INSIDER ENERGY. Renewable energy in Belarus: new quotation rules

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1 INSIDER ENERGY Renewable energy in Belarus: new quotation rules Following the Presidential Decree No 209 Concerning the Use of Renewable Energy dated 18 May 2015, state authorities have enacted resolutions finally establishing a level playing field in the renewable energy sector In Belarus. On 6 August 2015 the Council of Ministers defined quotation rules 1 and on 7 August 2015 the Ministry of Economy established new feed-in tariffs for renewable energy 2. This edition focuses on determination and distribution of quotas under Resolution No 662, which came into force on 21 August We remind you that rules on quotas are not applicable to: - companies, which produce energy only for their own needs and not with the aim to supply the public grid; - renewable power plants being built under investment agreements with the government of the Republic of Belarus concluded and registered before 20 May September 2015 Eugenia Urodnich Associate partner Energy and investments eugenia.urodnich@vilgerts.com WHO AND HOW DETERMINES THE QUOTAS? A special Republican inter-ministerial Commission (Commission) will be responsible for the determination and distribution of the quotas. All information about renewable energy plants currently in operation as well as under construction will be gathered by the Commission annually by 31 March. We suppose that at the beginning the Commission will set a general quota for the whole Republic without distinguishing between the regions or types of energy resources, and only later the different types of renewable energy sources will be distinguished. But it remains questionable if the quota will be divided between the regions at all. However, the Commission could regulate the distribution of the quota between regions by «sorting» applications. 1 Resolution of the Council of Ministers of the Republic of Belarus No 662 as of 06 August 2015 «On determination and distribution of quotas for construction of renewable energy power plants» 2 Resolution of the Ministry of Economy of the Republic of Belarus No 45 as of 07 August 2015 «On tariffs for electricity produced from renewable energy sources in the territory of the Republic of Belarus by individual entrepreneurs and legal entities that are not part of the State Electricity Production Association «Belenergo», and supplied to the companies of the Association»

2 The quota will be set for a 3 year period of time and adjusted annually by 30 April. For 2015 the quota is supposed to be set by 15 September. It is at the moment unclear whether the information about the quotas will be publicly available or disclosed only to the authorities. 31 March The Commission gathers data on power plants in operation as well as plants under construction 30 April The Commission sets / adjusts the quota 1 September Companies submit applications for the quota 20 November Final list of companies obtaining the quota is formed Scheme of annual quotas distribution 15 September The Commission sets the quota 20 September Companies submit applications for the quota 30 November Final list of companies obtaining the quota is formed Scheme of quotas distribution in 2015 HOW WILL THE COMPANIES RECEIVE QUOTAS? Companies and individual entrepreneurs interested in obtaining a permission to build a renewable energy plant should submit an application by 1 September. In 2015 the application deadline is 20 September. The application must not be submitted to the executive committee where the applicant is registered, but instead to the executive committee of the region, where the applicant plans to construct the renewable energy plant. Two copies of the application must be submitted: - one to the regional executive committee, and - one to the Commission (in a sealed envelope). The application should also include information about the location of the power plant specifying it on a map. Regional executive committees consider providing land plots to the applicants and to change the designated land plot use accordingly on their own initiative. Interpreting the Resolution No 662 literally, the conclusion must be made that both Belarusian and foreign companies can apply for the quotas. The list of companies and individual entrepreneurs-quota-obtainers is approved by the Commission. Foreign investors entering Belarusian market usually set up a subsidiary for power plant building and operating purposes. But it is currently not clear how quota obtained by a foreign company will be transferred to its local subsidiary, if necessary. 2

3 The final list of winning companies is formed until 30 November each year. WHAT CRITERIA MATTERS IN QUOTA COMPETITION? Quotas will be distributed based on competitiveness. An application submitted to the Commission shall contain only technical parameters. This should enable to choose the most efficient projects. Applicant with the most points receives a quota. If there are several preferential applicants, then the quota will be given to the applicant, who plans to build a power plant in territory affected by the Chernobyl disaster. Example Criteria for solar power plants: Criteria 1. Installed electric power capacity per 1 m 2, kwh 2. Coefficient applied to the tariffs for the sale of electricity generated 3. Temperature coefficient of electric power, % 4. Degradation coefficient for solar panels, % a year 5. Aggregated operation term of an equipment up to the commission, years (month) Criteria coefficient 0,3 0,1 Each type of green energy has its criteria and tariff calculation. Thus for solar and wind power plants the plan to use second-hand equipment has a considerably negative effect. Private companies will have to compete with state owned. Investors have to be content with the rest of quotas. Commercial companies apply a coefficient, according to which the price of the sale of energy to the state is calculated. To achieve profit, companies apply a coefficient above 1. This coefficient plays an important role when a winner of quotas is chosen. State companies will apply with the coefficient of 1, because the state cannot sell energy to itself at a higher price. 3

4 WHO IS RELEASED FROM COMPETITON? Primarily (without submitting applications) quotas will be distributed among the following projects: power plants being built under international and investment agreements with the Republic of Belarus investment projects, financed through external government loans and external loans against the guarantees of the Government of the Republic of Belarus international technical assistance projects, approved by the Council of Ministers of the Republic of Belarus projects, financed through foreign donations The mechanism of quotas distribution among investors, who intend to build a power plant under an investment agreement and receive a land plot, is still quite unclear. Investor concluding an investment agreement may claim land plot only out of a special list. Unfortunately, the Resolution No 662 does not clear the issue whether the investor may conclude an investment agreement without having a previously obtained quota. We believe that the Resolution will be subject to amendments from time to time. Companies-pioneers applying in 2015 will face uncertainty over the procedure. We expect the mechanism of quotas distribution to be improved on a satisfying level by September Our suggestions to companies applying in 2015 before submitting an application: to choose equipment, that will operate at the plant to select a land plot for the power plant and approve its use for the project with local authorities to establish a company that will build and operate the power plant Should you have any questions or need additional information concerning the Resolution No 662, please contact Eugenia Urodnich, Associate partner at Vilgerts Legal & Tax. 4

5 VILGERTS in Belarus VILGERTS Minsk team assists foreign investors to successfully establish, develop and protect business in Belarus. Our international clients commend our expertise in high-profile commercial, corporate and dispute resolution cases. We are commercially minded lawyers with an impressive academic background offering seamless full range business law services. Our investment team Eugenia Urodnich Roman Shpakovsky Gints Vilgerts Associate partner Partner Partner (Latvia) Contacts Belarus: Timiryazeva st., 72, 6th floor, , Minsk Latvia: Elizabetes iela 33, LV-1010, Riga Lithuania: Vilniaus g. 31, LT-01402, Vilnius Estonia: Tõnismägi 3A, 10119, Tallinn 5