Over three years, the company has successfully developed Rentechno alternative energy projects as EPC-contractor, and recently — and even as a developer. Rentechno focused on the development and implementation of engineering solutions using a variety of energy-efficient technologies and renewable energy sources. We are a 100% Ukrainian enterprise, with extensive experience in alternative energy projects.
The company started in 2007 when they launched the first project related to alternative energy. And by 2012, it was built and successfully commissioned 5 network of solar power plants with a total capacity of approximately 8 MW and formed portfolio by 20 MW to be implemented in the near future.
This article will examine the particular search and work with local companies, following the logic of classical investment and construction process. The most important stages, which will be discussed below, are planning stages, development, construction and operation of facilities as well as the formal procedures associated with obtaining a «green tariff».
It so happened that our company is quite often treated foreign companies who are willing to enter the Ukrainian market, but only if local involvement in project financing. Usually this question they look at the EBRD, in organizations such as the IFC, NEFCO or commercial banks. Experience shows that currently the local Ukrainian banks often are not prepared independently and at reasonable rates to finance renewable energy projects. This is due to lack of available funds in the banking system and banks’ reluctance to work without collateral, which is usually significantly higher than the loan amount. On the other hand, alternative energy projects are often implemented using a newly created legal entities with almost «empty» balance. Therefore, when debt financing becomes a very important issue guarantees availability of the investor as well as the size of its stake in the project.
What to do if you want to attract a loan for Ukraine?
First, it is best to work with the Ukrainian banks that are subsidiaries of foreign financial institutions. Ideally, the negotiations themselves better to spend initially with head office abroad, and after receiving confirmation of interest in a specific project — to start working with the local Ukrainian bank.
Secondly, often must be prepared to invest at least 50% of equity. It is very rare Ukrainian banks are willing to discuss the possibility of funding more than half of the project costs. This is possible in the case of actions or special programs, such as programs USELF EBRD, or in the case of an investor capacity and willingness to provide collateral or guarantees that will satisfy the requirements of the bank.
But in any case — borrowing on Ukrainian financial institutions is currently very difficult and lengthy process with poorly predictable result. And the main recommendation — is to seek funding outside Ukraine.
As for the development of projects in Ukraine, the main difficulty for the foreign investor is, primarily, a substantial difference from those rules, to which he was accustomed to in other markets. Be aware that the alternative energy industry in our country is still very young and not fully adjusted from a legal standpoint. In practice, we have a situation where, for example, the procedure of land allocation is complex and opaque, and its duration — bad to predict. Depending on the complexity and location of the project, land acquisition for future construction can last from several months to 1.5-2 years.
Moreover, in many stages of development are often involved different organizations, internal procedures which may vary in different regions of Ukraine. This applies to private network operators — Oblenergo. For example, the requirement to develop a feasibility study to assess the possibility of connection to the grid generation facility, not the same everywhere. We are faced with the fact that even for small projects, in which such a document in a particular region is not required, ultimately still had to order the feasibility study. Thus, the second important point about the stage of development — is that the procedure for obtaining technical conditions for connection to the network, as well as the procedure of land acquisition is not always transparent and predictable in terms of timing and cost.
At the stage of development when looking for a local partner or partners I recommend to draw your attention to the following factors. First, a deep understanding of the partner not only Ukrainian realities, but also the characteristics and specificities of particular regions. Secondly, it is the presence of experience across the full range of land issues that precede the signing of a lease of land. Also very important is to have a team of experienced lawyers, or the possibility of attracting experienced external legal advisers. And finally, the local partner is necessarily necessary technical expertise and knowledge that will quickly, and most importantly — the right to address issues associated with connecting to networks.
And above all it is important competence as ignoring any of them can lead to future problems to undesirable. As an example, one can cite Rentechno projects to which the company became involved only at the stage of design documentation. Prior to this, the foreign investor has worked with the local Ukrainian partner who possessed excellent competencies in the first three components, but in this case — had very little technical training. As a result, the design documentation revealed that relatively easily and quickly obtained specifications contained a set of redundant requirements. This led to the fact that the cost of equipment and the connection works, significantly exceeded the initially planned budget and financial parameters of the project, respectively, and changed for the worse.
