Investing in renewable energy projects in Europe Dentons’ Guide 2018

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Foreword

2018 promises to be another year ambitious 2017 renewable energy of reckoning in the European target of 35 percent, a figure renewables market. Wind and widely backed by business leaders solar have continued their rightful and environmental groups, after ascendancy in the continent’s EU energy ministers late last year energy system, adding some 14 GW backtracked to status quo proposals and 7 GW of installed capacity to for a bloc-wide target of 27 percent the grid last year respectively – and of power coming from renewables staying on a trajectory to reach by 2030. Difficult negotiations a combined fleet size of more lie ahead. than 400 GW by 2020. Offshore However discussions pan out in wind was again a standout, with Brussels in the coming months, the a further 3 GW now turning in version of the CEP starting 2018 on the northern seas, including the the table is nonetheless patently quintet of turbines making up the progressive, not least for the fact world’s first floating array, the UK’s that member states for the first time Hywind Scotland. agreed on three interim benchmarks Despite this success, uncertainty to track progress towards an EU- still hangs over the main platform wide 2030 installed capacity goal for stable wind and solar power for renewables at both EU and expansion in the European Union national levels, so the overall optics (EU) post-2020 – the Clean Energy for investment should be improved. Package, which will define much of More practically, the package will how the EU advances renewables require every state’s national energy through to the end of the plan (NEP) to include a yearly next decade. target for new renewable energy This January, the European capacity through to 2030, as well Parliament retrenched on its as for managing output to this

dentons.com 3 Other 137,8 140 123,1 120 98,4 100 91,3 88,3 75,2 78,5 77,7 80 70,2 73,8 Czech Rep. 57,4 60 53,1 38,9 40 30,1 Netherlands 20 UK 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

New clean energy investment in Europe, (excluding hydro exceeding 50 MW), in billion US$ Source: Bloomberg New Energy Finance, January 2018

point in the future from projects The growing importance of already producing to the grid. And Europe’s corporate renewable the industry is to be given further energy business is reflected in market “visibility” by the now built-in the CEP, too, in the obligation that requirement that all NEPs provide national governments remove all a rolling three-year framework regulatory barriers to corporate on timing and size of upcoming power purchase agreements (PPA). tenders – with retroactive changes This should supercharge a regional to support schemes much harder market that has historically been to effect. a distant second to the US, but that

4 dentons.com last year saw a record-setting wind ‘Near-term caution, long-term corporate PPA in aluminum giant optimism’ might best describe Norsk Hydro’s deal for ’s Europe’s renewable energy market 650 MW Markbygden project and outlook – and we shouldn’t lose a landmark agreement by Google to sight of the big picture either; power its Dutch data centers with included in the CEP is the new the Netherlands’ biggest PV farm. Coal Regions in Transition platform, designed to usher in a socially- While the European wind and solar equitable transition for regions sectors have together collapsed as Europe shifts away from being time and cost to evolve the two a bloc driven by fossil fuels. technologies at a speed that has brought them from being marginal Darius Snieckus energy sources to mainstream Editor in Chief, RECHARGE plant-scale power inside a decade, it nevertheless remains the broad consensus that storage will be the linchpin for the energy transition, in the EU as elsewhere around the globe. Energy storage has suddenly bounded forward as a sector in its own right and will likely make another leap in 2018, with analysts widely forecasting a US$100 billion “solar sector-scale” boom through 2030, as storage mushrooms from current single-digit gigawatts of installed capacity to somewhere in the region of 125 GW globally, with a first-tier market in Europe.

dentons.com 5 Introduction

This guide provides snapshots Parliament and of the Council of of the renewable energy sources April 23, 2009 on the promotion of (RES) sector in the 20 jurisdictions the use of energy from renewable in Europe and Central Asia where sources (the Renewable Energy Dentons has offices. We look at the Directive) and EU policy on state aid potential for RES development, have had a significant influence in the factors which have driven and shaping their approach to RES. continue to drive the industry, and The Renewable Energy Directive the constraints and risks faced forms part of an overall EU energy by investors. policy framework that includes the European Union policy goal of sourcing 20 percent of final energy consumption from RES by For those countries which are 2020 (and 10 percent of fuel in the member states of the European transport sector from RES). Union or parties to the Energy Community Treaty, which extends The development of RES in the EU some of the EU’s energy policies was first stimulated through the to neighboring countries, Directive implementation of national support 2009/28/EC of the European schemes for RES electricity in the form of either “green certificate” Commission issued a package of schemes (in which wholesale legislative proposals, including purchasers of electricity must meet amendments to the Renewable a certain quota of RES electricity, Energy Directive, which, if adopted, evidenced by tradable certificates will have a significant impact on issued to RES power producers), future RES projects, particularly post or “feed-in tariff” (FIT) schemes 2020. It is expected that 2018 will (in which RES producers are paid be marked by tough negotiations to a sector-specific price that replaces hammer out the final compromise wholesale power market prices between various takes on the or supplements them by a fixed ambitions to fight climate change amount regardless of how they through these proposals. may fluctuate). The proposals touch, in one way or However, the application of another, on all the “hot topics” of the these forms of subsidy, which RES sector and include: were awarded automatically to • Member states must retain their all qualifying projects without binding target of RES by and any overall budgetary limit, has beyond 2020. If they fall below the been cut back in various ways or 2020 baseline, member states will replaced altogether by forms of have to take additional measures support based on competitive to cover the gap. auction processes, often involving competition between different • The EU-level RES target of RES technologies. The European 27 percent of energy from RES Commission’s State Aid Guidelines across the EU by 2030 will on Environmental Protection and not be supported by legally Energy 2014-2020 (the Guidelines) binding targets for individual have played a major part in this member states. change. Change has also been • Each member state is to produce driven by government and consumer an integrated national energy and concerns about the rising cost of climate plan covering a period RES subsidies (for electricity bill of 10 years. Amongst other payers or taxpayers) and facilitated things, these plans must take into by falling technology costs in the account the need to contribute wind and solar sectors. towards EU-level targets. Progress In November 2016, as part of its reports will be required every “Energy Union” project, the European two years.

dentons.com 7 • Progress milestones are set long-term power purchase for 2023, 2025 and 2027. If it agreements to finance renewables becomes clear that the 2030 EU- and facilitate their uptake.” level RES target is not going to be • The process of applying for met, the Commission will be able permits to build and operate to react to the gap. new RES projects, and for • Member states must consult on repowering existing projects, is to and publish a long-term schedule be streamlined. in relation to the expected • The existing rules on priority allocation for RES support, looking dispatch for RES generators at least three years ahead. are to be abolished, with • In keeping with the Guidelines, some “grandfathering” of competitive auctions are to be priority dispatch for existing the norm for RES support, with RES generators. traditional feed-in tariffs limited to • Market rules must avoid restrictions small projects. on cross-border trading and • Quotas will be set for the promote the participation proportion of capacity tendered of smaller players (including in RES subsidy auctions, which individuals and communities that each member state must open both generate and consume RES up to projects from other power) and new technologies such member states. as energy storage. • Retrospective reductions in • Long-term transmission rights or support for RES are prohibited, equivalent measures are to be put unless they are required as a result in place to enable, for example, of a state aid investigation by the RES generators to hedge price European Commission. risks across bidding zone borders. • Public support for new • Consideration is to be given to installations with a capacity standardizing transmission and of 20 MW or more converting distribution tariff methodologies, biomass into electricity is including with regard to locational prohibited unless they apply high signals (i.e. whether generators efficiency CHP. should pay if they are located a long way from where the power • Member states must “remove they generate is used). administrative barriers to corporate

8 dentons.com • RES is to be “mainstreamed” in national authorities will continue to heating and cooling and in the seek to address many of the same transport sector. issues tackled by the European Commission—such as how to • The sustainability criteria facilitate energy storage or how applicable to biomass are to to grow the renewable heat be tightened. market—with their own measures. • National capacity mechanisms, Increasingly, the promotion of which distort the power market RES is not just about subsidies and tend naturally to favor non- but also about dealing with the RES generators, are to be curbed consequences of extensive RES and standardized in various ways. deployment on the wider energy system. Operators will need to be Other policy considerations alert to the potential impacts of new The Energy Union reforms will proposals and ensure that they are take some time to negotiate and fully understood by governments implement. In the meantime, and regulators.

