Investing in Renewables: How the New Law Changes the Energy Business.

Law of Ukraine No. 4777-IX, signed by the President of Ukraine, significantly overhauls the rules governing the energy market. The document introduces a new support model for renewable energy, creates a comprehensive framework for the development of energy storage systems, stimulates the expansion of distributed generation, and establishes mechanisms for trading the "green" value of electricity.

These changes cover not only the economic and technical aspects of the market but also establish an updated legal framework for implementing hybrid energy projects—specifically those that combine generation with energy storage systems or operate under flexible connection arrangements.

The law replaces the feed-in premium model with a market premium model for support quota auctions. From a legal and financial perspective, is this mechanism sufficient to make new renewable energy projects attractive for bank financing? What risks does such an agreement pose for investors?

The introduction of a market premium mechanism for support quota auctions by Law No. 4777-IX creates a new foundation for financing renewable energy projects, though it comes with specific regulatory requirements that directly impact their bankability and risk profile.

This mechanism includes several factors that are positive in this regard.

Support under the market premium mechanism is provided for 12 years. This allows banks to build long-term financial models for return on investment. Income predictability and permissible deviations are key. A business entity sells electricity on the market at free prices but receives a service (premium) from the Guaranteed Buyer. For certain categories, such as solar energy with energy storage systems, a price cap of up to 12 euro cents per 1 kWh has been set, which is a significant indicator for investors.

However, despite its potential appeal, this mechanism contains a number of critical risks that are hazardous for future investors. 

The market premium agreement becomes void if the investor fails to provide a copy of the grid connection agreement or capacity reservation agreement within 12 months from the date of its signing. In such a case, the Guaranteed Buyer has the right to exercise the bank guarantee.

Tight construction deadlines: For solar power plants, the facility must be commissioned and connected within 18 months. For other types of renewable energy, the deadline is 36 months (or 42 months if the agreement is concluded during martial law). Failure to meet these deadlines also results in the invalidation of the agreement and the forfeiture of financial security.

High financial obligations: To participate in the auction, an investor must provide a bank guarantee of 5 euros per 1 kW, and upon winning, must ensure contract performance in the amount of 10 euros per 1 kW.

Restrictions have been set for hybrid projects (solar + energy storage): To receive support in this category, there are specific hours where support under the market premium mechanism is unavailable for two consecutive hours between 10:00 and 16:00.

While the legislature is introducing a bankable mechanism through this law, the legal risks largely remain with the investor.

 Strict technical requirements for participating in auctions in the "solar + energy storage" category: will these become a "legal barrier" that makes such hybrid projects economically unfeasible?

The state is shifting its priorities: from simply increasing renewable energy capacity to stimulating the flexibility and stability of the energy system. The requirements for BESS are quite stringent, but they are offset by a higher support price and a guaranteed share of the quota.

The law sets a fairly high bar for energy storage systems (ESS) integrated with solar power plants:

The capacity of the ESS must be at least 80% of the solar plant's capacity. The ESS storage capacity must be at least 2 kWh for every 1 kW of generation. However, the legislature has balanced this by setting an increased price ceiling for such facilities at the auction—12 euro cents per 1 kWh.

The requirement for no support for two consecutive hours between 10:00 and 16:00 is a key tool for forcing a shift in the energy delivery schedule. This requirement encourages the investor to effectively manage the ESS to avoid losing revenue during peak solar activity, as the market premium will only be paid when the grid actually needs the energy. 

 It is not appropriate to consider the proposed conditions a "legal barrier." The law requires that the share of such hybrid projects in the annual support quota be at least 10%, which effectively creates a separate niche where competition will be lower due to the complexity and cost of such projects compared to the general renewable energy category. This innovation filters out cheap but unstable projects in favor of technologically complex hybrid solutions.

The introduction of "flexible connection" is a long-awaited step for regions with capacity deficits. It includes legal mechanisms to protect investors from abuse by distribution system operators.

The law contains a number of legal safeguards designed to protect the investor from unreasonable restrictions by system operators (DSOs/TSOs).

Customers have the right to propose flexible connection as an alternative to costly reconstruction or the construction of external power supply networks. In such cases, the system operator is not permitted to deny the customer a flexible connection.

Restrictions on network access may only be applied in accordance with signed agreements. This means that all parameters for "non-guaranteed" capacity, as well as the terms and schedules for potential restrictions, must be clearly defined in the contract. This provides investors with a legal basis to challenge any violations of these terms by the DSO/TSO.

