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DRAFT RENEWABLE ENERGY LAW FOR GEORGIA Julia Weller Pierce Atwood LLP Batumi, Georgia July 11-13, 2008 Presentation Outline Principles of Legislative Drafting Context of Draft RE Law Problems with Amendments Problems with Request for EOI How to Fix the Problems Assumptions for RE Law

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draft renewable energy law for georgia

DRAFT RENEWABLE ENERGY LAW FOR GEORGIA

Julia Weller

Pierce Atwood LLP

Batumi, Georgia

July 11-13, 2008

presentation outline
Presentation Outline
  • Principles of Legislative Drafting
  • Context of Draft RE Law
  • Problems with Amendments
  • Problems with Request for EOI
  • How to Fix the Problems
  • Assumptions for RE Law
  • Customary Provisions for Draft RE Law
principles of legislative drafting
Principles of Legislative Drafting
  • RE Law should establish guidelines and authorization procedures for new investments in RES
  • RE Law should describe rights and obligations of all actors in RE field (investors, GNEWRC, GoG, ESCO, and customers)
  • RE Law should provide stability, predictability and transparency
    • Lack of guidelines and uncertainty regarding specifics of authorization process are as bad as over-regulation
    • Investors need clarity and certainty to understand and measure risks
    • Investors need transparency to avoid accusations of corruption from home country or successor government
context of draft re law
Context of Draft RE Law
  • Amendments to Electricity and Natural Gas Law “deregulate” all new power plants
  • Purchase price of power for new plants established by agreement with the GoG, ESCO and developer
  • Once agreed, ESCO “shall sign an agreement” for the purchase of the electricity
context of draft re law5
Context of Draft RE Law
  • Resolution approving State Program “Renewable Energy 2008” regarding construction of new renewable energy plants
  • Min. of Energy Order # 46, April 23, 2008 seeks BOO EOI for 78 hydro plants of less than 100 MW and 4 of over 100 MW
  • Requires MOU between GoG, ESCO and developer
  • Includes model PPA
problems with amendments
Problems with Amendments
  • Constantly changing rules and regulatory framework
  • Clause 3, Item 4 of law (“Minister is authorized to make decisions on deregulation or partial deregulation, based on the state energy policy”) is investor nightmare when state energy policy is unpredictable and always in flux
  • Deregulating all new power plants alone will not attract investment because for an investor “De-regulation today” can also mean “Re-regulation tomorrow”
  • By contrast, EU Directives establish time frame and clear path to deregulation to assure investors of stability and predictability
  • Deregulation should be measured and orderly
problems with amendments7
Problems with Amendments
  • Clause 2, item 2, of the Amendments: “All new power stations put into operations after enactment of this law shall be deregulated”
  • “Deregulation” defined under existing law as operating without a set tariff and, for small hydro power plant (not exceeding 10 MW), also operating without a license
  • Not clear if SPP still gets feed-in tariff if deregulation means “no set tariff” -- but many plants on list published on web site are less than 10 MW
  • Ministry of Energy Order #46 deals with construction authorization for hydro power plants less than 100 MW
  • No authorization procedure specified for new hydropower plant over 100 MW, non-hydro renewable plants or non-RES plants
problems with amendments8
Problems with Amendments
  • New Item 5, Clause 23: “In case of reaching an agreement between the GoG, ESCO and relevant person on a new power station in Georgia…”
  • Raises numerous questions:
    • Does the GoG’s involvement mean that a sovereign guarantee will be provided to hedge against regulatory and price risk?
    • Is any experience or financial capacity required? Form posted on web site does not specify criteria, only asks for dates for construction, commissioning and commencement of operation dates and for total investment, and PPA only assumes technical preconditions
  • Law needs to be complete, not fragmented
problems with eoi request
Problems with EOI Request
  • Purchase guarantee for only three months makes HPP virtually impossible to finance
  • Water supply not guaranteed in winter without reservoir
  • Model PPA not financeable as drafted:
    • No capacity payments for large plants if ESCO fails to take power and energy is wasted
    • No indexing for inflation or exchange rate risk
    • No remedy for default by ESCO other than termination
    • ESCO’s purchase obligation weak and FM clause too narrow
    • Dispute resolution in Courts of Georgia not acceptable to any Western investor
    • 10-year purchase period too short for larger plants
    • Ownership of RECs not specified
  • PPA needs to balance investor and Government risks
how to fix the problems
How to Fix the Problems
  • “First Rule of Holes…If you are in

one, stop digging.”

--Anonymous

  • “Those who ignore history are doomed to repeat it.”

--Winston Churchill??

  • “Learn from the mistakes and successes of others.”