250

200 Geothermal Marine 150 Biomass and waste Wind 100 Solar Hydro 50 Nuclear Fossil fuels 0 UK Italy Spain Russia Turkey France Poland Ukraine Belgium Slovakia Hungary Germany Czech Rep. Czech

Power-generating capacity mix by country, GW Source: Bloomberg New Energy Finance, January 2018

dentons.com 9 Azerbaijan

Azerbaijan is a major hydrocarbon producer. The oil and gas sector accounts for approximately 40 percent of GDP. Although it is estimated that the country has 15 GW of wind and 8 GW of solar potential, to date the renewable energy sector in Azerbaijan has been fairly modest. However, there are signs this could change: Solar farms totaling 2,065 MW and wind farms with an energy capacity of 1,512.5 MW are planned. Moreover, the Strategic Road Map on the Development of the Economy of Azerbaijan, published in 2017, states that the volume of generation from alternative and renewable sources of energy is planned to increase up to 15 percent by 2020. Still, there have been no recent developments in terms of new regulations or investment projects during the past year.

Share of renewable energy in gross final energy consumption in 2016 – 8 percent* Azerbaijan national target by 2020 – 20 percent

Drivers Promotion Certificates (IPCs) On January 18, 2016, the President investment incentives in the form of Azerbaijan adopted a decree of tax exemptions (e.g. profit tax which offers holders of Investment at 50 percent of the standard rate,

10 dentons.com 0 percent VAT, assets tax and land Law includes provisions on a feed- tax exemptions and exemption from in tariff (FIT) and guarantees that customs duties for the import of energy will be purchased at the certain equipment) for a period of tariff for a period of 10 years. It is seven years. IPCs are issued by the not known when the Draft Law will Ministry of Economy to qualifying proceed to the national parliament investors, where: for discussion.

• The investment is in certain Constraints and risk factors industrial sectors, including Despite the existence of legislation production of renewable that provides protection for foreign energy, and investors and companies with • The investor plans to make an foreign investment in Azerbaijan, investment of a minimum agreed and a number of bilateral investment amount, set on a region-by-region treaties, the power sector (unlike the basis (e.g. AZN 5 million for Baku oil and gas sector) remains primarily city, AZN 3 million for Sumgait under state ownership and control, and Ganja). and has so far been fairly closed to foreign investment. A Bill on Alternative and Renewable Energy (the Draft Law) is currently It is likely that the renewables sector being reviewed by the Cabinet of will remain small, as the country is Ministers of Azerbaijan. It prioritizes concentrating on developing its the renewable energy sector substantial oil and gas reserves. over other forms of and provides for the priority connection of alternative and renewable energy installations to the grid system. Under the Draft Law, the state is to subsidize the difference between the established tariff and the expenses of the producer, though the mechanism has not been specified. The Draft

*According to Mr. Javid Malikov, Deputy Chairman of the State Agency on Alternative and Renewable Energy of Azerbaijan

dentons.com 11 Belgium

Belgium is a federal state. The Regions (Flanders, Brussels-Capital and Wallonia) have the competence to decide on a number of key renewables issues (with the exception of offshore wind and hydro power). Belgium’s energy system is currently in full transition, and the country is still very much on track to reach its 2020 target of 13 percent. In fact, Belgium has been one of the leading countries for the development of offshore (wind) energy production in Europe.

Share of renewable energy in gross final energy consumption in 2016 – 8.7 percent Belgium national target by 2020 – 13 percent (Wallonia – 13 percent; Flanders – 10.5 percent; Brussels – 3.8 percent)

Drivers production in Europe. In 2017, the The Belgian renewable energy Belgian government announced market continues to be driven support for more than 700 MW by the increase in renewable of new offshore wind capacity electricity capacity and the represented by the Northwester 2, mandatory integration of biofuels Mermaid and Seastar projects, in the distribution of road fuel. at a notably lower price than was agreed for earlier projects (€79/MWh, Belgium has historically been one payable for 16 years, with a potential of the leading countries in the one-year extension in the event of development of offshore wind energy poor wind conditions).

12 dentons.com At the federal level, measures drive energy supply. These needs require investment in renewable energy greater advancement in the field by promoting the development, of short-term storage and demand installation and use of renewable response management services. energy installations through indirect As Belgium is set to move to fiscal mechanisms. The electrical a nuclear exit by 2025, renewables grid prioritizes as a rule electricity will have to be complemented by generated by RES, and several tax gas-fired plants to ensure reliability deductions have been adopted, such of supply. as a tax deduction for companies Legal uncertainty probably remains promoting renewable heating and the most significant risk associated cooling. Nevertheless, the main fiscal with renewable energy projects, driver of renewable energy promotion as legislation relating to RES is continues to be the regional system continuously evolving. These of green certificates, providing for changes can lead to financial a fixed monetary amount for energy uncertainty (for example due to generated from RES. fluctuations in tax rates), and may Accordingly, the bulk of the harm the necessary investments in renewable energy legal framework renewable projects in years to come. continues to be set at the level Moreover, government regulation is of the three Belgian Regions. often perceived as a hindrance. Regional decrees and ordinances, Finally, the social and economic hierarchically equal to federal impact in seeking to balance laws, determine the access to the country’s energy supply via renewable energy and provide for renewable energy projects needs to the fiscal framework to support be considered, as transition may give the development of the renewable rise to risks associated with European energy market. and Belgian competition and state Constraints and risk factors aid rules. In order to reach its 2020 target, Belgium will require significant investment, while consumers and industry need certainty about the reliability and affordability of their

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The RES market has developed gradually since the first modern incentive programs were introduced in 2005, particularly with respect to combustion of biomass in the heating industry. Currently, market consolidation is taking place through robust M&A activity, with bigger players buying up smaller ones. Nonetheless, the RES market has been hampered by insecurity.

Share of renewable energy in gross final energy consumption in 2016 – 14.9 percent Czech Republic national target by 2020 – 13 percent

An earlier boom in photovoltaic protracted issues relating to state energy led to overcompensation, aid notifications to the European which is now to be examined. In Commission. However, it may well previous years, the government turn out that these shortcomings introduced measures—including will be mitigated in the short term, tax—that effectively partially following the introduction of abolished support mechanisms for more transparent rules and recent RES. Finally, there have been long, decisions on approval of subsidies.

