Feed-in-Premium Mechanism

The Law of Ukraine No. 3220-IX introduced a market feed-in premium mechanism, which is actually a new tool to support renewable energy producers. What is this mechanism, and what is its feature? What opportunities does it open up for renewable energy producers? How is the market feed-in premium calculated? Our expert, Serhii Kravchuk, Director of KNESS Energy, elaborates on all this.

Current Models Of Electricity Sales For Renewable Energy Producers

Prior to the entry into force of the above-mentioned Law, renewable energy producers had the option of either selling their electricity under a feed-in tariff or selling it on market terms.

When discussing operation according to the first model in today’s context, we can identify several key characteristics:

• guaranteed sale of the entire volume of output electricity;
• a fixed price (pegged to the euro) for electricity sold until 2030;
• the amount of electricity output restrictions is compensated by the transmission system operator.

What are the peculiarities of the model for selling electricity from alternative sources on market terms?

• Stable payment schedule for the supplied electricity.
• Market price for output electricity.
• The flexibility to select a balancing group freely, enabling cost optimization for settling imbalances.
• The volume of restricted electricity is purchased by the producer from the transmission system operator at the price of the balancing market, thus not creating an imbalance for the party responsible for the balance.
• Voluntary participation in auctions for the electricity sale for producers from alternative energy sources.

Newly Adopted Model

According to the Law, the feed-in premium is a system of incentives for energy production from alternative energy sources, under which the guaranteed buyer pays to economic entities with set feed-in tariffs and economic entities that have acquired the right to support based on the results of the auction the difference between the feed-in tariff or auction price, including a mark-up to it, and the settlement price determined in accordance with the procedure established by the Law of Ukraine “On the Electricity Market.”

Thus, producers with set feed-in tariffs or those who sell electricity on market terms will be able to sell green electricity to a trader/supplier/consumer at market prices. At the same time, the State Enterprise “Guaranteed Buyer” will compensate to bridge the gap in reaching the “feed-in” tariff value.

The Main Features Of The Feed-In Premium Mechanism

• Possibility to sell electricity to a trader/supplier/consumer at market prices.
• Possibility to freely choose a balancing group, which makes it possible to optimize the imbalance settlement costs.
• The volume of restricted electricity is purchased by the producer from the transmission system operator at the price of the balancing market, thus not creating an imbalance for the party responsible for the balance.
•  Opportunity to receive a market premium.

The Cost Of The Service Under The Feed-In Premium Mechanism

The settlement price is determined by selecting the maximum value of the two indicators:

• the average of the “day-ahead market” price indices for the base load period for the settlement month and the month preceding it in the “IPS of Ukraine” trade zone and
• the average value of price indices under bilateral contracts, except for contracts concluded to fulfill special obligations to ensure the public interest for the settlement month and the month preceding it, for the base load period in the “IPS of Ukraine” trade zone.

If, as a result of determining the settlement price in accordance with clause 1, the maximum value is the average value of the price indices on the day-ahead market for the base load period for the settlement month and the month preceding it in the “IPS of Ukraine” trade zone, the cost of the service under the feed-in premium mechanism for the settlement period (month) shall be determined as the sum for the settlement period (month) of the products of the hourly volume of electricity generated and sold by the economic entity on the day-ahead market, the intraday market and under bilateral agreements, and the difference between the amount of the feed-in tariff or auction price, taking into account the mark-up to it, set (determined) for the energy facility.

If, as a result of determining the settlement price in accordance with clause 1, the maximum value is the average of the price indices under bilateral agreements for the settlement month and the month preceding it for the base load period in the “IPS of Ukraine” trade zone, the cost of the service for the settlement period (month) is determined as the sum for the settlement period (month) of the products of the hourly volume of electricity generated and sold by the economic  entity on the “day-ahead market”, the intraday market and under bilateral agreements, and the difference between the amount of the feed-in tariff or auction price, taking into account the mark-up to it, for the energy facility and the ratio of the average value of price indices under bilateral agreements for the settlement month and the month preceding it, for the base load period in the “IPS of Ukraine” trade zone to the average of the day-ahead market price indices for the base load period in the “IPS of Ukraine” trade zone for the settlement month and the month preceding it, multiplied by the average price on the day-ahead market for the corresponding hour for the settlement month and the month preceding it in the “IPS of Ukraine” trade zone.

If the amount of the estimated market price in the established period exceeds the amount of the auction price, taking into account the mark-up to it established for the relevant energy facility or its construction phase (start-up complex), the economic entity that produces electricity at such energy facility or its construction phase (start-up complex), pays to the guaranteed buyer the cost of the service under the feed-in premium for the electricity supplied by the relevant energy facility or its construction phase (start-up complex) in the established period.