have caused aggressive development and Ukrainian solar market should have been flourishing by now. However, in practice, the legislature provisions appear to be not sufficient enough to make investors put their money in extremely capital‐intensive projects in solar energy. Legislative instability is the first and the most striking challenge for the foreign investors.

Green tariff (GT): Ukraine’s renewable energy market looks very promising, especially with the adoption of feed‐in tariff as incentive for solar energy which is among highest in Europe. It was introduced to Ukraine in 2009 as the stimulation to use alternative energy sources and is designed to be valid till 2030. During this time period the state made it mandatory for power companies to connect alternative energy facilities to the electricity grid. The tariff is tied to EUR currency in order to secure foreign investors from local currency fluctuations. The green tariff is regulated on a

4 monthly basis by the National Electricity Regulatory Commission (NERC). As of October 2011, the tariff for solar power generation was 512.38 kopeeks/kWh (EUR 0.465 per kWh).

Ever since it’s adoption, the law has been actively discussed, and often criticized by the local and international community. Though, it has always been clearly stated by the authorities, that the procedure of receiving GT is established by law, and if followed, there are no risks of receiving a negative answer. As of May 2011, 45 companies in Ukraine were awarded green‐tariff preferences.

One of the key concerns of foreign investors that still remains is the absence of cost reimbursement procedure when connecting to the grid. The wind project developers are mostly concerned with the stage at which the GT is awarded. According to the law, it is established when the object is being connected to the grid (after the finalization of construction), which obviously carries some risks for investors. The security of GT being guaranteed until 2030 also raises several concerns, especially given the experience of Germany and Czech Republic.

One of the government's priorities in the electricity sector is to reform the market in order to exclude the wholesale market from electricity transactions between generators and distributors, thereby enabling parties to enter into power supply transactions directly. However, the end result of the electricity reform ‐ the liquidation of the wholesale market ‐ may be unattractive to companies that are willing to operate under the green tariff, as presently the wholesale market provides the only mechanism for the state to purchase alternative energy on this green tariff basis. In order to preserve the implementation of the tariff, the law declares that the state's obligation to purchase alternative energy at green tariff rates will survive the reform. However, if the wholesale energy market is liquidated, it is unclear how the green tariff will be implemented.

In general, the “green” tariff was meant to become the main instrument for implementing the state target economic energy efficiency and renewable energy program in 2010–2015. The program was approved by the Cabinet of Ministers in March 2010 and originally supposed a proportion of renewable energy in the total electricity demand to be no less than 5% by 2015. In April 2011 the Program was revised, and the target increased to 10%. According to the new version of the program, the projected funding will amount to UAH 347.8 bln ($43.5 bln), including 28.8 bln UAH ($3.6 bln) from various levels of budgets. Public funds will be spent on construction and reconstruction of electric grid and substations for connecting new power facilities. Despite the introduction of the "green" tariff, according to the Ministry of Energy, the share of renewable energy in total electricity production has been declining for the second year in a row. Thus, in January 2010, the share of the alternative electricity in total energy production in the country was 2.4% (including big hydropower plants), by September of this year, it dropped to 1.4%. This phenomenon may be associated with complexity of projects implementation.

Local component: Another challenge, , is the so‐called local component. Thus, according to the law, starting January 1, 2012 the share of raw materials, plant and equipment, works and services of Ukrainian origin in the construction cost of the corresponding power generation facility producing electricity from alternative energy sources must be at least 15% ‐ starting from January 1, 30% ‐ starting from January 1, 2013, and 50% ‐ starting from January 1, 2014, respectively. As of January 1, 2013, to obtain a “green tariff” for electricity generated with the use of solar radiation, solar modules must be used, with the share of raw materials of Ukrainian origin in the production cost making at least 30% and at least 50% starting from January 1, 2014. However, the exact procedure of calculating the Ukrainian component, is still under development by National Electricity Regulatory Commission of Ukraine (NERC). Moreover, worldwide experience shows that before such “local component” introduction, the local environment shall provide at least the availability of large and stable domestic market and functioning of clear and consistent legislation governing this sector. Otherwise, this condition can significantly slow down the progress in the construction of new stations

5 due to the shortage of Ukrainian production capacities. Since there are very few manufacturers of such equipment in Ukraine, such quotas should not apply at all in order not to stop the market development. On the other hand, if this condition is kept, it may bring massive investments in photovoltaic production chain of Ukraine. There has been an on going debate between the market players in regards to how fair is the “local component requirement” and if it contradicts the WTO and Energy Community Treaty, which Ukraine joined in February 2012. So far the local content requirement has been changed and once postponed due to inability to secure the local supply in needed quantities, and relevant stakeholders are continuously brining the need to soften requirement to Ukrainian authorities.