--Julia Weller

understand investor assumptions about re
Understand Investor Assumptions About RE
  • RE plants are generally more expensive to build than conventional CCGT or lignite-fueled plant
  • Economics depend on support schemes
  • Fuel is often free or cost is uncorrelated to price of coal/oil/gas—a natural hedge for investors
  • Ability to generate power is often intermittent or governed by forces outside control of operator
  • RE projects often involve newer, changing, less-tested technologies
customary provisions in re law
Customary Provisions in RE Law
  • Best practices in EU, including survey of 12 new members, has established core elements for a successful RE Law
  • In addition to subsidies and incentives, RE Law customarily includes the following elements:
    • Requires publication of Renewable Energy Policy
    • Establishes indicative targets (MW or %)
    • Provides measures to achieve targets
    • Establishes a dedicated agency for promotion of RE
    • Provides funding for low-cost loans and grants
chapter one general provisions
Chapter One: General Provisions

Scope

  • “This law establishes the main principles of state policy for [electricity produced from] renewable energy, regulates the economic and legal relations of participants in the field of electricity production, transmission and distribution resulting from implementation of such state policy, and identifies the roles and tasks of the governmental bodies responsible for administration of this law”
  • “This law does not address state policy regarding biofuels for transportation or cogeneration of electricity and heat”
chapter one general provisions14
Chapter One: General Provisions