By definition, the capacity allowed under a flexible connection can be partially guaranteed, meaning it is available for use at any time. This ensures a minimum required level of energy delivery that cannot be restricted by the operator.

To prevent abuse, technical equipment must be installed at the point of connection to automatically disconnect or reduce load only when limits are exceeded.

In summary, it is important to note that the primary protection mechanism is oversight by the Regulator: network development plans and the methodologies for calculating flexible connection fees are subject to approval by the NEURC, which creates a clear framework for interaction between investors and network operators.

Microgrids for business: new legal opportunities. Combining generation, consumption, and energy storage systems (ESS) at a single connection point, and raising the ESS licensing threshold to 5 MW.

Law No. 4777-IX introduces fundamental changes to the rules governing generation and consumption facilities, effectively legalizing the concept of industrial microgrids. This paves the way for new business models that were previously in a legal gray area or blocked by technical requirements.

For example: An energy storage system operator now has the right to provide power to other consumers who share the same connection point to the TSO/DSO networks.

A large factory (owning an ESS) can sell surplus stored energy to tenants or neighboring workshops on its premises. Such sales are conducted via a purchase agreement and do not require an electricity supply license.

Raising the licensing threshold for ESS at a single metering site to 5 MW will simplify business operations, allowing companies to install such systems for peak shaving or backup power without the bureaucratic burden of obtaining a NEURC license.

The law now allows active consumers to use the simplified tax system and has included renewable energy sources and batteries in the ESCO mechanism. Will these legislative innovations pave the way for businesses to install solar power plants on a large scale without upfront investment?

 These changes create a strong foundation for a significant increase in distributed generation projects at industrial sites, as they remove critical legal and financial barriers for the ESCO model and small businesses.

The most significant change is the amendment to the Law on Energy Efficiency. "Alternative energy projects and energy storage systems" are now officially included as energy service objects, where payment is made through savings on energy costs. An ESCO company installs a solar power plant and energy storage systems at the facility at its own expense. The customer does not spend their own capital but pays the investor using a portion of the savings gained from not purchasing expensive grid electricity. Including ESS allows enterprises not only to save money but also to ensure energy independence during outages, which is critical for Ukrainian businesses today.

Previously, participation of entrepreneurs on the simplified tax system in self-production mechanisms was legally complex due to tax risks related to barter or net-billing. The new regulation explicitly states that for active consumers—business entities on the simplified tax system—the contract must provide for the possibility of settling payments for supplied and consumed energy without using mutual offsets. These changes transform industrial enterprises from passive consumers into active market participants capable of flexibly managing their balance and monetizing their own energy infrastructure.

Combining the ability to attract external investment through ESCOs with the removal of tax barriers for single-tax payers creates ideal conditions for the mass installation of solar power plants at Ukrainian enterprises in the coming years. However, it should be remembered that for complex schemes (such as powering related parties or flexible connections), network operators will require the installation of automation to prevent overloads or unauthorized withdrawal, and that ESS remain costly, which may extend the payback period for ESCO contracts.

The law removes the register of guarantees from the scope of the general law on public registers and eliminates tax risks (the absence of independent value upon transfer). Does this remove the final legal hurdles for the full-scale trading of Ukrainian "green" value in Europe?

The adoption of Law No. 4777-IX effectively removes critical legal obstacles and creates the necessary foundation for integrating the Ukrainian Guarantees of Origin (GoO) system into the European market. Key changes facilitating this include: simplified registration procedures, the removal of tax and pricing risks, and mutual recognition with EU countries.

The law establishes that the creation and operation of the register of guarantees of origin are carried out without regard to the provisions of the Law of Ukraine "On Public Electronic Registers." This allows the NEURC to flexibly and promptly adapt the register's technical requirements to the standards of the AIB (Association of Issuing Bodies), the European association that facilitates cross-border trade in guarantees.

The law clearly defines that guarantees of origin transferred by producers (operating under the "green" tariff or market premium mechanism) to the Guaranteed Buyer have no value. This eliminates the risk of tax disputes regarding the "gratuitous transfer of an asset" and the need for additional taxation of these operations.

The law introduces the principle of reciprocity in the recognition of guarantees with EU and Energy Community countries, which removes legal barriers. Creating a legitimate mechanism to confirm the "environmental value" of Ukrainian energy is a key EU requirement. This will allow Ukrainian exporters of goods (steel, cement, etc.) to use these guarantees to confirm the low carbon footprint of their products, which directly impacts the amount of payments under CBAM.