Taxation: The New Tax Code that was adopted in December 2010 aims to create favorable conditions for the “green” energy boom. It anticipates income tax (corporate profit tax) exemptions from the profits of electricity produced from renewable sources up to 2020. Under the Act 158 of the Tax Code, 50% of profits earned from the energy efficient operations and implementation of energy efficient projects of companies included in the State Agency on Energy Efficiency and Energy Saving (NAER) registry, 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 (Active Solar subsidiary) and Kvazar PJSC (Kyiv). The producers shall invest the funds, saved on the exemption, for target programs that is rather difficult to monitor. Additionally, in July 2010 the Parliament adopted the Law “On Land for Energy Facilities and Legal Regime of Special Zones of Energy Objects”, under which the land rent for renewable energy facilities is reduced by 70%.

As the import of solar power equipment is the most feasible and less expensive way to construct solar power plants, it still makes investors face customs clearance problems. According to the new Tax Code that was introduced in 2011, other preferences towards renewable energy development include duty‐free imports and exemptions from value‐added taxes provided that the relevant products are not manufactured in Ukraine. However, 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 the List and shall duly send the same for consideration to the Cabinet of Ministers of Ukraine, which shall make its special resolution to that effect then.

Electricity grids: Proper legislation is missing yet in the part of solar power plants connecting to the grid. The pending question to be solved in the nearest future is the development of a single procedure for reimbursement by the state of expenses incurred by investor for the construction or modernization of those parts of the electric grid to be transferred to the grid operators. The 20‐25 year term, which is offered to offset the costs of connection, is not justified. NERC should develop and adopt a single procedure for connecting solar energy facilities to grid and include the expenses into the investment programs approval for local operators. Furthermore, the lack of practical experience in technical documentation preparation for grid‐connection of PV systems is an obstacle as well.

Poor project development: Availability of well prepared projects is a priority condition precedent to market development; however another problem in Ukraine regarding renewable energy sector is the lack of Western approach to project preparation, understanding all their options. As EBRD experience says, around 30 % of local developers or projects submit unprepared projects or unable to provide proper funding. Also, there is little understanding of such parameters as cash flow, NPV, payback period and general project management. Many applications are based on unjustified, non‐ commercial technologies.

6 Infrastructure: When talking about investment and new sector development, it is worth mentioning the financial infrastructure to facilitate this process. So far, 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. Therefore, time is needed for banks and project managers to reach understanding of this market. Nowadays, EBRD is helping to finance such projects, though at least 30% of the project has to be financed from other sources, which also causes complications for local developers.

The other challenge that may be faced by the investors is the absence of public awareness and interest in renewable energy prospects. The evidence of such attitude is the fact that 90% of solar modules produced in Ukraine are exported to European countries, but again this is mostly due to nonexistent (until recently) solar energy market.

Moreover, investors hardly believe that the government of Ukraine or National Commission for Electricity Regulation (NERC), which is a local market regulator, clearly understands how the “green” tariff system would function in the bilateral agreements environment and market balancing, which Ukraine has committed to transition by the end of 2014.

Despite the laws giving financial breaks and preferences to the companies, Ukraine appears to be a high‐potential emerging market with an extremely high investment appeal of a “green” tariff for solar energy that makes investors risk and find their solutions to cope with all mentioned above complications. While this segment of alternative energy is at the initial stage of development in Ukraine, the country envisages a favorable situation for solar energy sector expansion. Beyond any doubts, the Ukrainian solar energy market is slowly, but successfully progressing further and will start showing positive developments very soon.

INSTITUTIONAL FRAMEWORK

In August 2010, President Viktor Yanukovych assigned a decree to Prime‐Ministrer Mykola Azarov that supposes the Prime‐Minister to assure amendments to the State Target Economic Program on energy efficiency and development of energy production from renewable energy sources and alternative fuels. The government is expected to develop additional measures to stimulate production of energy from alternative sources, so that renewable energy share in the energy balance of Ukraine increases to 10% until 2015. (Right now, if omitting hydropower, the renewable energy sources amount to less than 1% in the energy balance).

