The sector of energy production from biomass is regulated in Ukraine by a significant amount of legislation, but the framework laws that determine its legal basis are the Law of Ukraine “On Alternative Fuels” and the Law of Ukraine “On Alternative Energy Sources”[1]. They defined the main terms used by representatives of the sector, in particular, the term “biomass”, “biofuel”, “biogas”, “biomethane” and others. In general, regulation of the bioenergy sector can be divided into several subsectors.
Now we will provide more details.
Production of thermal energy from biomass
The procedure for the production of heat from biomass, in particular the tariffs for heat energy from alternative sources, are regulated by the Law of Ukraine “On Heat Supply”[1]. Article 20 of the mentioned law provides for the so-called “0.9” principle, which means that the tariff for thermal energy produced from alternative energy sources for the needs of the corresponding category of consumers (population and state-financed organization) is set at the level of 90 percent of the tariff for thermal energy produced from natural gas. If the producer of thermal energy does not have a set tariff for thermal energy from natural gas, 90 percent is calculated from the weighted average tariff for thermal energy produced using natural gas for the needs of the corresponding category of consumers. The specified weighted average tariff for regions is approved quarterly by the State Energy Efficiency Agency in accordance with the procedure established by the Resolution No. 679 of the Cabinet of Ministers of Ukraine dated September 6, 2017 [2]. A similar tariff-setting procedure is provided for tariffs for the production, transportation and supply of thermal energy.
Today, unfortunately, set tariffs for heat energy from alternative energy sources are not enough to ensure the attractiveness of projects for the production of heat from biomass. That is why the issue of amending the Article 20 of the Law of Ukraine “On Heat Supply” is being considered. After the amendment accepting producers will be able to calculate the tariff based on economically justified costs. Another reason for the lack of profitability for replacing natural gas with solid biofuel for the population in individual and centralized heating is the state subsidizing the cost of natural gas for the population by 4-5 times compared to the market price of natural gas.
Production of electricity from biomass and biogas
The production of electricity from biomass and biogas in Ukraine is stimulated with the feed-in (“green”) tariff in accordance with the Law of Ukraine “On Alternative Energy Sources”[3]. The “green” tariff for electricity produced from biomass and biogas is established by the National Commission – National Energy and Utilities Regulatory Commission (NEURC). The “green” tariff is valid until the end of 2029. It is 12.39 euro cents/kWh (without VAT) for electricity obtained from biomass and biogas. The law also provides for the possibility for electric power facilities put into operation from July 1, 2015, to December 31, 2024, to receive a surcharge (premium) to the “green” tariff for Ukrainian-made equipment usage. However, today the production of electricity from biomass and biogas is not attractive enough, mainly due to incomplete calculations and the indebtedness of the Guaranteed Buyer to electricity producers at the “green” tariff.
The Law of Ukraine “On Alternative Energy Sources” also provides for the holding of auctions for the allocation of support quotas in the production of electricity from alternative sources. Auctions identify economic entities that acquire the right to obtain support for electricity production from alternative sources. The support is carried out by guaranteeing the purchase of the entire amount of electricity released by such producers at the auction price. A surcharge (premium) for Ukrainian-made equipment usage is also regulated. The Cabinet of Ministers of Ukraine, at the request of the Ministry of Energy, establishes the annual support quota and the schedule of auctions for the following year, as well as indicative forecast indicators of the annual support quotas for the next four years, no later than December 1.
Producers of electricity from biomass and biogas can participate in auctions on a voluntary basis. The annual support quota for producers of electricity from biomass and biogas, as well as other types of alternative energy sources, except for solar and wind energy, is at least 10%. The advantage of voluntary participation in auctions for economic entities producing electric energy from biomass and biogas is the period of support application after the end of the auctions. In particular, the term of providing support is 20 years from the day following the date of submission of documents confirming the connection of the object to the electric network and certifying the readiness of the object for operation. However, the auctions have not yet started.