Distributed generation: Gas turbine and cogeneration plants are now permitted to sell electricity through direct bilateral contracts, bypassing the exchange. New opportunities for the payback of gas and cogeneration plants.

Granting distributed generation facilities, including gas turbine and gas-piston cogeneration plants, the right to sell electricity via bilateral contracts on a voluntary basis—bypassing mandatory electronic auctions—is a significant step toward improving the economic viability of such projects.

These changes allow for the conclusion of long-term contracts directly with industrial consumers and the locking in of prices for an extended period, which makes cash flow predictable and facilitates the securing of bank loans.

The law has allowed producers, specifically gas-piston cogeneration plants, to power electrical installations for their own consumption and those of related parties located on the same or adjacent sites.

The ability to avoid exchange trading and switch to direct contracts with end consumers allows investors to create closed energy networks. This minimizes the impact of market price fluctuations and enables a faster return on investment by selling energy directly at more favorable rates to consumers who prioritize supply reliability.

Biomass heat tariffs after the repeal of the "90% rule": how producers should navigate the updated procedure

Based on Law No. 4777-IX, which amended Article 20 of the Law of Ukraine "On Heat Supply," the procedure for reviewing tariffs for biomass heat producers has been significantly changed and simplified. The main change is the abolition of the mandatory 10% discount and the granting of the right to producers to choose the most economically advantageous model, protected from administrative red tape by a 30-day "tacit consent" period.

A list of the key legal steps existing producers must take to benefit from the new rules.

Producers now have the right to independently choose one of two options for setting tariffs for the needs of the population and budget-funded institutions: at the level of the current tariff for thermal energy produced using natural gas for the relevant category of consumers; or based on economically justified costs in accordance with methodologies approved by the Cabinet of Ministers of Ukraine or the NEURC.

Next step: the producer must prepare an application and calculations according to the chosen methodology.

The application and the package of calculations must be submitted to the local government or other authorized body.

Important: be sure to obtain a copy of the application or a receipt of documents marked with the date of submission, as this document serves as legal proof of the start date of the review process.

The law introduces a clear deadline for the regulator: the authorized body has 30 calendar days to set a new tariff or provide a reasoned refusal. If no decision is made within this period, the tariff is considered automatically set at the level proposed by the producer in their application.

Given that the "tacit consent" principle applies in this case, the copy of the application with the receipt stamp becomes the primary legal evidence of the new tariff's legitimacy in dealings with consumers and regulatory authorities.

Unregulated provisions and potential conflicts: what energy market participants should prepare for following the law's adoption

 After analyzing the text of Law No. 4777-IX and related legislative acts, several critical "gray areas" and potential legal conflicts can be identified that may become grounds for litigation.

1. Retrospective recalculations and "occupied" generation. The most contentious issue is the mechanism for refunding payments for energy produced in occupied territories.

The law requires producers to return funds already received for periods when their facilities were under occupation and not operating synchronously with Ukraine's Integrated Power System. Determining the "dates of suspension and resumption of supply" is assigned to a Special Commission, whose decisions will be based on "verified information" that could be challenged as subjective.

2. Legal status of contract "invalidity" after 12 months The law introduces a very harsh penalty for failure to provide documents.

If an investor fails to provide a copy of a grid connection or capacity reservation agreement within 12 months of the auction contract date, the market premium contract becomes invalid. In civil law, the term "invalid" typically means that the transaction creates no legal consequences from the moment it was executed. This could trigger demands for the repayment of all premiums paid during that period.

3. Flexible connection: Uncertainty regarding the "non-guaranteed" share The introduction of flexible connection creates technical and legal uncertainty. Permitted capacity may be "partially guaranteed." However, the law does not establish a minimum percentage for guaranteed capacity, leaving this to the discretion of the Distribution System Operator (DSO) in each specific contract. While the law states that a DSO cannot refuse a flexible connection, it does not protect against the imposition of discriminatory curtailment terms within the contract itself.

4. "Tacit consent" and local self-government bodies (LSGBs) A principle of tacit consent (30 days) has been introduced for biomass heat producers. There is a high probability that LSGBs will ignore this principle, and that budget-funded institutions will refuse to pay invoices based on tariffs not officially approved by an authorized body, citing violations of budgetary discipline. 

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