Guaranteed purchase and incentives – Self-consumption in-creasingly attractive in Belarus

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The Belarusian feed-in tariffs offer renewable power producers attractive remuneration over a period of ten years, the associated yield and investment security, and guaranteed purchase beyond this period by the state-owned electricity supplier "Belenergo" (state monopolist). In addition, the possibility of self-consumption is becoming increasingly attractive and is now being used by a rapidly growing number of companies.

This trend is supported by the guaranteed purchase of excess energy and by numerous incentive measures.

 

Overview of the Belarusian feed-in tariff system

The incentive system for renewable energy in Belarus is based on a state-guaranteed feed-in tariff that is higher than the regular market rate paid for electricity. The tariffs are set by applying a coefficient multiplied by the offi-cially established and fixed market rate. The applied coefficient depends, among other things, on the electricity production technology. The amount of electricity that can be fed into the grid at the higher tariff is capped by a quota system. The construction of new installations is only permitted within the framework of tendered quotas or for self-consumption.

The quotas are not allocated based on the amount of energy to be fed into the grid, but based on the electrical capacity of the planned renewable power plants. When the quota tender is advertised, the tenderers indicate the total capacity of their planned power plants. The construction of power plants with a higher capacity than that ap-proved under the allocated quota is not permitted. 

For 2019-2021, the following quotas have been approved for the construction of new renewable power plants:

 

 

  
The state purchases the entire energy generated by these power plants and pays remuneration for it in accordance with the applicable higher tariff rate. This higher feed-in tariff is guaranteed for ten years of the power plant’s op-erating life. It is calculated by multiplying the applicable coefficient by the market tariff. The coefficient currently varies between 1.01 and 1.3 depending on the energy source. In this way, it offers revenues 1.01 to 1.3 times higher than the actual market rate.

 

The following coefficients will apply to power plants to be put into operation between 1 January 2019 and 31 De-cember 2021 or constructed under the quotas allocated in 2018:


1. Wind turbines, irrespective of their capacity
the first 10 years from commissioning a power plant with an operating life of

  • less than 5 years: 1.1
  • more than 5 years: 1.01

2. Power plants which use energy of natural water currents

the first 10 years from commissioning a power plant with a capacity of

  • up to 300 kW: 1.3
  • 301 kW  to 2 MW: 1.25
  • over 2 MW: 1.2

3. Power plants which produce energy from wood fuels and other biomass
the first 10 years from commissioning a power plant with a capacity of

  • up to 300 kW: 1.3
  • 301 kW  to 2 MW: 1.25
  • over 2 MW: 1.2

4. Biogas power plants
the first 10 years from commissioning a power plant with a capacity of

  • up to 300 kW: 1.2
  • 301 kW  to 2 MW: 1.15
  • over 2 MW: 1.1

5. PV power plants

the first 10 years from commissioning a power plant with a capacity of

  • up to 300 kW: 1.3
  • 301 kW to 2 MW: 1.25
  • over 2 MW: 1.2

6. Power plants which use geothermal energy and other energy sources not classified as non-renewable

the first 10 years from commissioning a power plant with a capacity of

  • up to 300 kW: 1.2
  • 301 kW  to 2 MW: 1.15
  • over 2 MW: 1.1


Components of the market rate

As already mentioned, electricity generated from renewable energy sources is sold at a higher price to the state-owned electricity supplier. Since 1 August 2018, the market rate for 1 kWh, which is later multiplied by a coefficient, has been calculated as follows:

 

Market rate=Base rate*(0,31+0,69 C/Ca),

 

The base rate is the amount set by the state-owned electricity supplier and approved by the Belarusian Ministry of Antimonopoly Regulation and Trade.

 

“C” means the exchange rate of BYN against the USD fixed by the National Bank of the Republic of Belarus at the time of payment.

 

“Ca” means the exchange rate of BYN against the USD as determined by the National Bank of the Republic of Belarus at the time when the base rate was actually approved.

 

This procedure is used for adjusting the rates for inflation.

 

The final price for renewable energy is calculated as follows:

 

Final price=Market rate*coefficient+VAT (20 %)

 

The following chart shows the development of the base rate in recent years which serves as the basis for the calculation:

 

 
Figure 1: Historical overview of the base rates

 

Due to the monopoly position of the state-owned electricity supplier Belenergo (or its subsidiaries), electricity supply contracts in Belarus are concluded practically exclusively with Belenergo as the contracting party. Among other things, such a contract defines the conditions for the supply of electrical energy generated by the power generation plant. As a rule, the contract has a fixed form specified by the state-owned electricity supplier and does not allow much wiggle room for changes.

 

Self-consumption as an attractive option

Because the subsidised quotas are really low (e.g. for 2019: only 15.9 MW for wind and 0 MW for solar was allocated for the whole of Belarus), it is advisable to look for alternatives for the deployment of renewable power plants. As already described, the construction of renewable power plants outside the quota scheme described above is made possible for legal entities that generate energy from renewable energy sources for self-consumption. Renewable energy systems to be used for self-consumption can be installed without any major restrictions.