Use of biofuel in the transport sector
Today, the legislation does not provide for adding a mandatory share of biofuel to motor fuels. However, on February 7, 2023, draft law No. 3356-d “On Amendments to Certain Legislative Acts of Ukraine Regarding Mandatory Use of Liquid Biofuel (Biocomponents) in the Transport Sector” was included in the agenda of the Verkhovna Rada of Ukraine for consideration in the second reading [4].
The exact draft law provides for the establishment of a mandatory share of the content of liquid biofuel (biocomponents) in all volumes of automobile gasoline that are sold from fuel production sites, fuel wholesale trade sites, and fuel retail trade sites. The exceptions are gasoline with an octane number of 98 and higher, gasoline for the needs of the Ministry of Defense, the State Reserve and also for the creation of minimum reserves of oil and oil products (from May 1, 2022, we need at least 5 volume percent with an absolute error of determination of ±0.5%).
In addition, liquid biofuel (biocomponents) to comply with the normatively determined mandatory share in the volume of sales of automobile gasoline in the customs territory of Ukraine must meet sustainability criteria. According to the definition provided by the draft law, the sustainability criteria are the requirements met by liquid biofuels (biocomponents) and biogas intended for use in the transport sector. These include, in particular, indicators of greenhouse gas emission reduction from the use of the specified types of biofuels and the prohibition of the use of individual land plots for obtaining raw materials necessary for the production of such types of biofuels. Sustainability criteria for biofuels are introduced into the legislation of Ukraine for the purpose of implementing the EU Directives on renewable energy sources.
The underdevelopment of biofuel use in the transport sector is conditioned by several reasons. In particular, high excise tax rates on motor gasoline with a content of at least 5 % of bioethanol, on biodiesel and its mixtures in the amount of 100 euros per 1000 liters. In the case of using bioethanol for the production of fuel containing bioethanol, the requirement for a tax bill for the full rate of excise duty for the transportation of bioethanol is also a deterrent. According to clause 229.1.1. of the Tax Code of Ukraine, the excise tax is paid at the rate of 0 hryvnias for 1 liter of 100 percent alcohol from bioethanol, which is used by enterprises for the production of motor gasoline blends containing bioethanol, ethyl-tert-butyl ether (ETBE), other additives based on bioethanol, and as well as bioethanol, which is used to produce biofuel. However, obtaining a zero tax rate for such bioethanol is possible only if the prescribed procedure with the tax bill and the intended use of bioethanol is followed. In particular, before obtaining bioethanol from the excise warehouse, the economic entity that receives it [5], issues a tax bill.
However, such a bill is issued for the full tax rate, which is 133.31 hryvnias for 1 liter of 100 percent alcohol, which means that the corresponding amount of funds must be at the disposal of the manufacturing company. In case of documentary confirmation of the fact of targeted use of bioethanol in accordance with the established procedure [6], the tax bill is considered repaid and the excise tax is not paid (because the zero rates are set).
If there is no such confirmation, the bank transfers the amount specified in the tax bill (at the full tax rate) to the bill holder (the tax authority). In addition, enterprises producing blended gasoline, biofuel, and other additives based on bioethanol are fined in the amount calculated based on the volume of bioethanol used for non-intended purposes and the excise tax rate increased by 1.5 times. Thus, the intended use of bioethanol is strictly controlled. If it is used for its intended purpose, a zero rate of the excise tax is applied; if not as intended, the full tax rate and penalty apply.
Biomethane production
Due to the above-mentioned barriers in the production of thermal and electrical energy from biomass, the production of biomethane is becoming increasingly important. In particular, thanks to the adopted Law of Ukraine “On Amendments to Certain Laws of Ukraine Regarding the Development of Biomethane Production” [7], which entered into force in 2021. With this document, the legislative prerequisites for the development of biomethane production have been created.