There are two key governmental authorities influencing the solar energy sector and are important for any incoming investor: National Electricity Regulatory Commission of Ukraine (NERC) and State Agency on energy efficiency and energy saving of Ukraine (NAER).

National Electricity Regulatory Commission of Ukraine (NERC) The main objectives of NERC are to participate in the forming and implementation of unified state policy for development and operation of wholesale electricity markets for the heat produced by cogeneration plants and plants using alternative or renewable energy sources and promote competition in the production of electricity from the heat produced by cogeneration plants and plants using alternative or renewable energy. It also provides the pricing and tariff policy for electricity and heat produced in cogeneration plants and plants using alternative or renewable

7 energy sources and issues licenses to businesses in the area of heat if the heat is produced for cogeneration, cogeneration plants and plants using alternative or renewable energy sources. National Commission on Regulation of the Utility Services Market of Ukraine is being established on the basis of NERC to create two separate independent regulators in the electricity and heating sector.

State Agency on energy efficiency and energy saving of Ukraine (NAER) NAER is the central governmental body responsible for State policy on energy efficiency and energy conservation in Ukraine. The main tasks of NAER are to carry out unified state policy in the sphere of efficient use of energy recourses and energy‐saving; approve energy saving and energy efficient projects which are requiring financing from state budget and monitor their implementation; create state system for monitoring production, consumption, export and import of energy carriers, improvement of system of calculation and control of energy carriers consumption and provide functioning of unified system for regulation of considerable expenditures of energy recourses in budget sphere.

NAER is a central coordinating body for most of international relations in the energy sector, including representation to the Energy Community, cooperation with the EU delegation, cooperation with the EU energy agencies and business. NAER is responsible for establishment and preparation of proposals about attraction of foreign investments in the sphere of energy efficiency and renewable sources. Also, until recently NAER was one of the key government bodies for initiating the legal initiatives and prior to administrative reform was directly supplying draft laws to the Cabinet of Ministers of Ukraine. Now, it is part of the Ministry of Economy and legal initiatives are subject to approval by the Ministry first.

Energy Community Treaty On February 1, 2011 Ukraine became a member of the Energy Community. Negotiations on Ukraine’s accession to the Energy Community lasted for about 2 years. Starting from November 2006, Ukraine was an observer of the said organization. The decision on acceptance of Ukraine to the Energy Community was adopted on 18 December 2009 at the meeting of the Community’s Council of Ministers in Zagreb. The Countries of the Energy Community put forward a number of conditions for Ukraine’s entry. First, Ukraine was to improve the nuclear safety of its nuclear power plants in accordance with the IAEA requirements, and, secondly, to conduct a series of legislative reforms in the gas sector, i.e. to bring them into conformity with the norms of EC directives. Ukraine performed two of the conditions and, thus, implemented a joint project of the European Commission and the IAEA on nuclear safety and the adoption of Law of Ukraine “On the principles of the natural gas market functioning”, which complies with the European gas directives (Directive 2003/55/EC and EC Regulation 1775/2005).

For Ukraine, it means the must to implement the EC energy legislation with the boundary terms set for that purpose. The European Commission plans to evaluate the performance of Ukraine of its commitments and the implementation of energy legislation. The terms set for implementation thereof are quite short. Ukraine is obliged to apply eight of the EC acts as early as January 2012. These are, in the first place, the “Gas” Directive 2004/76/EC on measures to ensure the security of natural gas supply, and two directives on electricity (Directive 2003/54/EC on common rules for the functioning of the internal electricity market, Directive 2005/89/EС on activities to ensure the safety of investing in energy supply systems and infrastructure). To implement the directives in the field of environmental protection the Protocol of Accession to the agreement provides for a longer term.

8 In summer 2011 Ukraine presented an action plant on implementation Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2011 on the promotion of electricity produced from renewable energy sources in the internal electricity market. The road map for the implementation is currently in process.

KEY MARKET PLAYERS Manufacturers

The introduction of “green” tariff became a powerful stimulus to the development of industrial photovoltaic generation in Ukraine. Solar energy production chain is between players: monosilikon manufacturers, polysilikon manufacturers and producers of ingots, wafers, solar cells, modules. Active Ukrainian producers of monosilicon ingots, wafers, solar cells and solar modules are CJSC Pillar, Prolog Semikor LLC and Silicon LLC.