14 dentons.com Drivers at least the difference between the The promotion of electricity price paid and the anticipated yearly production from RES in the Czech price per unit of electricity. Republic is governed by the Promoted Energy Sources Act Constraints and risk factors No. 165/2012 Coll. State aid for RES A new overcompensation was approved by the European mechanism is being introduced Commission with respect to in the Czech Republic, following installations commissioned after a recent decision of the European January 1, 2013 as well as between Commission approving the already January 1, 2006 and December 31, awarded state aid. Under this 2012 – in 2014 and 2016 respectively. mechanism, discharged state aid shall be subject to examination The incentive scheme is based on which may result in repayments of support for electricity producers in subsidies provided in excess of the the form of feed-in tariffs and feed-in anticipated valuation of investments. premiums (termed “green bonuses”). This applies to installations The specific values of the support are commissioned in the period 2006- set by the Czech Regulatory Office 2015. Looking at the positive side, annually for each type of RES. this development will have a positive The feed-in tariffs consist of effect in terms of certainty in mandatory prices at which selected the market, as the new rules will electricity traders are obliged to provide transparency. buy electricity produced from RES. Given the controversial outcome These are designed to ensure that of Czech RES subsidies in the past, projects recover their investment public opinion tends to be rather costs over a 15-year period, and that skeptical toward new RES projects the revenues per unit of electricity (especially solar farms). As a final including inflation are maintained. aside, it is likely that the existing Feed-in premiums represent the Czech nuclear energy facilities will direct support the producer receives be extended, which might adversely in addition to the price generated affect the subsidies awarded to RES. by the sale of RES electricity on the market. They are set so as to cover

dentons.com 15 France

France has the second largest wind power potential in Europe. This, combined with a relatively favorable solar exposure in the south of the country, means that France has strong potential to develop RES further. Solar PV and onshore wind represent 42 percent of installed capacity in renewable electricity. Renewable power has increased by 2.3 GW in the last 12 months and now exceeds 47.5 GW.

Share of renewable energy in gross final energy consumption in 2016 – 16 percent France national target by 2020 – 23 percent The “Energy Transition Law” of 2015 envisages bringing this share up to 32 percent by 2030. The Multiannual Energy Program (MEP) plans to increase the production capacity for renewable energy from 47.2 GW in 2017 to between 71 and 78 GW by 2023.

Drivers achieve energy transition is France offers visibility and one of the drivers of the newly- regulatory certainty. The new elected president. administration has reaffirmed The Multiannual Energy Program its commitment to ambitious (MEP) is a tool used by the renewable energy development government to guide the growth trends. The political will to of renewable energy according

16 dentons.com to the commitments outlined in scale ground mounted projects in the Energy Transition Law. The July and €88.4/MWh for smaller objective of the current MEP is rooftop projects in September. to reach 40 percent renewable electricity by 2030. The MEP for Constraints and risk factors the period 2023-2028 should In the context of declining be finalized in December 2018. electricity consumption due to Tenders for new projects are energy saving policies, the future published regularly and can growth of renewable energy will be accessed easily on the depend on the pace of reduction regulator’s website. of the share of nuclear electricity in the national . The The new legal framework is Macron administration has now well in place. It is based abandoned the objective of the on public tenders and a feed-in former government, which was to premium aimed at compensating reduce the share of nuclear from the difference between the 78 percent to 50 percent by 2025, production price and market price. involving the decommissioning On-demand feed-in tariffs remain of at least one-third of the in force for smaller projects. Public nuclear fleet. This has led to support for renewables reached some uncertainty as to the future €5.7 billion (€3.1 billion for solar and pace of growth of renewables in €1.5 billion for wind) in 2017. New France. The grid operator RTE has trends include: proposed reaching the objective of • Development of 50 percent in 2030, which would a strong aggregation mean closing down 18 to 27 nuclear market, with a standardized reactors by that date. aggregation contract In spite of recent progress, permitting • Development of a capacity market remains complex and explains why, for instance, neither of the two • New legal framework and awarded offshore wind projects are experiments for behind-the- yet in operation. meter production • Falling production prices. Solar PV tenders in 2017 produced average prices of €55.5/MWh for large-

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Georgia is rich in renewable energy resources. It has the potential to satisfy its electricity needs fully with RES and to expand its export and transit capacity. The government is eager to develop the electricity sector and wishes to create a favorable investment climate to promote Georgia’s RES potential.

The share of renewable energy generation capacity in the total electricity generation capacity in 2017 constituted approximately 80 percent, while the share of renewable energy in total final energy consumption was estimated at 27 percent.

Drivers There is significant wind energy Hydropower is the largest potential potential. 2016 saw the launch of source of renewable energy in the first commercial wind power Georgia, but it has been estimated plant in the South Caucasus (total that some 75 percent of Georgia’s installed capacity of 20.7 MW economically viable hydro and expected annual electricity resources remain unexploited. output of 85 GWh), located in Gori In hopes of attracting foreign municipality in central Georgia. investment, the government The Ministry of Energy of Georgia has listed potential sites at: estimates that wind energy can be www.minenergy.gov.ge. used to generate up to 4 billion kWh

18 dentons.com per year. Further to research, the change for the better is expected country has been divided into four as—following the entry into force of zones according to wind potential, its Association Agreement with the and a number of suitable areas EU in 2016 and its accession to the for wind farm construction have European Energy Community—it has been identified. to reform its electricity regulatory regime so as to approximate the Georgia has substantial EU norms. This reform process is undeveloped solar energy potential, expected to take about two years. with between 250 and 280 days Legislation has been drafted on of sunshine per year. Average sun the liberalization of power supply radiation comes in at 4.2 kWh/m2, and unbundling requirements for and Georgia’s total technical solar electricity undertakings. energy potential has been estimated as being in excess of 90 GW. The energy sector faces the challenge of upgrading its existing Another major driver for the transmission lines and constructing development of RES plants in new lines. There is currently Georgia is that all power plants relatively little spare capacity in the with a generating capacity under transmission system, as demands 13 MW and power plants that on it are steadily increasing were built after August 1, 2008 are as a result of the construction of deregulated. This means that— new power stations, growth in unlike other entities whose tariffs domestic demand, the export of are set or capped by the regulator— power to higher value markets in they can set their own tariffs in neighboring countries, and the the market. opportunity to act as an East- Constraints and risk factors West hub for power trading. The government’s approval in December Growth in the renewable energy 2016 of the transmission operator’s sector in Georgia is being hampered 10-year plan for 2017-2027 was an by the existing electricity market important step in starting to address framework. However, radical these issues.

dentons.com 19 Germany

2017 was the first year with the new German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG 2017) in effect. It introduced the auction model for all commercial scale renewable energy installations. The new legislation for the auction of offshore wind projects is the Offshore Wind Act (Windseegesetz). These changes have put much more pressure on developers and investors. The effect to date has been a remarkable drop in the prices for RES electricity.

Share of renewable energy in gross final energy consumption in 2016 – 14.8 percent Germany national target by 2020 – 18 percent

Germany’s energy transition, or supply. The federal government Energiewende, is centered on expects renewable energy to reach a phase-out of plants 19.6 percent of gross final energy by 2020, a gradual reduction of consumption by 2020, beating the power generation from coal, and national target of 18 percent. the promotion of RES. In 2017, approximately 36 percent of German Drivers gross electricity consumption The German Renewable Energies was generated from RES. By 2025, Act, EEG 2017, introduced public renewables should have a share tender procedures for the tariffs for of 40-45 percent of the electricity commercial-scale onshore wind

20 dentons.com and solar plants, as well as biomass Constraints and risk factors facilities. The public tender procedure • With reductions in prices for RES also applies to offshore wind power, continued expansion of installations. The auctions are run on the German RES sector depends the pay-as-bid principle, i.e. successful to some extent on technological bidders will receive remuneration in developments to further the amount of their bids. As under the reduce costs. previous FIT system, this remuneration • The changes in the subsidy regime is fixed for a period of 20 years. have made the sector more The auctions dramatically reduced competitive, and this may lead the feed-in remuneration for new to a profound consolidation of installations in 2017. For onshore the market. wind the remuneration dropped from 4.2 Ct/kWh to 3.5 Ct/kWh and • Grid expansion and stability, 3.8 Ct/kWh. In the three rounds which is of particular importance of auctions for solar, prices fell given the need to transmit power from 6.00 Ct/kWh to 4.29 Ct/kWh. from offshore wind projects in The lowest offshore wind bid was the Baltic/North Sea to centers 0.0 Ct/kWh for a 900 MW volume. of demand in the south of the However, in Germany the developer country, is still a highly political and does not have to build the grid problematic issue in Germany. connection, which in itself can • The legal framework continues to be considered as a subsidy for undergo changes, in particular to the project. provide for a proper integration For small-scale projects with installed of renewables and to assure grid capacity below 750 MW, the FIT stability. However, even under scheme still applies, which may a new government, Germany will constitute an attractive niche for remain committed to reducing its smaller investments. carbon footprint. Given its ambitious targets for renewable installations and emission reductions combined with legal stability, Germany remains an attractive market for renewable investments.

dentons.com 21 Hungary

Hungary has the potential to satisfy a significant proportion of its energy needs from RES. After a long period of inactivity, the government introduced major reforms in this area in January 2017, fine-tuning them in late 2017.