As an alternative, independent real estate development can be contrasted with the so-called ’shovel ready’ projects. I. e. projects fully prepared for construction in terms of availability of all documents and permits, concentrated on a separate legal entity. This is one of the possible scenarios that should carefully consider. Of course, in this case, the costs increase slightly compared to the project development on their own, but in the end, buy readymade ’shovel ready’ project will save a lot of time. And sometimes, this solution is the only chance to make the next stages of the investment project real. We believe that on this version is worth at least seriously consider.
We turn now to the question of design of alternative energy. There are several factors that you need to know and consider when planning this step.
First, there are some differences between the project documentation developed under Ukrainian and international norms. The main difference is that the order of design documentation in Ukraine — regulated and documentation itself — overly detailed. In the West, the approach to design is usually somewhat different and less detailed documentation, although covers all necessary technical solutions. Therefore, when working in Ukraine for the project, which originally developed the foreign company may require a substantial revision of the design documentation. And this adaptation to the complexity can take almost the same time as the development of the project from scratch.
The next thing is the fact that the set of documentation typically includes several separate sections, which in practice often developed by different design organizations. And not always, these organizations are united under the auspices of one of the general designer. Usually, the design work, which relate to matters connected to the network, perform particular design institutes with the necessary knowledge, experience and licenses. And only they have developed documentation can be quickly and relatively painlessly agreed with Oblenergo or regional units «Ukrenergo».
By the way, continuing the theme of licensing , it should be noted that since mid- 2012 has been canceled for companies licensed to perform project works for the 1-3 category of difficulty (just as there are 5 categories of complexity of objects). At the same time it is imperative that individual certification of Chief Project Engineer, i. e. employees of the design organization designated responsible for a specific project.
And finally, the last in the list, but not least in importance is the requirement for local content. As you know, for now «green tariff» in the project cost must be at least 15% of Ukrainian costs for equipment, materials, work or services. A 2013 — local costs should be no longer than 30%.
Considering all the above, when searching for a professional local contractor for the development or adaptation of design documentation is recommended to pay attention to the following points. First, the project organization must have a valid license to perform project activities. Especially those objects that fall or could theoretically get into the fourth or fifth grade. Secondly, their key employees to be an individual certificates performers. Recently without Personal Printing chief engineer of the project was impossible to reconcile the documentation, even under conditions of the design organization license. The third point is the real experience of designing and desirable — the design of the alternative energy, which is underpinned by a deep understanding of local regulations and standards for design documentation. On the other hand it is equally important as the ability to work with and international standards. After all, this competence may be important in the event that the customer plans to continue to attract international auditors and technical experts, the EPC-contractor or financial partners, who are used to and want to work with the documentation made it to international standards.
Moreover, given the importance of proper and timely connection object to the networks when selecting a local designer’s prerequisite is the availability of a good business relationship with potential contractors for electrical networks with a voltage of 10 kV. Well, of course, the local partner has a deep understanding of the features of Ukrainian market of services and equipment in order to be able to properly design the facility with existing requirements for local content.
Today in our country is not sufficiently developed market specialized equipment, which usually have to be imported. As a result, it requires customs clearance and payment of import VAT. On the other hand, as already mentioned, from next year, tougher requirements for local content. This means that an increasing proportion of materials and equipment have to be purchased in Ukraine.
It should be remembered that in many commodity items we still have not formed a full competitive market. This means that, contrary to expectations, the price may be higher than imported counterparts when not always as appropriate.
As an example, you can bring one of the recent projects Rentechno where the task was to work with the Ukrainian manufacturers supporting metal structures for mounting solar modules. In general, in Ukraine there are many companies that are engaged in the processing of metal and have the potential to develop and deliver products required for the project. But the broader market analysis showed that only a few companies in the whole country, the de facto were willing to offer and provide a customized solution for a long-term guarantee.
Also note that many of the major manufacturers (e. g., transformer manufacturers) are not always prepared to deal with the logistics, which are thus likely will be borne by the buyer. And another feature of the local market is that Ukrainian suppliers of equipment are very reluctant to agree to a delay in payment, and often — generally require 100% payment prior to shipment to the customer.
Obviously, contracts with suppliers of equipment should not only give the customer to get the goods for a reasonable price within a predetermined time, but also to provide appropriate level of assurance about the quality of the product. Therefore, the choice of local producers or resellers recommended to pay attention to the following points. For distributors of equipment — a practical experience in foreign trade contracts and the ability to work effectively with Ukrainian customs, and the willingness to take responsibility for the safety of the equipment during transportation to the building site or the willingness to provide the customer with the appropriate insurance. For direct producers — is primarily established relations with suppliers of all necessary materials and components, practical experience solving transport and other logistical issues, as well as readiness, and most importantly — the ability to provide long-term guarantee on its products.