Objectives

  • “The objectives of this law are to:
    • Promote the economic and energy security of Georgia by increasing the use of indigenous renewable energy resources;
    • Create a favorable legal and regulatory framework for investment in domestic renewable energy resources and related infrastructure;
    • Establish renewable energy development incentives, including public support mechanisms;
    • Facilitate the reduction of imported electricity by substituting imported electricity with electricity produced from indigenous renewable resources;
    • Reduce harmful environmental impacts caused by the use of fossil fuels.”
chapter one general provisions15
Chapter One: General Provisions
  • Definitions
    • “renewable energy sources” means renewable non-fossil energy sources (water, wind, solar, geothermal, biomass, landfill gas, sewage treatment plant gas and biogases);
    • “biomass” means products from agriculture and forestry, vegetable waste from the food production industry, and the biodegradable fraction of industrial and municipal waste;
    • “Winter Season” means the months between October and March;
chapter one general provisions16
Chapter One: General Provisions
  • Definitions
    • “Winter Season Producer” means a power plant constructed after the effective date of this law, other than a SRPP, which commits to providing electricity from indigenous renewable energy sources during any three months between October and March of each year, as nominated by the ESCO;
    • “small renewable power producer (SRPP)” means a power plant of no more than 10 MW, constructed after the effective date of this law, which produces electricity from indigenous renewable energy sources;
    • ”Power Producer” means an power plant constructed before or after the effective date of this law, which is not a Winter Season Producer or a small renewable power producer.
chapter one general provisions17
Chapter One: General Provisions
  • Definitions
    • “electricity from renewable energy sources” means electricity generated by plants using only indigenous renewable energy sources, and the part of electricity produced from indigenous renewable energy sources in hybrid plants using conventional sources of energy;
    • “Certificate of Origin” means a non-tradable document issued by the [Sustainable Energy Agency] to a power plant located in Georgia certifying that the electricity from the power plant identified in the certificate is produced only from indigenous renewable energy sources; a hybrid plant must obtain a new certificate each year certifying the proportion of electricity produced from indigenous renewable energy sources;
chapter one general provisions18
Chapter One: General Provisions
  • Definitions
    • “feed-in tariff” means the tariffs approved by the GNERC for compulsory purchases of electricity by the ESCO of all electricity produced by small power plants holding a Certificate of Origin which are constructed after the effective date of this law during the time period established in the National Renewable Energy Policy;
    • “Green Bonus” means the amount paid by the ESCO for a minimum of three months during the Winter Season to Winter Season Producers, in addition to the minimum amount approved by the GNERC; the bonus amount shall be established by competitive bidding;
chapter two state re policy
Chapter Two: State RE Policy
  • “The renewable energy policy objectives of Georgia are implemented through a National Renewable Energy Policy and a Renewable Energy Action Plan”
  • “The [Cabinet] establishes the National Renewable Energy Policy for a [10] year period, based on the recommendations of the Ministry of Energy”
  • “The National Renewable Energy Policy is submitted to the Parliament for approval and adoption in a law”
  • “The Renewable Energy Action Plan is prepared by the Ministry of Energy for approval by the Cabinet and establishes the measures for implementing the National Renewable Energy Plan in the short and long-term”
chapter two state re policy20
Chapter Two: State RE Policy
  • “The National Renewable Energy Policy shall:
    • Determine the state policies for promoting the production and use of renewable energy sources;
    • Establish indicative targets for the use of renewable energy sources for electricity generation over the next 10-year period;
    • Propose short and long-term national programs for implementing such targets;
    • Identify the bodies or Ministries responsible for such implementation. ”
chapter two role of ministry of energy
Chapter Two: Role of Ministry of Energy
  • “The Ministry of Energy shall:
    • Prepare the Renewable Energy Action Plan and oversee its implementation;
    • Prepare an annual report assessing the effectiveness of the measures adopted in the Renewable Energy Action Plan;
    • Collect and maintain data, in usable form, regarding the production and consumption of RE and make such data available to the public, unless it is designated as confidential or commercially sensitive in accordance with procedures to be established by the Ministry;
    • Organize public education and awareness campaigns regarding the benefits of using RE energy;
    • Assist local self-governments to implement state policy at the regional level; and
    • Cooperate with international and regional organizations and other governments in the region to promote RE use.”
chapter two role of ministry of energy22
Chapter Two: Role of Ministry of Energy
  • “The Ministry may request the cooperation of other competent bodies, such as the GNEWRC or the Sustainable Energy Agency, in the preparation of the Renewable Energy Action Plan and the annual report required by this Law, and such other tasks as it deems appropriate;
  • The annual report assessing the effectiveness of the Renewable Energy Action Plan is submitted by the Ministry of Energy to the Parliament every year in the first month following the month in which the National Renewable Energy Policy was approved by the Parliament.”
chapter two role of local governments
Chapter Two: Role of Local Governments
  • “Local self-governments [of regions or municipalities larger than 100,000 people] shall:
    • Prepare Local Renewable Energy Action Plans, to promote the development of small power plants [and geothermal heat production, distribution and supply networks within their municipal boundaries];
    • Submit their Local Renewable Energy Action Plans to the Ministry for approval;
    • Implement, to the extent possible, the National Renewable Energy Policy at the local level;
    • Coordinate local education and awareness campaigns regarding the benefits of using RE; and
    • Collect data on the use of RE in their district and submit such data to the Minister of Energy.”
chapter two role of sustainable energy agency
Chapter Two: Role of Sustainable Energy Agency
  • “The sustainable Energy Agency shall:
    • Assist the Ministry of Energy as required, including preparation and implementation of the National Renewable Energy Policy;
    • Issue Certificates of Origin to Winter Season Producers selected in a competitive tender;
    • Issue Certificates of Origin to SRPPs following construction;
    • Draft tender documents for approval of the Ministry and conduct periodic competitive tenders to establish the level of the Green Bonus payable for the projects or sites identified by the Ministry;
    • Select, through a competitive tender, the manager of the Sustainable Energy Fund;
    • Evaluate applications for funding from the Sustainable Energy Fund and submit recommendations to the Ministry of Energy; and
    • Conduct research and gather data on renewable energy use and energy efficiency programs.”
chapter three production of electricity from renewable resources
Chapter Three: Production of Electricity from Renewable Resources
  • “The national indicative targets for production of electricity from renewable energy sources shall be set as a percentage of annual electricity consumption in the 10 years following the year of adoption of the National Renewable Energy policy by the Parliament;
  • Targets may be established for different types of renewable energy sources;
  • The national indicative targets shall be updated every five years;
  • The annual report to Parliament shall contain a review and analysis on achieving the indicative targets.”
chapter four rights and obligations of participants in the re market
Chapter Four: Rights and Obligations of Participants in the RE Market
  • “Obligations of transmission and distribution enterprises:
    • In preparing their annual investment programs, transmission and distribution companies shall allocate resources for grid development to support the connection and transmission of electricity from RES, including intermittent RE;
    • Transmission and distribution companies shall give priority to connecting power plants which have a Certificate of Origin to their systems.”
chapter four rights and obligations of the participants in the re market
Chapter Four: Rights and Obligations of the Participants in the RE Market
  • “Obligations of the ESCO:
    • The ESCO shall be obliged to enter into a power purchase agreement with a SRPP at the feed-in tariff price established by the GNERC for the type of renewable energy source which the SRPP plans to use;
    • The ESCO shall be obliged to purchase all power offered by a SRPP operator which has completed construction of a SRPP and received a Certificate of Origin from the Sustainable Energy Agency;
    • The ESCO shall be permitted to establish reasonable time frames for completion of the proposed power plants after execution of a PPA to enable it to include such power purchase obligations in its resource planning.”
chapter four rights and obligations of the participants in the re market28
Chapter Four: Rights and Obligations of the Participants in the RE Market
  • “Obligations of the ESCO:
    • The ESCO shall be obliged to pay a Green Bonus to a Winter Season Producer for all capacity made available during the three months of the Winter Season nominated by the ESCO, in addition to the minimum tariff established by the GNERC and required to be paid throughout the year; a Green Bonus shall also be payable for any purchases made during the remaining three months of the Winter Season;
    • The ESCO shall nominate, on or before the 1st of September of each year, the three months of the Winter Season during it wishes to purchase electricity from the Winter Season Producer;
    • If, during the Winter Season, the ESCO wishes to purchase electricity during a month which it has not nominated, it shall so notify the Winter Season Producer, which shall use its best efforts to supply the volume of electricity requested.”
chapter four rights and obligations of the participants in the re market29
Chapter Four: Rights and Obligations of the Participants in the RE Market
  • “Obligations of the SRPP:
    • The SRPP shall submit a request to the ESCO for a PPA before beginning construction;
    • The SRPP shall provide the ESCO with a timeline for commencement of operations when it executes the PPA with the ESCO;
    • The SRPP shall supply the ESCO with all electricity produced from any power plant for which it has executed a PPA with the ESCO;
    • At the request of the SRPP, the ESCO may release the SRPP from its supply obligation for one or more months;
    • If the SRPP produces power from non-renewable, as well as renewable resources, or produces power for its own needs, the SRPP shall separately meter the power supplied from non-renewable resources and the power supplied to the ESCO.”
chapter four rights and obligations of the participants in the re market30
Chapter Four: Rights and Obligations of the Participants in the RE Market
  • “Obligations of the Winter Season Producer:
    • The Winter Season Producer shall enter into a PPA with the ESCO in which it shall be obligated to provide capacity and power to the ESCO during the three months of the Winter Season nominated each year by the ESCO;
    • During the remaining nine months of the year, the Winter Season Producer shall sell all power produced by it to the ESCO at the minimum price established by the GNERC, unless released from its obligation by the ESCO;
    • At the request of the Winter Season Producer, the ESCO may release the Winter Season Producer from its supply obligation for one or more months, other than the three Winter Season months nominated by the ESCO;”
chapter five tariffs
Chapter Five: Tariffs