Share of renewable energy in gross final energy consumption in 2016 – 14.2 percent Hungary national target by 2020 – 13 percent

In January 2017, a more market- tenders. The winners will be those friendly regime replaced the previous who request the lowest supported RES support system based on the price. They will then sell generated mandatory offtake of RES electricity electricity on the market and receive at pre-set regulated prices. The the difference between a price that previous mandatory offtake regime is derived from spot electricity prices will continue for existing generators and their supported price submitted under existing agreements, but new in the tender (i.e. the green premium). entrants can only receive support Projects below 1 MW capacity through the new regime. (excluding wind farms) can apply for a green premium without tendering. Under this new premium system, Projects below 0.5 MW may still apply developers with projects above for a mandatory offtake support 1 MW capacity may submit their scheme as well. desired electricity price in regular

22 dentons.com Drivers Constraints and risk factors Solar investors who applied for Looking at the recent regulatory the mandatory offtake regime changes, it seems clear that the before December 31, 2016 could support regime will not focus on obtain more favorable support wind power in the next few years. conditions than those available The government has stated on under the new RES premium several occasions that it is not system. In light of the numerous in favor of building new wind licensing processes and project farms (or extending existing developments in 2017, the picture ones) due to network balancing is still unclear at present as to the and landscape concerns. It has future volume of solar capacities implemented rigorous technical actually commissioned and the and administrative measures, which related burden the increased solar make the licensing of wind farms capacities may impose on end-user practically impossible, regardless prices. According to information of whether or not the developers from the licensing authority, if all intend to participate in the of the planned solar projects went renewables premium system. ahead then total solar capacity Due to the potentially large solar would exceed 2,000 MW by the end capacities that may be installed in of 2018. the coming years, changes in the Hungary has opted to provide mandatory offtake regime affecting further support (i.e. even after solar electricity generators cannot the initial investment has been be ruled out with any certainty. recovered) for the operation of biomass plants in the form of a “brown premium.” As the regulatory goal of the brown premium is to maintain the operation of power plants using biomass or biogas, support may be obtained without any tender for a five-year term.

dentons.com 23 Italy

Italy was a pioneer in renewable energy. Until the 1970s, almost its entire electric system was hydroelectric, and geothermal technology was developed 100 years ago to exploit large steam underground reservoirs of Larderello near Pisa. Hydro capacity is present all over the country. Italy has subsidized RES since 1992. After an initial period of rapid growth (2009-2012), the market for new solar installations has waned due to the lack of new public subsidies. Conversely, subsidies were made available for wind, which has seen a new growth trend in 2016-2017.

Share of renewable energy in gross final energy consumption in 2016 – 17.4 percent Italy national target by 2020 – 17 percent

Drivers Strategy (SEN 2017) has raised hopes The generous incentive schemes for of new tenders for subsidy, but the photovoltaic installations available implementation of the strategy between 2005 and 2014 were (which envisages an increase in the interrupted after the last regime RES share of power generation from enacted in 2012 ran its course. 34 percent in 2016 to 55 percent in Some recent schemes have been 2030 and a trebling of renewable reported as viable without subsidy. heat) will depend on the outcome of The ambitious new National Energy Italy’s forthcoming elections.

24 dentons.com The tariffs granted earlier were It is worth noting that general modified in 2014 to be payable elections will occur in early March over a longer period of time 2018, and the outcome will influence than the original 20 years, with the political support for the sector, a corresponding reduction in the although in general the parties have unitary level. Owners could opt not expressed any particular dislike not to join the extended period, in for RES. which case they agreed to suffer an Timing issues currently affect only immediate higher tariff cut (confirmed large connections to the grid, but as lawful by the Italian Constitutional a new wave of requests for permits Court last year). International may cause bottlenecks, delaying investors are nonetheless still suing the issuance of new permits. Italy under international arbitrations Many players are working on the to protect their investments by revitalization of expired permits for seeking compensation. plants that were not built in the past. RES plants other than PV plants GSE (the national entity that grants operated under a green certificates public subsidies to RES plants) has regime from 1999 until 2015. Since significantly increased controls 2012, all new plants have been granted on RES plants already receiving a feed-in tariff. From 2016, this feed-in subsidies. If unlawful tariff granting tariff mechanism has been extended is discovered, it can curtail tariffs to all plants, which received green by between 20 and 80 percent, certificates in the past. depending on the circumstances. Constraints and risk factors Investors considering opportunities in Italy’s active secondary market There is a significant, renewed should conduct a careful legal interest in RES plants among and technical due diligence, also investors, backed by reliable political considering that self-reporting to support. Under the current bill, GSE allows a leniency procedure that wind and solar projects will have an can be used to avoid one-third of opportunity to compete against each any curtailment. other in a technology-neutral tender process for new incentives by the end of 2018-early 2019.

dentons.com 25 Kazakhstan

Kazakhstan has accelerated the transition to a “green economy” implying, inter alia, the development of RES. This acceleration is being achieved by increasing state expenditure on the development of RES in the national budget.

As of Q3 2017, 55 facilities in the country generate energy from RES with total capacity in excess of 330 MW. The share of RES in the country’s total electricity generating capacity grew from 0.78 percent in 2015 to 1 percent in 2017. Kazakhstan intends to increase the share of renewable energy sources to 3 percent of the total volume of energy production by 2020.

In March 2017, a project to support network. The cost of the project is the development of renewable US$1.4 million. energy sources in Kazakhstan was initiated together with the Asian Drivers Development Bank (ADB), funded The key laws regulating the by the Clean Energy Fund. The ADB renewable energy sector in project provides technical support Kazakhstan are the Law on Support for the Kazakhstan energy company for the Use of Renewable Energy KEGOC to strengthen its capacity in Sources, the Law on Electric the planning of the grid integration Power, the Environmental Code of renewable energy into the national and corresponding secondary

26 dentons.com legislation. These laws have Currently, the auction price is been amended to introduce determined by the results of the a new auction system for buying auction, but it must not exceed renewable the level of the corresponding from the end of July 2017, which marginal auction price. The marginal replaced the system of sales auction price is established by the of electricity to the Financial government. The auction price is and Accounting Center (Costs subject to annual indexation based Settlement Center) at a fixed tariff on inflation. under a power purchase agreement (PPA). At the same time, the old Constraints and risk factors system of sales under PPAs with The development of RES in fixed tariff will remain effective Kazakhstan is still at an early for projects that existed before stage, and market opinion is the introduction of the auction not particularly optimistic for system. It is assumed that this will the short term. The economy is lead to a reduction in renewable driven by oil, gas and coal, which energy prices and will make the in practice allows the country to sector more attractive for new produce energy at costs lower investments. However, it should than the current RES power costs. be noted that the auction system This is also a factor replacing the is not fully developed in the development of RES. Furthermore, current law; detailed regulation there is no guarantee for long- will only be provided in secondary term offtake. While Kazakhstan legislation which will take two law provides for 15-year term years to develop. As the auction PPAs (for “old” PPAs), the Costs system has not been tested in Settlement Center has limited practice, investors tend to prefer assets, and its obligations are not to consider “old” projects with secured by a guarantee or any PPAs and an approved fixed tariff, significant assets. which is indexed for inflation and sometimes for currency fluctuation as well.