PJSC “Semiconductor Plant”

Ukraine used to be a major semiconductor market producer supplying up to 5% of world’s polysilikon demand. Though after the collapse of Soviet Union only Semiconductor Plant in Zaporizhya sustained and in 2008 the plant was bought by Activ Solar (Austria). Since then, EUR 300 million has been invested into the modernization of the equipment, which allowed open a polysilicon plant with a capacity of 2500 tons per year in October 2010. Today the plant is the only polysilicon production facility in Ukraine. Activ Solar has plans to expand the capacity to 3800 tonnes by the end of 2011. The total investment in the project until 2017 is estimated at UAH 11.2 billion ($1.4 billion).

The market of monosilicon and wafer production is represented among four companies: Kvazar PJSC, Pillar CJSC, Prolog Semikor LLC, Silicon LLC. Due to the absence of domestic polysilicon, these companies are forced to import silicon scrap as a raw material. In 2010, import of silicon feedstock in the form of scrap and ingots was 902.1 tons to the total amount of $33.9 million.

JSC Pillar www.pillar.kiev.ua

The main recipient of silicon raw materials was Pillar CJSC, which works on a tolling scheme (simultaneously the largest exporter of ingots and wafers). The company accounted for 89% of supplies, its main trading partners were Hemlock Semiconductors and Q‐Cells. Export of silicon feedstock in the form of scrap, ingots and wafers in 2010 amounted to 349.3 tons to the total amount of $18.3 million. The principal exporters of feedstock from Ukraine in 2010 were Pillar CJSC ($16.0 million, supplies to Germany and Spain, work using customer owned raw materials) and Prolog Semikor LLC ($2.3 million, supplies to Japan, Switzerland and other countries).

9

Silicon LLC www.sil.com.ua

Founded in April 2002 as a state‐owned Plant of Pure Metals (JSC "Pure Metals"). Plant of Pure Metals was founded in 1962 as a specialized company for manufacture of semiconductor materials, and until the late 1990's the company took the place of one of the leading companies in the semiconductor industry of the former Soviet Union. It produces single monosilicon used as a base material for various semiconductor devices, as well as the basic material for the manufacture of photovoltaic cells (solar cells).

PJSC “KVAZAR” www.kvazar.com

Is the largest and the only manufacturer of photovoltaic cells, solar modules and solar systems in Ukraine. As the factory of semi‐conductor devices it was established as far back as 1961. The enterprise used to be a part of the military‐industrial complex of the former Soviet Union. In March, 1994 it was transformed into PJSC “Kvazar”. The company possesses the complete infrastructure, beginning from research activities and technological elaboration up to industrial manufacture. The structure of “Kvazar” represents a holding company, which consists of the several subsidiaries: manufacture of components for solar energy; elaboration and manufacture of solar systems and manufacture of integrated circuits.

The potential capacity of the company is 20 MW of solar cells and 10‐12 MW of modules. The company’s modules are certified for use in the EU: in 2008 a station with a capacity of 2.88 MW was built in Cordoba (Spain) on the basis of these modules, a station with a capacity of 2.4 MW in Viterbo (Italy) in 2010. Kvazar PJSC accounted for 99.6% of exports of solar cells and modules in 2010 for total of $13.3 million. The main recipient ($9.2 million) was Solar Swiss (Switzerland).

Kvazar intends to expand the output of solar cells to 60 MW. The new market participants include the project of Misto Service, which in 2010 signed a thin‐film amorphous silicon module production line supply agreement with BudaSolar Technologies (Hungary). In early 2011, a delay in the supply of equipment was reported.

Technology Providers

ACTIV SOLAR www.activsolar.com

Is an Austrian company focused on the development and manufacture of solar based technology. The company's main business areas include production of silicon products and development of large‐scale photovoltaic installations. Activ Solar develops finances and realizes large‐scale solar energy projects combining world‐class expertise, strategic partnerships with cutting edge technology and sustainably grows into a fully‐integrated solar energy platform. This company is among the few to supply environmental‐friendly electricity at preferential prices.

10 Having successfully completed the commissioning of solar power capacity of 7.5 megawatts in the village Rodnikovoye (Crimea, Simferopol district), Activ Solar has announced the construction of an 80 megawatt (MW) solar photovoltaic (PV) power station located in Ohotnikovo (Crimea, Ukraine).