Turning to the discussion of the stages of construction and commissioning of the alternative energy in operation, we want to draw your attention to a few key points, specific to the Ukrainian market.
First, in practice it is quite difficult to find a large Ukrainian contractor who can perform construction and installation work throughout the country. This means that the same types of work in different projects that are implemented in different regions of Ukraine, customers have to deal with several contractors, and accordingly — with different quality, cost and timing of the work.
Secondly, the choice of contractors is very important to pay attention to their compliance with the formal requirements. As a minimum, to perform certain works contractor must be licensed and its staff — all the necessary permits and approvals.
The third point is that in the planning of construction is necessary to distinguish the work directly related to the subject of generation, as well as works that relate to the issues of network connectivity. Recently, most often performed by specialized companies that have the necessary approvals from the network operators. We mean, first of all work related to upgrading substations and overhead lines on the balance Oblenergo. Regardless of whether there is a general contractor in the project or the customer is working with several companies; in fact, work on the «high side», most often transmitted by the same local contractors.
Analyzing the situation, advice when searching a local contractor to pay attention to that the company has experience managing projects of this complexity, as well as all the necessary in our country licenses, permits and tolerances. Very important is the quality of services provided and work performed, which confirmed previously completed projects, and the company’s ability to sustain the required time and willingness to assume full responsibility in the event of a possible failure. Also, do not forget about the financial stability and economic stability of the company, as well as opportunities to obtain bank guarantees when dealing with this contractor.
Undoubtedly, proper design and execution of construction works have a very important impact on the future operation of the plant. But at the same time, it would be wrong to ignore the issue of routine maintenance. Indeed, during the operational phase, the project owner may face a variety of operating risks, such as a system failure error in technology, increased maintenance costs, equipment failures, and — with other types of injury or damage.
To reduce operational risks possible solution is to contract with a service company that will guarantee the correct operation of the plant for a long period of time. When choosing such a company must pay attention to the following important factors. First, it is that it has the practical experience the same or similar services to the complexity of objects. Second, is the fullness of packages of services that can offer the customer a specific company. Third, it is an opportunity, if necessary, to ensure the physical protection of the facility. Also in the case of long-term cooperation on several projects, which will be located in different regions of Ukraine, may prove to be a very important partner in the presence of a developed network of branches and offices. Of course, it also must be sufficiently qualified staff, and preferably fluent in English. The latter requirement is necessary not only for contacts with foreign customers, but also for professional communication with manufacturers of imported equipment, as well as for reading and understanding of any technical documentation.
In addition, the market of insurance services from loss of profit for the alternative energy in Ukraine is not yet sufficiently formed. Those companies that can theoretically offer similar services, will likely have to reinsure the risks of major foreign players. This means that local search insurer actually carried out among Western companies. It must be clearly understood and taken into account when deciding on possible cooperation.
If we talk about one of the most important and probably the most anticipated stages of the investment project — getting «green tariff», then today this procedure consists of several steps. The first is a power producer license, the next step — it’s membership in the wholesale electricity market. After that the company owning the power plant must pass an examination to determine the actual proportion of local content in the project. Followed by obtaining NERC resolution on awarding «green» tariff and signing a contract to purchase electricity from the state enterprise «Energy.»
All of these steps, in our opinion, are not very complicated. With careful planning and implementation of all previous phases of the project, getting «green tariff» is a technical procedure. Of course, here and there are many pitfalls and nuances of jobs that are best left to the professionals. When choosing a partner, who will accompany the process of getting «green» tariff, primarily recommended to work with local law firms. At the same time , they must not only have the appropriate knowledge about Ukrainian legislation, but also to have a real experience of successful project support , which in the past claimed to receive «green» tariff.
In this paper, were affected only those practical issues with which the company Rentechno really faced several years of work in Ukraine. Obviously, the Ukrainian market for renewable energy has a number of features that may at first glance seem confusing or overly complex. But the reality is not so bad. We understand that, with all the nuances existing in Ukraine, you can run a successful business, including — in the field of alternative energy. Just to projects should be approached thoughtfully and carefully planned in advance all their actions. For successful operation needs a balanced and considered approach to the selection of a local partner, a clear understanding of where and what kind of assistance you may need, and work only with professionals who have real hands-on experience and a solid reputation.
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