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There are no major indigenous sources of energy in Luxembourg, making it heavily reliant on energy sources from abroad. On December 23, 2016, Luxembourg adopted a new set of laws on sustainable building, the rational use of energy, and energy from RES. The target is to increase the share of renewable energy to 70 percent in 2050.

Share of renewable energy in gross final energy consumption in 2016 – 5.4 percent Luxembourg national target by 2020 – 11 percent

Drivers public bodies (except the state) for The production of energy from carrying out investment projects RES is promoted through subsidies in Luxembourg which aim to use and feed-in and premium tariffs energy rationally and to promote for electricity. Policies have energy from renewable sources. been adopted to promote Subsidies are granted in certain the development and use of circumstances for new photovoltaic RES installations. installations, solar thermal systems, heat pumps, wood-fired boilers, The ministry in charge of the heating networks and connection to environment grants subsidies to heating networks. individuals, corporate entities and

28 dentons.com Feed-in tariffs apply for electricity obliged Luxembourg to adapt its generated from any source regulations concerning electricity of renewable energy, except production based on renewable for geothermal energy. Since energy sources in order to align September 2017, feed-in tariffs also such regulations fully with the cover photovoltaic installations requirements stipulated in the above 30 kW. Producers receive European guidelines in the area of a feed-in tariff for 15 years state aid. The adaptation requested (20 years for producers using biogas consists of introducing provisions installations). Grid access for RES to avoid discrimination of imported electricity is subject to general law green electricity by promoting provisions applicable to electricity. stronger cooperation between EU Since April 2017, it is also possible member states to achieve shared under Luxembourg law to promote understanding of the possibilities production of energy from RES from and challenges in developing abroad under certain conditions. renewable energy on the electricity In this context, Luxembourg has markets.” Legislative amendments signed two renewable energy are therefore to be expected. transfer agreements with The targets set by the government and to help achieve its might be ambitious, and the level of national renewable energy objectives imports is still very high. There is still for 2020. room for improvement to convince There is also a tax incentive applying individuals and corporate entities to to income from photovoltaic invest in plants and equipment for installations with capacity of the production of energy from RES. 1 to 4 kW, which are exempt from income tax.

Constraints and risk factors The national plan for smart, sustainable and inclusive growth— Luxembourg 2020—states that “in 2016, the European Commission

dentons.com 29 The Netherlands

The Netherlands has a liberalized energy market which ranks it among the leading countries in the world in terms of market integration, investment and innovation. The Netherlands has adopted a legal framework promoting increased use of RES. In 2016, RES accounted for 6 percent of total Dutch energy consumption. This percentage is expected to grow to 16.7 percent in 2023, which is within the 14-18 percent range required under the EU Renewable Energy Directive.

Share of renewable energy in gross final energy consumption in 2016 – 6 percent The Netherlands national target by 2020 – 14 percent

Drivers To stimulate the production of Biomass is the largest source of renewable energy, the government renewable energy produced in the has implemented multiple tax and Netherlands. It represents more subsidy initiatives. The subsidy than 60 percent of total renewable initiative is regulated by the SDE+ energy production but still less than tariff scheme, whereby producers 5 percent of total energy production. of renewable energy can apply for Biomass is followed by wind energy a government subsidy for renewable (24 percent), solar and geothermal energy projects. Eligible applicants energy (5 percent each). for SDE+ include companies,

30 dentons.com institutions and non-profit Roadmap, which outlines how organizations developing projects offshore wind energy generation in the field of renewable electricity, capacity is to be increased from renewable gas and renewable heat 1,000 MW to 4,500 MW by 2023, or combined heat and power. Every is an important part of this Energy category has its own eligibility Agreement. Two tender rounds requirements, and a variable feed-in were held (separate from the main premium encourages the use of the SDE+ granting scheme) in relation most cost-friendly technologies. to offshore wind. Parties interested in developing an offshore wind A large amount of the SDE+ farm had the opportunity to bid for subsidies (up to 40 percent) is offshore wind subsidies and the granted to coal-fired power stations required permits. The winning bids which co-fire biomass with coal for received the permits and the SDE+ the generation of renewable energy. subsidy for developing the wind Under the new 2017 coalition farms. The SDE+ subsidies available agreement, the government aims per offshore wind farm project to cut SDE+ subsidies for the co- have decreased per tender. The firing of biomass and coal in 2024 latest tender for Sites I and II of the and aims to close all coal-fired Hollandse Kust (Zuid) Wind Farm power stations in 2030. This will Zone closed on December 21, 2017. probably result in the granting of This tender was only open for bids more subsidies to other kinds of that did not require any subsidies renewable energy production with at all. Several parties entered biomass, such as thermoelectric a zero-subsidy bid, and the winner conversion projects, and other of the tender will be announced in forms of renewable energy that Q1 2018. In 2018 and 2019, two more contribute to the reduction of tenders will be held for the last two greenhouse gases. available lots for developing wind Constraints and risk factors farm projects in the Netherlands. Onshore wind projects are eligible for the SDE+ subsidy. In 2013, the government signed an Energy Agreement with parties involved in the energy market. The Wind Energy

dentons.com 31 Poland

The installed capacity of Polish renewables is approximately 8.5 GW, of which 5.8 GW are attributable to wind farms. That said, the impressive growth in renewables seen in recent years has recently slowed down. This is most evident in the wind energy sector, which was, until recently, the driving force in the renewable industry. Nevertheless, the problems with wind farms combined with the policy advocated by the government to promote “stable” RES have triggered increased interest in PV and waste-to-energy projects.

Share of renewable energy in gross final energy consumption in 2016 – 11.3 percent Poland national target by 2020 – 15 percent

Drivers All other RES projects with capacity Under the RES Act, all renewable in excess of 500 kW may be eligible sources which generated electricity for support via the auction system, for the first time before July 1, 2016 in which a premium is paid on top of are eligible for support in the form of the market price. certificates of origin for 15 consecutive Under the RES Act, auctions are years starting from the day electricity conducted by the President of the was generated for the first time.

32 dentons.com Energy Regulatory Office (ERO) and suspend the upcoming auctions. individual projects may fall into the This decision was made on following auction baskets: the grounds that the European Commission challenged the auction • Installations of any technology competitiveness mechanism. Then, generating more than 3,504 MWh/ in mid-December 2017, the European MW of installed capacity per year – Commission approved the auction i.e. a 40 percent utilization factor system with a total budget of • Waste-to-energy installations €9.4 billion; thus, we can expect new utilizing certain categories of waste auctions to take place soon.

• Installations where CO2 emissions Constraints and risk factors do not exceed 100 kg/MWh, with • Legislative instability in RES: During a degree of use of the installed the last two years, RES regulations electricity generation capacity in Poland were amended several higher than 3,504 MWh/MW/year times. Most amendments • Installations operated by concerned wind energy, and members of an energy cluster or virtually all of them were adverse. energy cooperative • No proposals showed how to • Installations using only agricultural solve the problem of oversupply biogas to generate energy of certificates of origin and the resulting low prices of certificates • Installations other than those of origin. specified above. ERO has organized several auctions in recent months to extend support chiefly to PV and agricultural biogas projects. No auction has been organized for wind farms with capacity of 1 MW or more. After organizing a few auctions in 2017, the authorities decided to

dentons.com 33 Romania

During 2010-2013, Romania went through a genuine renewables rush, but recently the sector’s growth rate has slowed due to the government’s decision to protect energy intensive industries and household consumers from the costs of renewable subsidies.