The plant is one of largest on the European continent. It is the largest ground‐mounted installation ever built in the region and ranks 4th in the world according to the Large‐Scale Photovoltaic Power Plants rating Top 50! The project is divided into four 20 MW phases, the first of which was grid‐connected in July 2011 and the fourth last phase was completed in October 2011. The solar power plant now consists of approximately 360,000 modules, ground‐ mounted over an area of 160 hectares, approximately the size of 207 football fields. The plant is estimated to produce 100,000 megawatt hours of electricity per annum – enough to supply 20,000 households with green energy, representing savings of up to 80,000 metric tons of carbon dioxide emissions per year.

In November 2011 Activ Solar announced the completion of Phase III of the Perovo Solar Power Station. Just weeks after the launch of Phase II, the latest segment adds an additional 20 megawatts (MW) to the project totalling 60 MW to date. Phase I, II & III are estimated to produce approximately 78,500 megawatt hours of electricity per annum ‐ enough to meet the electricity needs of approximately 16,500 households and representing carbon emissions savings of up to 63,000 metric tons per year. The ground‐mounted arrays of all 3 phases consist of over 264,000 mono and multicrystalline photovoltaic modules and 80 central inverter stations. The project has created over 800 construction jobs in the region.

RENTECHNO www.rentechno.com.ua

Is one of the leaders in the implementation of integrated engineering solutions using energy‐efficient technologies and renewable energy sources. The company's headquarters is located in Kiev (Ukraine). History of the company started in 2009 by initiation of some investment projects in Ukraine related to the photovoltaic components manufacturing and solar power projects development under the SolarUA brand.

11 In September 2011 Rentechno already announced about the successful completion and putting into operation the first turn of solar power plant in the southern part of Vinnitsa region. The installed equipment rated peak power amounts 250 kW; the PV panels used in the project were produced by the company which is among top 5 best manufacturers in the world, the inverters, combiner boxes and cables for the solar power plant were produced in Europe. Rentechno itself developed engineering solution for the solar power plant, implemented the selection and organized delivery of the equipment. All the technical inspections of the installation process and commissioning works of the project were carried out by Rentechno LLC. The equipment supply was realized jointly with Israeli company Sunelectra. The implementation of solar power plant in the southern part of Vinnitsa region is divided into several stages. The first stage 250 kW power was constructed and put into operation in September 2011; the second stage 321.5 kW power installed in October; the last part has to be put into operation during 2012.

Another three PV plants will be built in Vinnitsa region by Rentechno. Current status is engineering. Total capacity of that 2 projects is 2,6 MW. Third PV plant will be started soon. Expected capacity of it is 2 MW.

Same month the company announced about the intention to implement ground mounted 9 MWp solar photovoltaic power plant in Kherson region. Current status is engineering. Company responsibilities are full EPC services. The preparation of technical documentation for the project was started in September, 2011. The project is divided into several stages, first of which will be 1 MW and it is planned to be put into operation till the end of March 2012. The whole PV plant has to be put into operation till the end 2012.

Another PV project of Rentechno is ground mounted 15 MW solar photovoltaic power plant in Odessa region. Current status is pre‐feasibility study. Company is in charge for preparation of the design documentation and participation in the construction and commissioning works. The installation of all PV plants has to be finished during 2012. The company is going to run nearly 11 MW overall capacity on the several platforms in Skadovsk and Genichesk regions as EPC‐contractor. Rentechno has several own solar power plants to be built together with Ukrainian and international investors by the end of 2012. The company is currently designing the portfolio of land in Crimea, Kherson, Nikolayev and Vinnitsa regions.

Organization of solar module manufacturing in Ukraine with annual yield up to 25 MW is currently at the stage of pre‐feasibility study. This production facility will be built in order to meet a growing demand for solar modules in Ukraine and taking into account the fact that certain provisions of green tariff legislation for PV farms come into force from January 1, 2013, i.e. a requirement for a 30 per cent share of materials and components of local origin in solar modules.

MANAGESS AG www.managess.de

Is part of MANAGESS Energy GmbH, focuses on solar energy and covers all the relevant tasks involved in photovoltaic energy production. MANAGESS Energy’s portfolio encompasses the conceptual design and construction of advanced and efficient photovoltaic systems as well as the wholesale with relevant components.

In August 2011 MANAGESS Ukraine LLC proposed to install solar panels in one of the buildings in Zaporizhya at its own expense. German company is interested in the implementation of the project "Sunny roof" to demonstrate the technological possibilities of the German manufacturers. The

12 technical conditions for implementation of the project – 600 sq. m of the roof and one sq. m of the roof will bare a load of 12 kilos. “Sunny roof” will produce 36 thousand kW/hour. The total cost of the project is 90 thousand EUR, Managess Energy Group will cover around 55% of the costs.