The exact Law introduced the term “biomethane” into the legislation of Ukraine, which means biogas that, according to its physical and chemical characteristics, meets the requirements of legal acts for natural gas for supply to the gas transportation or gas distribution system or for use as motor fuel. The law also establishes the grounds for creating a biomethane register, the procedure for issuing guarantees of the origin of biomethane and further operations with them. In order to implement this law, the Resolution of the Cabinet of Ministers of Ukraine “On approval of the Procedure for the functioning of the biomethane register” [8] dated July 22, 2022 No. 823 was adopted, which determines the procedure for creating the biomethane register, its functional capabilities, deadlines and the procedure for submitting information to it, creating an account of the biomethane producer, as well as other issues of functioning of the biomethane register.
The biomethane register is an electronic accounting system designed to register the volume of biomethane submitted to the gas transportation or gas distribution system and withdrawn from the gas transportation or gas distribution system, as well as for the creating of guarantees of biomethane origin, their transfer, distribution or cancellation, and the provision of biomethane origin certificates. The creation of an account in the biomethane register is carried out after conducting an independent audit of the biomethane production facility, which confirms its ability to produce biomethane.
In January 2023, the State Energy Efficiency Agency announced the start of the creation of the biomethane register [9]. In addition, the requirements regarding the oxygen content of biomethane in case of supplying it to gas transmission and gas distribution networks have been changed (a maximum of 0.2 percent for gas transmission and no more than 1.0 percent for gas distribution networks) [10].
All these regulatory improvements will contribute to the emergence of the first biomethane produced in Ukraine already this year. Although the law currently regulates mostly the case of biomethane production with its subsequent supply to gas networks, the issue of legislative regulation of liquefied or compressed biomethane use with obtaining guarantees of origin is also being considered, for which it is necessary to amend the Law of Ukraine “On Alternative Fuels”.
Use of digestate produced in biogas plants
In November 2022, the Law of Ukraine “On Amendments to Certain Laws of Ukraine Regarding the Improvement of State Regulation in the Field of Handling Pesticides and Agrochemicals” [11] was adopted, which will enter into force in June 2023. The Law introduces the term “digestate” into the legislation of Ukraine. According to the specified law, the digestate formed in biogas plants is the residues of raw materials, by-products and waste of animal or vegetable origin, in a mixture or not, formed as a result of a controlled process of anaerobic fermentation with the release of biogas. The document meets the requirements established by Regulation (EU) 2019/1009 of the European Parliament and of the Council of June 5, 2019, on establishing rules for placement on the EU fertilizer market and amending Regulations (EC) 1069/2009 and (EC) 1107/2009 and repealing Regulation (EC) 2003/2003. The main provision of this law for the bioenergy sector is the third part of the fourth article, which stipulates that the digestate produced in biogas plants, which is used as an organic fertilizer or soil improver, is not subject to the requirements for state registration of pesticides and agrochemicals.
To sum up, the sector of energy production from biomass in Ukraine is regulated by a significant number of laws and by-laws. In addition, the sector is constantly developing, this is reflected in the legal regulation, which is periodically improved.
[1] https://zakon.rada.gov.ua/laws/show/2633-15#Text
[2] https://zakon.rada.gov.ua/laws/show/679-2017-%D0%BF#n9
[3] https://zakon.rada.gov.ua/laws/show/555-15#Text
[4] https://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=70345
[5] Oil refineries (or other business entities) that use bioethanol for the production of motor gasoline blends containing bioethanol, ethyl tert-butyl ether (ETBE), and other impurities based on bioethanol.
[6] https://zakon.rada.gov.ua/laws/show/z1035-22#Text
[7] https://zakon.rada.gov.ua/laws/show/1820-20#Text
[8] https://zakon.rada.gov.ua/laws/show/823-2022-%D0%BF#Text
[9] https://saee.gov.ua/uk/news/4747
[10] https://zakon.rada.gov.ua/rada/show/v0847874-22#n2
[11] https://zakon.rada.gov.ua/laws/show/2775-20#Text
[1] https://zakon.rada.gov.ua/laws/show/1391-14#Text
This review was prepared by Anna Pastukh, a lawyer of the Bioenergy Association of Ukraine.