2019 was a very successful year for Ukrainian renewables industry attracting around €3.7 billion of investments (as reported by the State Agency on Energy Efficiency). However, the COVID-19 pandemic may have an adverse effect on this industry as well.

Below are some initial high-level observations on how the current situation may affect Ukrainian renewables market in the coming months.

Completion of current projects and further investments in the sector

I expect that the investors, which were extremely active in Ukraine during 2018 and 2019, will focus on commissioning the already commenced projects within the projected timelines, rather than looking for and investing into new projects, which are still available on the market.

In such circumstances, it is important to review the executed transaction documents to determine relevant contractual mechanisms, which might be useful to address the challenges brought up by COVID-19 pandemic. Those who faced the coronavirus outbreak in the middle of negotiating the transaction documents should adjust their negotiation positions accordingly.

I recommend the parties to pay a particular attention to material adverse change (MAC) clauses in their transaction documents. In M&A transactions involving experienced seller, such clauses usually exclude events of general nature that affect the economy and financial markets (so-called “market” MAC) focusing instead on so-called “business” MAC. However, this may be drafted differently in each particular transaction and, thus, may provide the parties (in this case, mostly the purchaser) with additional instruments to hedge transactional risks.

Factors affecting projects timeline

COVID-19 pandemic may result in issues with the supply of materials for power plants and delays with the construction due to quarantine measures. In such circumstances, investors should carefully consider whether they are still up to schedule to benefit from the “green” tariff.

In terms of key regulatory permits (most notably power generation licenses and “green” tariff), market participants have serious concerns about proper timing of their issuance and adjustment of the statutory procedures to the challenges brought up by COVID-19 pandemic (for example, whether the regulator is ready to conduct virtual meetings and adopt its decisions remotely).

So far, neither the Government, nor the regulator has announced any plans on adjusting the licensing procedures or extending the statutory commissioning deadlines due to potential delays in projected timelines caused by the COVID-19 pandemic.

Market expectations from Ukrainian authorities

Although market players are facing new challenges brought up by the COVID-19 pandemic, they are still expecting the certainty from Ukrainian authorities as to the regulatory framework. Whether the already established “green” tariff rates will be reduced unfortunately remains the pressing issue.

The uncertainty in this extremely important matter makes investors uncomfortable urging to investigate protective mechanisms with a particular focus on potential investment arbitrations.

I hope that Ukrainian authorities will elaborate a mutually beneficial solution, which will both comfort the investors and allow the Ukrainian renewables sector to retain its pace of attracting further investments.

Posted on April 21, 2020

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