Additionally, Managess Energy Group plans to start the construction of solar power plant in Prymorske (Zaporizhya oblast), with the total capacity of 10 MW. The total amount of investmentsis projected at 30‐35 million EUR.

SUNELECTRA www.sunelectra.com.ua

Is an Israeli company focused on solar energy production projects. It offers EPC services, capital rising, and distribution services for solar projects. The total installed capacity is more than 14 MW. In 2011, Sunelectra has launched its operations in Ukraine, bringing extensive experience and a Russian speaking team.

SCHNEIDER ELECTRIC www.schneider‐electric.com/ua

The leader in energy management, with more than 110,000 employees in over 100 countries, a business of almost 20 billion euros in 2010, growing rapidly, changing constantly and facing the challenges of today's markets, has unique positions to provide the Customer with innovative integrated solutions making energy safer, more reliable, more efficient and more productive.

Combining leading edge new businesses – energy, building automation and security, installation systems and control, power monitoring and control, critical power and cooling services – to company’s historical strengths of power and control, Schneider Electric provides Customers with comprehensive unique answers for residential, building, energy and infrastructure and data and networks markets.

Originating from France since 1836, Schneider Electric has set up a subsidiary in Ukraine in 2000. As global specialist in energy management Schneider Electric has focused on energy efficiency and has developed a unique worldwide capability to provide these solutions and transform the way people power & control their environment.

Having massive experience of 140 MW peak photovoltaic power plants put into operation only in 2010, including electrical solutions, full EPC services and operation and maintenance contracts, Schneider Electric has brought expertise into Ukraine with providing inverter stations for the full‐ scale photovoltaic plant in Ukraine. As a leader in power conversion with Xantrex equipment, Schneider Electric is investigating opportunities to provide solutions for photovoltaic facilities from micro‐power home backup systems up to hundred‐megawatt land PV farms.

13 Solarig www.solarig.com

Is a multinational operator specialized in the generation of electricity using the sun as the source. Since it was founded in 2005, it has developed and operated numerous large and small projects based on photovoltaic technologies. Its activities are focused on operating a portfolio of projects that are both technologically and geographically diversified with presence in Spain, Italy, France, Belgium or China. Up to date has more than 60 MW of installed capacity, has also developed more than 35 MW for third party investors and a portfolio of more than 500 MW under development in different geographical areas.

Solarig’s activities involve the entire photovoltaic value chain, from the production and distribution of modules, to the promotion and construction of photovoltaic solar parks. Company also includes their operation and maintenance, all the way to the production and sale of energy necessary to maintain a high production of the park.

Currently and with a stable presence in the mature PV markets, the company is starting the development of activities in other European countries with a portfolio of projects in development amounting to 300 MW. Due to the positive evolution that Ukraine is playing in the PV industry and thanks to the interesting and attractive policies that have been adopted in the country for foreign investors, the Solarig wants to actively invest in Ukraine.

FUNDING FOR PV PLANTS The commissioning of photovoltaic facilities in Ukraine is mainly funded by private investment. In addition, there are opportunities to raise international funds. At the end of 2010 a program of the European Bank for Reconstruction and Development called USELF (Ukraine Sustainable Energy Lending Facility) was launched in the country. The program is aimed at facilitating the implementation of projects with the use of renewable energy sources in Ukraine. The program volume is EUR 50 million, which is sufficient to co‐finance the construction of stations with a total capacity of 10–15 MW. Although this amount is not enough to have a global impact on the industry, the initiative of EBRD has an important symbolic nature. Small projects can also count on support in the amount of EUR50–350 thousand from the NEFCO (Nordic Environment Finance Corporation). In contrast to the industrial segment, the segment of small and medium‐sized installations in Ukraine develops less actively. The combined stock of such solar stations in the country is estimated at 1100 units with a total capacity of 1.1‐ 1.2 MW. Every year the country puts into operation 50‐100 kW of capacity, 80% of them being commercial installations. Low level of private and commercial generation development is explained by the impossibility for individuals to obtain a green tariff, as well as by economical inexpediency of small projects with a capacity of 30 kW amid low prices for centrally supplied power. Moreover, the process of obtaining permits for green tariff is completely identical for investors of commercial and industrial stations.