Share of renewable energy in gross final energy consumption in 2016 – 25 percent Romania national target by 2020 – 24 percent

Drivers The support scheme was originally The country promotes renewable generous, but since January 1, 2014, energy through a quota system the number of GCs has progressively based on green certificates (GC). decreased (e.g. from 6 to 3 GCs per Electricity is sold in a centralized MWh for solar power plants, and market with some exceptions, such from 1.5 GCs per MWh to wind power as the electricity generated by SME plants to only 0.75 GCs per MWh). power producers (less than 3 MW), which can be sold via bilateral Constraints and risk factors power purchase agreements. The original support scheme for the promotion of electricity

34 dentons.com from RES came to an end on • For the purposes of accounting December 31, 2016. Romania notably and resale, the GCs will gain in experienced several green certificate value when traded and not when market failures in recent years. issued, as the GC is not considered Thus, a number of amendments a financial instrument. to the current legislation became • Producers and suppliers must increasingly urgent. In 2017, the trade GCs only on a centralized government approved long-term anonymous marketplace in order support measures for renewable to avoid market distortion. energy production which should help to achieve a better balance • From April 1, 2017 until December between consumer resilience (both 31, 2024, the trading of two GCs household and industrial) and per MWh produced and delivered producers’ financial efforts to keep by solar power producers is RES capacities running, thus ensuring temporarily postponed. that Romania does not fall behind • The GC transaction value (between its target. March 31, 2017 and March 31, 2032) The revised GC support has a minimum of €29.4/GC and scheme includes: a maximum of €35/GC. • The validity term of GCs has been Note that from January 1, 2018, the extended from 12 months to up to mandatory purchase quota for GCs 15 years to 2032. for 2018 is 0.346 GCs/MWh, while the static quantity referred to above for • A yearly obligation to acquire 2018 is 14.910,140 GCs. a fixed number of GCs over a period of 15 years (referred to as the “static quantity” of GCs) was introduced in 2017. • Every two years, the static quantity of GCs taken up by the market will be revisited.

dentons.com 35 Russia

Russia has reflected on the new realities in the European energy markets and the wider energy world. The Russian energy market is currently facing challenges including overcapacity in the domestic wholesale electricity market and deteriorating infrastructure, which could ultimately adversely affect natural gas exports. In 2017, the government proposed a new budgetary rule aimed at lowering the economy’s reliance on hydrocarbons.

Russia’s considerable wind, solar In 2017, the government extended and geothermal resources are support to waste-to-energy plants underdeveloped. In 2016, renewable by allowing investors whose projects energy (excluding large hydro won the relevant tender to conclude projects) accounted for less power supply agreements on than 1 percent of Russia’s power preferential tariffs. The Republic generation capacity (excluding of Tatarstan (55 MW), Moscow local power stations that serve small and Moscow Region (collectively, villages and production units). If 280 MW) were selected as territories large hydro projects are included, for the construction of such plants. the figure increases to 17-18 percent. The government’s program for the A national target of 4.5 percent RES development of a unified energy electricity generation has been set system for Russia for 2017-2023 for 2024. Target volumes for solar contemplates further development of plants increased, and those for wind RES by constructing 801 MW of wind farms and small hydro stations were farms adn 1,074 MW of solar power reduced slightly.

36 dentons.com plants (325 MW of which would be and after-sales servicing. Red Wind commissioned by 2019). is also expected to develop local manufacturing, including supplier To stimulate small hydro projects, selection and purchasing of spare as well as wind and solar projects parts for subsequent delivery to of up to 25 MW, the federal budget NovaWind production facilities in will pay 70 percent of their grid Volgodonsk. It is expected that Red connection costs, up to a limit Wind will supply 388 wind turbines to of RUB 15 million (approximately VetroOKG by 2022. €215 thousand). In 2017, the government excluded foreign Constraints and risk factors legal entities, as well as Russian • There is a perceived potential legal entities, in which more than risk to foreign investments in the 50 percent of shares are owned by current political context. foreign legal entities incorporated in specified jurisdictions, from the • Areas of high demand for power list of potential recipients of such are already oversupplied; areas that state subsidies. are undersupplied have relatively low power demand, undermining In the 2017 tender for selecting the economics of RES projects. renewable energy generation investment projects in respect of • There are difficulties associated the period 2018-2022, investors with finding financing and demonstrated most interest in wind technology partners (including projects, which accounted for more difficulties associated with local than 1.5 GW of the total capacity content of equipment production). awarded (about 2 GW). • Clear, reliable and long-term NovaWind (subsidiary of Rosatom) regulations on federal and regional and Lagerway (Dutch manufacturer of economic incentives to foreign and wind power generators) established local investors in RES are lacking. a joint venture (Red Wind) which will be engaged in the marketing, supply and installation of wind turbines

dentons.com 37 Slovak Republic

Although Slovakia sources about 70 percent of its power generation from low carbon sources (nuclear and hydro), the renewable sector is expecting changes in 2018. After a relatively steady period in RES projects in recent years, a new impulse in the sector is anticipated.

Share of renewable energy in gross final energy consumption in 2016 – 12 percent Slovak Republic national target by 2020 – 14 percent

For many years, low transparency, increasing. Biomass is seen as the very strict legislation, and most interesting renewable, with a poor administrative and theoretical potential of 120PJ. political environment have been RES development in Slovakia was viewed as the main obstacles to influenced by fear of the “Czech RES development in the Slovak scenario,” after which the Slovak Republic. The most commonly regulator massively lowered the used RES are biomass and solar feed-in tariffs for PV and abolished energy, and interest in photovoltaic financial promotion of PV plants panels and heat pumps is with capacity greater than 100 kW.

38 dentons.com Drivers Plant operators may still receive Act No. 309/2009 Coll. on subsidies for the support of RES Promotion of Renewable Energy from the Operational Program Sources and High-efficiency of Environmental Quality funded Cogeneration (the RES Act) was by the European Regional adopted back in 2009 with changes Development Fund (ERDF). expected in 2018. The RES Act and incentive schemes it provides for Constraints and risk factors have been subject to numerous The government has declared that amendments, with the tariffs being the development of alternative subject to annual adjustment. RES is welcomed in the future, but Currently, electricity from RES consumer protection will always be is promoted through a feed-in a priority. tariff, but an auction system for The wind energy potential in the purchase of electricity from Slovakia is limited, due to the RES will likely be introduced in specifics of the Slovak natural 2018. The RES Act also offers RES environment and the fact that projects priority connection, priority protected bird areas cover dispatch for electricity from RES, 23 percent of the country. and a statutory obligation of grid operators to purchase and pay for Certain RES projects are subject electricity from RES. to regulatory requirements, such as building permits, and some PV In general, all renewable electricity and RES based power plants need generation technologies are a certificate assuring compliance eligible, provided plant capacity with Slovak energy policy. does not exceed a general limit of 125 MW, or 200 MW in the case of certain good quality CHP plants. Electricity generated from renewable sources is exempt from excise tax.

dentons.com 39 Spain

According to the latest statistics, Spain’s share of renewable energy in gross final energy consumption in 2016 was 17.3 percent, still far from the 20 percent in the 2020 objective. Driven by this goal, the Ministry of Energy, Tourism and Digital Agenda of Spain (MINETAD), held two renewable energy auctions in 2017 of 3,000 MW each.