                                                 

In addition, these power plants to be used for meeting their own energy requirements enjoy a feed-in guarantee for excess energy produced. This excess energy will be, however, charged by the electricity supplier at the market rate, multiplied by the so-called reducing coefficient (x < 1). The reducing coefficient for power generation plants commissioned since 1 January 2018 is currently 0.1, i.e. the producer's return is 10 % of the market rate.

 

More than 50% of renewable energy in Belarus is already produced today for self-consumption.

 

      
Figure 2: Overview of renewable power plants in Belarus (including those producing energy for self-consumption)

 

Corporate Power Purchase Agreements (PPA) theoretically possible?

Corporate Power Purchase Agreements (PPA) theoretically possible?
In Belarus, there is no possibility of selling energy outside the public grid without the involvement of the grid opera-tor (the so-called Corporate Power Purchase Agreement). In principle, energy may only be supplied to the final consumer through the public grid with the participation of the state-owned electricity supplier, i.e. an "off-grid" solution (where the producer sells its electricity directly to the consumer through a direct connection) is not possible.

 

Also, the theoretical possibility resulting from the regulations on self-consumption where a system installed for self-consumption would belong to a third party, who would then, for example, lease it to the consumer using it for self-consumption, cannot be implemented in practice. Although the applicable laws do not yet contain any provisions regarding the question of whether the power plant must be necessarily owned by the electricity consumer, docu-ments developed during the planning, construction and commissioning of a power plant must include the purpose of the project: For self-consumption by the owner. This means that the power plant to be installed must be con-nected to the owner being the consumer. For the connection of another consumer (e.g. the lessee of the power plant), a permit of the state-owned electricity supplier would have to be obtained. There are no precedents for this yet and we do not believe it is feasible at this stage to obtain such a permit.

 

Other incentive schemes which support self-consumption

In addition to sector-specific guarantees, investors when investing in the construction of renewable power plants can also enjoy additional advantages provided for under investment law. For example, investors can be exempted from value added tax when importing renewable power plants or corresponding components from abroad. Like-wise, property tax may be waived for properties on which such power plants are sited. Some of such incentives can also be used for power plants that are to produce electricity for self-consumption.


When investing in renewable power plants, the investor can also conclude with the Belarusian state a so-called investment contract for the implementation of an investment project. On the basis of such an investment contract, the investor has the opportunity to receive a wealth of advantages and preferences. During the term of the con-tract, the investor can benefit from the following advantages:

  • granting of a land plot for the implementation of an investment project without participating in an auction
  • full VAT deduction and exemption from payment of customs duties in respect of goods and services required for the implementation of the investment project
  • exemption from payment of land tax

 

In addition to the above-mentioned advantages, investors are given the opportunity to additionally optimise their taxes as they are partially or completely exempt from the obligatory payment of taxes and/or fees to the Belarusian authorities.
 

Similar advantages as those offered in the case of an investment contract are also offered for investments in re-newable energy projects

  • in one of the special economic zones 
  • in small and medium-sized towns (throughout the territory of the Republic of Belarus with the exception of the 22 largest cities) 
  • in the Chinese-Belarusian Industrial Park

 

Outlook

The Belarusian government strives to further increase the share of renewable energies in the total energy consump-tion. The objective of Directive No. 3 of the President of the Republic of Belarus dated 14/06/2007 is to achieve a share of 6% of the produced green energy in the total energy consumption. The figures clearly show the steady growth in the total capacity of renewable power plants. As a party to the Paris Agreement of 12 December 2015, Belarus is bound by the resulting commitments and is expected to make progress in further promoting renewable energy.

 

However, the development will largely depend on the effects of the planned commissioning of the Belarusian nu-clear power plant Ostrowez in 2020. The forecast capacity of the nuclear

power plant will probably cover the majority of energy consumption in Belarus, make the country an energy exporter virtually overnight once it is commissioned, and thus take the further expansion of renewable energies off the political agenda.

 

Therefore, it is important to act fast in order to secure for yourself the currently favourable conditions over the next two years. The acquisition of existing power plants, which have already been granted a feed-in tariff under the previous model, via a share deal through the so-called secondary market (regardless of whether they have already been completed, are still under construction or are in the planning phase), is particularly worthwhile. In such a case, the purchaser receives the so far applied guaranteed feed-in tariff over the remaining period determined in the permit and, thus, earns a calculable return.

 

Conclusion

In Belarus, there are basically two possibilities to use renewable energy:

  • Sale to the state-owned electricity supplier Belenergo within the framework of the allocated quotas and with incentive coefficients; and/or
  • Self-consumption (plus feed-in of excess energy produced).

 

Experience shows that the construction of renewable power plants for self-consumption in Belarus pays off not only from an ecological point of view, but also from the economic aspects due to the low production costs and the guaranteed feed-in of excess energy produced at fixed tariff rates.

 

However, it is not (yet) possible to sell electricity to a third party (e.g. industrial companies) via PPA using a direct wire or the public grid. All energy must be sold to the state-owned electricity supplier.



 

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