14 EXPERT OPINIONS

While conducting this overview EUEA asked members and some partners to share their views on the prospects of solar market development in Ukraine, comment the key measures that would boost the growth of solar energy market in Ukraine, outline key risks of the sector and share the views on the future of this industry.

Sunelectra Ukraine (www.sunelectra.com.ua)

Anatoly Drobachevsky, CEO

Our vision of key steps to help Ukrainian renewable market is to follow the success of similar programs in leading European countries (Germany, Italy for example). From our point of view the regulation have to become more transparent and to involve less bureaucratic processes. Foreign investors, who do not know all the local nuances, are looking for simple, understandable and logical steps within the regulatory framework. It is important to understand that the final investment into large renewable projects is done by major financial institutions. Those institutions require clear and transparent regulatory environment. The faster the regulation become simpler, the sooner companies will be ready to invest in Ukrainian alternative energy market.

Structure of green tariff has to be changed to become similar to feed‐in tariffs common in Western European countries. Investment in alternative energy involves many risks in the development, construction and commissioning stage. The risks are much higher when the green‐tariff approved only after completion of the project, like it is happening in Ukraine. The foreign financiers, which we mentioned above are currently in position of standby regarding their investment decisions, until this part of regulation is clarified. NERC should come up with clear action plan for approving green tariff for everybody who are willing to invest into solar energy or other renewable projects. Currently, the investors are "sitting on the fence" and waiting to see if the projects are materializing and receiving the green tariff. Several big projects in Crimea area are not enough to convince investors that the law is applied efficiently for every player.

The last and very important is a local content rules. Again, it has to become more transparent with clear timeframe. We all know that the local content launch time has already changed several times. In order to allow successful project and investment planning, the local content component has to be carefully planned and more connected to reality. Only in this case, investors will be willing to commit themselves to renewable energy market and invest in projects and even establish factories in Ukraine.

ARZINGER (www.arzinger.ua)

Wolfram Rehbock, Senior Partner

The success of photovoltaic in Ukraine is heavily dependent on the further promotion. Thus Ukraine starts to compete with other states for investment. Here, the feed‐in tariff plays a crucial (but not the single) role. Whether the promotion of PV technology in these latitudes is generally appropriate or whether it is just a waste of economic resources should not be discussed at this point.

15 Furthermore, the investor must be able to rely on the tariff rate, the duration of the payments and the paying capacity. Not least, it needs a guaranteed and privileged access not just on paper. Therefore, Ukraine must first put all its efforts into the expansion and renovation of grids.

This will be possible only through commercially reasonable grid usage fees. In this respect, the regulatory NERC is also required. Only then a framework will be there for an investment, which will pay off many years later.

Unfavorable in this context is the local content, too. The very uncertainty as to whether one can achieve it in Ukraine, what disputes could arise over it and whether the quality of locally manufactured components will match the usual quality (which is essential for the operating performance) could keep some investors in their risk assessment away from Ukraine.

Currently, the legislation grants priority to ground‐mounted systems and large PV systems in the building sector (over 100 KW) by means of the “green tariff”.

At that, it is the small PV systems on buildings that can contribute to the widest possible spread of PV installations. Since the spending is much higher here, investments usually make sense only if the yield per kW/h is above that of ground‐mounted systems. Countries like Germany have already completed their shift away from open space facilities to counter the problem of acreage competition (“Bread or energy!?”). Open space facilities are there only on conversion sites (former open‐cast mines, military training ground etc.). Such use should also be given priority in Ukraine; in this way, the lengthy reclassifications could be avoided, too.

Moreover, extending the support system to solar heating is worth considering. The production of thermal energy for building management may have a more beneficial impact on the Ukrainian energy industry than the production of electricity, which is anyway available in excess. Solar thermal systems can replace part of the heat and substitute gas imports.

REC Group (www.recgroup.com)

Mrs. Silke Kriebel

REC is a leading vertically integrated player in the solar energy industry. Ranked among the world's largest producers of polysilicon and wafers for solar applications and a rapidly growing manufacturer of solar cells and modules, REC also engages in project development activities in selected PV segments. Founded in Norway in 1996, REC is an international solar company, employing more than 3,900 people worldwide with revenues close to NOK 14 billion in 2010.