“The GNERC shall:

  • Establish feed-in tariffs specific to the different types of renewable energy sources used to produce electricity, to be applicable for a 10 or 15-year period, as appropriate; the GNERC shall publish such tariffs annually.
  • Establish the minimum tariff payable during the non-winter months to Winter Season Producers; the minimum tariff shall never be less than the weighted average cost of electricity purchased by the ESCO in the previous calendar year, not including the cost of the Green Bonuses and feed-in tariffs.
  • Approve a tariff methodology which allocates to all end-users over the 12-month period beginning with the first month of the Winter Season, the estimated Green Bonuses payable to Winter Season Producers during such Winter Season;
  • Any difference between the estimated Green Bonuses and the actual Green Bonuses paid during the Winter Season shall be credited or debited to end-users in the following 12-month period.”
chapter five green bonus
Chapter Five: Green Bonus
  • “The Sustainable Energy Agency shall select the Winter Season Producers which: (i) submit the lowest Green Bonus bids for the proposed renewable energy plants or sites identified in the tender, and (ii) which meet the qualifications established in the tender documents.”
  • “The Green Bonus shall be payable during the three month Winter Season period for the available capacity of the Winter Season Producers’ power plants, even if the ESCO takes no delivery of electricity; the ESCO is excused from paying the Green Bonus only if the capacity is not available, other than a power plant FM.”
  • “The Green Bonus shall be payable for a minimum of 10 years and a maximum of 25 years, as fixed in the PPA.”
the sustainable energy agency
The Sustainable Energy Agency
  • “A Sustainable Energy Agency shall be established within the Ministry of Energy;
  • The executive Director of the Agency shall be appointed by the Minister of Energy, with the approval of the Prime Minister;
  • The Agency shall be funded from the Ministry’s budget, donations, grants and other financial aid received from international organizations, from its own training activities and from public and private sponsors.”
sustainable energy fund
Sustainable Energy Fund
  • A Sustainable Energy Fund shall be established to provide low cost loans and grants to:
    • End-users or industries to implement energy efficiency measures;
    • Establish energy services companies providing renewable energy or energy efficiency services;
    • Universities for renewable energy or energy efficiency research or demonstration projects;
    • Other entities that promote development of renewable energy and energy efficiency.
  • The Sustainable Energy Fund shall be funded from grants, loans and donations from international donors, multilateral development banks, and other sources.
conclusion and summary
Conclusion and Summary
  • Proposed RE Law:
    • Establishes RE Policy
    • Creates Sustainable Energy Agency to advise Ministry, administer Green Bonus tender, etc.
    • Creates Sustainable Energy Fund to fund EE and RE
    • Creates two support mechanisms:
      • Feed-in tariffs for SPP
      • Green Bonus for Winter Season Producers
thank you
Thank You!

Julia Weller

Pierce Atwood LLP

jweller@pierceatwood.com

July 12, 2008

Batumi, Georgia