Share of renewable energy in gross final energy consumption in 2016 – 17.3 percent Spain national target by 2020 – 20 percent

However, the second auction was December 31, 2019. Now many of so successful that many developers the companies, awarded capacity presented bids with the highest under this second auction, are possible discount, and it ended either looking for financing or JV with a final award of approximately partners able to provide financial 5,000 MW in new capacity instead support. This has put Spain back of 3,000 MW, making for a grand in the spotlight for investors in RES total of 8,000 MW of RES projects throughout Europe, after a few that must be in operation by dark years.

40 dentons.com Drivers Constraints and risk factors Bidders were able to make offers with Projects that are successful in the a discount on their initial investment. auction must be operational by This resulted in several bidders December 31, 2019. However, some offering the maximum discount, and of the awarded capacity may not be thus projects benefiting from the operational by the specified date. awarded capacity will receive the In addition, the high volume of lowest allowable revenues specified projects being developed at the same in the auction framework. time enables suppliers to renewable The framework established developers to request higher prices for a minimum “floor price” which the their goods and services. government guarantees investors However, the main risk is uncertainty should the market price for energy as to the yield for investors in these fall to the extent that projects are RES projects (even with the floor price no longer profitable. The floor price guaranteed by the government). This was set at €43 per MWh for the first is due to the following two factors: auction (mainly awarded to wind projects) and €30 per MWh for the • Potential volatility of pool prices of second (dominated by solar projects). electricity, which is the main source of income. This mechanism makes the investments easier to fund, helping • Regulatory changes, given that to build interest in the Spanish every six years the IRR that is RES sector. used to remunerate the income granted by the electricity system to a standard facility, called IT, can be varied by MINETAD. As the remuneration can be changed every six years, investors need to prepare refined financial models to be updated every six years until the end of the asset’s working life.

dentons.com 41 Turkey

Turkey is a major market with great untapped renewable energy resources. Mostly due to the desire to mitigate dependence on energy imports, green energy opportunities continue to be a key item on the country’s energy agenda. The Strategic Plan for 2015- 2019, issued by the Ministry of Energy and Natural Resources of Turkey, prioritizes increasing the share of renewables in producing electricity. Following the 2016 amendments paving the way for large-scale, licensed projects and increased use of domestically manufactured equipment, two tenders, each for a 1,000 MW renewable project, were held in 2017. This trend is expected to continue in 2018.

Share of renewable energy in gross final energy consumption in 2015 – 13.6 percent Turkey national target by 2023 – 20.5 percent

Drivers 18, 2005 and December 31, 2020. In 2010, Turkey adopted a feed- Guaranteed prices are applicable for in tariff denominated in US cents. 10 years after commissioning. The In 2016, a system which may be level of FIT varies depending on the deemed partly “FIT” and partly “feed- technology and the amount and type in premium” was introduced for of domestic equipment used. plants commissioned between May

42 dentons.com In October 2016, a new regulation • Under the current FIT structure, was enacted to promote (i) large- plants must pay the market scale renewable energy designated operator—rather than the market areas (REDAs) and (ii) the use operator paying them—if the of domestically manufactured market clearing price is above the equipment. Rights to a REDA are FIT. They are also liable to incur tendered by way of a reverse auction additional costs in the case of whose ceiling price may not exceed system imbalances. the FITs. The tender for Karapinar • In addition to the tightened REDA, including a 1,000 MW solar regulatory position regarding power plant was held in March 2017, license-exempt wind and with the consortium of Hanwha solar projects, which covers and a Turkish company offering the projects found eligible for grid winning bid of US$0.0699/kWh. connections after March 23, 2016, Another tender for a REDA including the distribution fee payable for a 1,000 MW wind power plant was projects constructed after 2017 held in August 2017. The winning is increased, having an adverse bid of US$0.0348/kWh came from effect on financial feasibility. a consortium of Siemens and two Turkish companies. In both tenders, • Individual rooftop and storage the guaranteed purchase term is markets are constrained due to 15 years. Although there has been over-regulation in the case of the no official announcement yet, more former and the lack of regulation REDA tenders are expected to be causing uncertainties in the case held in 2018. of the latter.

Constraints and risk factors • As part of the efforts to develop domestic manufacturing • Grid capacity for connecting wind capacity for renewable energy and solar power plants is limited. components, additional duties • The denomination of FITs in US were imposed by the Ministry cents introduces an element of of Economy of Turkey on solar currency risk for the government, panel imports. potentially constraining the level and availability of future tariffs.

dentons.com 43 Ukraine

Ukraine took reasonable measures to stimulate the development of RES in 2017. In particular, the standard form PPA for RES power plants has been substantially improved, and the parliament removed uncertainties for RES in primary legislation. New RES capacity continued growing in 2017 (approximately 350 MW). Further growth is expected in 2018 (up to 1 GW) and beyond to 2020, especially in large scale wind and solar projects.

The share of renewables in gross final energy consumption is thought to have exceeded 5 percent in 2017, and further substantial growth of this share is expected in 2018.

In 2017, the attractive premium to New stimulating tariffs for heat from the feed-in tariff for locally produced renewables were fully implemented in equipment incentivized equipment Q3 2017, opening up opportunities for producers to manufacture nacelles producers of heat from biomass. By and towers for wind mills, some 2020 biomass is expected to replace turbines for small hydro, inverters annually up to 7 bcm of natural gas. and steel constructions for solar Ukraine plans to create a competitive power plants, and assorted other heat market by 2020, eliminating the equipment in Ukraine. Up to 10 new gas monopoly in its heating sector. RES projects (wind, solar and small In general, the climate for hydro) obtained a premium of up investments in RES projects improved to 10 percent for the use of locally in 2017 due to a general softening produced equipment in 2017. of currency restrictions, stabilizing

44 dentons.com of the local currency, state policy • There is good availability of on deregulation of business, and possible locations for projects and considerable improvement in the new sites. situation with financing by local • The standard PPA terms improved and foreign financial institutions. considerably in 2017, with In particular, OPIC approved the agreements lasting until December financing of its first RES projects 31, 2029 and signing being allowed in Ukraine. pre-commissioning. Drivers Constraints and risk factors • Feed-in tariffs for electricity from • The feed-in tariff is granted solar and wind farms as well and guaranteed only after the as biomass/biogas, small hydro commissioning of power plants, and geothermal power plants are not before. on average 15 percent higher than in the EU. • There is a need to improve the regulation and practice of • Feed-in tariffs are fixed (and grid connection. EUR-linked), and there is a state guarantee to purchase the power • Ongoing reform of the electricity produced, from the date of market is needed (from the commissioning to the end of 2029. single buyer model to bilateral contracts and balancing markets), • In general, there has been in particular change of purchaser a positive history of awarding feed- and the procedure for payments in tariffs and payments. for electricity produced from • There is a stimulating tariff for RES from July 1, 2019 and gradual heat from renewables at the level introduction of responsibility for of 90 percent of current heat imbalances of solar and wind production from gas for respective power plants in 2021. categories of consumers, or 90 percent of average heat production tariffs from gas in the respective region. • Tariffs for electricity from conventional plants and tariffs for consumers are both growing.

dentons.com 45

UK renewable electricity generation capacity grew by 20 percent during 2017, to 32 GW. Changes to subsidies for new projects have reduced the amount of some kinds of new capacity being developed, and there are some other regulatory uncertainties, but the UK remains a very active and dynamic renewables market in a number of ways.