REC is not active in the Ukrainian market so far, but we see a large potential for PV projects based on:

 One of the most energy‐intensive economies in the industrialized world  Good natural conditions (solar radiation) & space for PV systems,  Feed‐in‐tariff system (“Green tariff”) is very generous and guaranteed by the state for 20 years  Legal framework is sufficiently developed  Increasing popularity of alternative energy sources due to rising prices for natural gas  Potential of approx. 40MW in 2012

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SCHNEIDER ELECTRIC UKRAINE (www.schneider‐electric.com)

Andriy Prischenko, Projects & Services Director

Feed‐in tariff for renewable power sources is a must for further development of this market in Ukraine. Current government “green tariff” policy has enabled acceptable return on investment time which resulted in massive boost of land PV facilities market and brought appropriate equipment and expertise to Ukraine. Still there is lots of room to grow in this field, provided the government will maintain high feed‐in tariff to make it interesting for investors. However, government‐imposed local content share (of equipment manufactured in Ukraine) for such projects limits growth of this market segment, so that further increasing of this share could collapse the market due to the fact that power conversion technology is not going to be of Ukrainian origin in one or two years.

Today we face growing interest of enterprise site owners and commercial building investors to implement roof PV facilities. Such applications can generate enough power to make selling energy interesting along with providing a backup power for the site itself. High feed‐in tariff is still important here, as much as a simple procedure to obtain it, which currently is not the case. Should the government simplify such procedure for small power projects, we can expect much more photovoltaic modules on the roofs of commercial centers and parking lots.

Feasibility of home PV applications in Ukraine is still questionable. With obviously no point in selling energy to utilities, private owners aim mainly to create a backup power source in detached locations and/or to decrease their energy bill. Due to comparatively low price for electrical energy in Ukraine, the latter stays quite improbable, unless appropriate governmental incentive policy would be put in place to help lifting this market segment from zero.

Rentechno (www.rentechno.com)

Dmytro Lukomskiy, Managing Partner

Among the comparative advantages of Ukrainian PV market are the highest “green” tariff in Europe allowing for high IRR and fast payback period and very low saturation in terms of PV power capacity installed.

We identify the following key success factors for Ukrainian solar energy market:

(1) Company’s experience in land allocation, solar power plants design and installation processes.

(2) Central authorities generate great attention to the sector in terms of creating development stimuli and investment attractiveness. Local authorities are hungry for new investments inflow and guarantee all the support.

(3) 15 months of “green corridor” until 30% share of local materials and components in the solar modules installed requirement is introduced; and 27 months until first reduction of the “green” tariff.

17 There are several options to enhance the solar energy market in Ukraine: 1) To cancel the limitations regarding the share of materials and components of Ukrainian origin in solar modules which are used in PV projects. It seems that another limitation on the share of materials, components, works and services of the Ukrainian origin is quite acceptable and sufficient for encouragement of local manufacturers and service companies. This measure might boost the development of new PV power plants. OR To establish the precise procedure for identification of the components and materials share with Ukrainian origin in solar modules, used in solar power plants provided with FIT. 2) To simplify the procedure of green tariff obtaining for small projects and private owners. The current situation leads to the potential feasibility, but financially inappropriate for small PV projects. The first step is to enable individuals to easily and quickly obtain a license from the producer of electricity and to simplify the procedure for concluding agreements with owners of the electricity distribution networks. 3) To establish the precise procedure for incurred expenses for upgrading of electrical grids during development and connection of the solar power plant to the grid reimbursement by the Government to the legal entity. 4) To include solar power plants in the list of objects which construction design does not require obtaining city‐planning conditions and limitations. It will simplify the land permits procedure.

Solarig Holding S.L. (www.solarig.com)

Tania Zurita, Business Development

Although our limited knowledge of the Ukranian energy market, one of the first difficulties we have found has been the strong bureaucracy that slows the obtaining of the constructions permits and the license for the connection to the grid, delaying the starting dates of the works in the PV parks and therefore the growth of the renewable energy production. That is why, the first key measure should be accelerate the administration of permits and licenses through pre‐registration systems.

The second key measure should be supporting local PV industries so they can be cost‐competitive with foreign PV components, especially as the Ukrainian government requires Ukrainian equipment to be used in the PV projects located in the national territory. The support of Ukrainian PV industries will lead in new business opportunities and a more competitive market.

The last and third key measure we would like to propose is the aim of the government to the development of the PV plants. This measure can be done by providing to independent energy producers public spaces, roofs or land, in areas of high energetic demand to install photovoltaic energy plants and minimize the transportation cost.

18 Appendix I

19 Appendix II

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