Drivers for Difference (CfDs), and another The large-scale RES electricity is planned for 2019. The 2017 generation sector in the UK, auction was focused on offshore as in other European countries, was wind (which the government sees initially stimulated by the availability as a less politically contentious of subsidies in the form of green alternative to onshore wind, and an certificates (Renewables Obligation industry that it wishes to encourage Certificates, or ROCs) and feed-in as part of its Industrial Strategy), tariffs. Both these forms of subsidy and “advanced conversion are now effectively closed to new technologies” (technologically solar PV developments, and the advanced forms of biomass / last of the “grace periods” during energy from waste). It is likely which projects using onshore wind that 2019 will have a similar focus. and other technologies can still Following the pattern of other qualify for ROCs ends on January recent European offshore wind 31, 2019. There have now been tenders, the winning offshore two successful auctions (in 2015 wind CfD strike price bids were and 2017) under the new subsidy notably low. regime for renewables, Contracts

46 dentons.com But while the reduction in energy storage (to smooth over the availability of subsidies has made difficulties of intermittent solar and the UK’s Greenfield RES sector wind generation). However, some significantly less active, there has players and individual projects have been a considerable amount of had notable successes in both secondary market activity of various these areas. For example, a number kinds. Portfolios of projects that of new or existing renewables were built up with finance that took projects are being built with some an element of development risk, co-located battery storage, enabling but often with a clear (sometimes the projects to benefit from revenue tax-driven) intention to exit streams that would not normally be relatively early in the projects’ available to wind or solar projects, operational lives, are now being such as Capacity Market or National refinanced or sold to new owners Grid ancillary services payments. who have a lower cost of capital. The perceived regulatory stability Constraints and risk factors of the UK (and the Brexit-related The 2019 CfD auction will probably devaluation of sterling) makes such be the last until at least 2025. There portfolios attractive to overseas is a risk that the current battery buyers. At the same time, there is storage bubble will burst without a move towards consolidation in the having made post-subsidy RES market, with a view to benefiting any more sustainable. As in other from economies of scale: examples markets, low wholesale electricity include the combining of the prices remain a concern. Brexit is Infinis and Zephyr portfolios by also a source of uncertainty, but Ventient, and the £1 billion strategic primarily in terms of its impact on partnership between BlackRock the UK economy as a whole rather and Lightsource, targeting 1 GW of than specifically on RES. installed solar capacity by 2020. It is still too early to say that the UK RES market as a whole has switched from the old subsidy- based paradigm to a future market model based on corporate PPAs (to provide revenue stability) and

dentons.com 47 Uzbekistan

Since 2015, Uzbekistan has been actively promoting the use of RES. On May 26, 2017, Uzbekistan adopted the 2017-2021 program for RES. The program demonstrates the government’s ambition to move ahead with solar, wind and hydro power projects. It envisages the implementation of 810 projects worth a total of US$5.3 billion. The regions most targeted for RES projects are Samarkand, Navoi and Surkhandarya.

Previously, Uzbekistan had a target of reaching 16 percent of generation of final energy with renewable energy by 2030 and 19 percent by 2050. The current objectives for electricity generation from RES are more ambitious. Its share is to be increased from 12.7 percent in 2016 to 19.7 percent in 2025. Uzbekistan has the following specific objectives (cumulative targets) for renewable energies: New hydropower: 60.7 new MW in 2018, 157.7 MW in 2019, 382.5 MW in 2020, 601.9 MW and 1,240 MW in 2025 Solar PV: 100 MW in 2018, 200 MW in 2019, 300 MW in 2021 and 500 MW in 2025 Onshore wind: 102 MW in 2021 and 302 MW in 2025.

Drivers generating energy from RES (with To achieve its RES-related goals, nominal capacity of 0.1 MW and more) the government provides certain are exempt for 10 years from going incentives. For example, entities operational from (i) property tax on

48 dentons.com their RES facilities, (ii) land tax for their Constraints and risk factors facilities, (iii) VAT and (iv) mandatory The government encourages levy payments to the Republican investors to take part in a wide range Road Fund and off-budget Fund of RES projects (solar, wind and for reconstruction, maintenance hydro). However, the underdeveloped and procurement of educational regulatory framework and lack of and medical institutions under the RES legislation create substantial Ministry of Finance (the Funds) on delays in implementing projects. part of the energy volume sold to JSC Furthermore, investors face Uzbekenergo. Entities specializing challenges in establishing public- in manufacturing (assembly) of RES private partnership arrangements facilities are also exempt, for five due to lack of law on PPP projects. years from their incorporation date, In addition, the difference between from all types of taxes and mandatory the tariff at which the local supplier payments to the Funds. JSC Uzbekenergo sells to consumers (US$0.2 per kWh) and the tariff for The government’s commitment to power generated from RES offered by RES can be seen in the establishment investors (exceeding multiple times) of a Commission on energy to the local supplier significantly efficiency and development of RES, inhibits project development and has the working body of which is the led the government to question the Ministry of Economy of Uzbekistan, feasibility of some projects. and its ratification of the Charter of the International Renewable Energy Agency (IRENA) on June 1, 2017. Contacts

Arkadiusz Krasnodębski Poland Managing Partner Head of Europe Energy practice – Dentons D: +48 22 242 56 63 [email protected]

Christopher McGee-Osborne Partner, London Head of UK&ME Energy practice – Dentons D: +44 20 7246 7599 [email protected]

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James Hogan Azerbaijan Managing Partner Co-Head of Europe Energy practice – Dentons D: +994 12 490 75 65 [email protected]

Yolande Meyvis Partner, Brussels Dentons D: +32 2 552 29 31 [email protected]

50 dentons.com Petr Zákoucký Partner, Prague Dentons D: +420 236 082 280 [email protected]

Marc Fornacciari France Managing Partner Dentons D: +33 1 42 68 45 44 [email protected]

Otar Kipshidze Georgia Managing Partner Dentons D: +995 32 250 93 00 [email protected]

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dentons.com 51 Victoria Simonova Partner, Almaty Dentons D: +7 727 258 2380 [email protected]

Frédéric Feyten Luxembourg Managing Partner Dentons D: +352 46 83 83 306 [email protected]

Jan Jakob Peelen Partner, Amsterdam Dentons D: +31 20 795 38 00 [email protected]

Marcel Janssen Partner, Amsterdam Dentons D: +31 20 795 34 23 [email protected]

Tomasz Janas Partner, Warsaw Dentons D: +48 22 242 51 04 [email protected]

Claudiu Munteanu-Jipescu Partner, Bucharest Dentons D: +40 21 312 4950 [email protected]

52 dentons.com Alexei Zakharko Partner, Moscow Dentons D: +7 495 644 0500 [email protected]

Katarína Pecnová Counsel, Slovakia Dentons D: +421 220 660 220 [email protected]

Javier Lasa Partner, Madrid Co-Head of Europe Energy practice – Dentons D: +34 91 43 63 325 [email protected]

Barlas Balcioglu Turkey Managing Partner Balcıoğlu Selçuk Akman Keki Attorney Partnership D: +90 212 329 30 00 [email protected]

Ian McGrath Partner, Istanbul Dentons D: +90 212 329 30 87 [email protected]

Maksym Sysoiev Senior Associate, Kyiv Dentons D: +380 44 494 4774 [email protected]

dentons.com 53 Charles July Partner, London Dentons D: +44 207 246 7654 [email protected]

Lucille De Silva Partner, London Dentons D: +44 20 7320 3795 [email protected]

Adam Brown Managing Practice Development Lawyer, London Dentons D: +44 20 7246 7014 [email protected]

Eldor Mannopov Uzbekistan Managing Partner Dentons D: +99 871 1503105 [email protected]

Sources of official data used in this publication

• Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources • European Commission Renewable Energy Progress Report, February 2017 • Eurostat • International Renewable Energy Agency • Bloomberg New Energy Finance

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January 2018 Brand-6861 – 01/29/2018