ABOUT SOLAR ENERGY OF UZBEKISTAN

Tariff formation

The current main directions of the tariff policy in the electric power industry of Uzbekistan for the period up to 2030 determine the practical mechanisms for implementing the state policy for regulating the pricing of electricity, taking into account the strategic objectives for sustainable energy supply to the population and further development of the energy infrastructure.

The main directions of the tariff policy have been developed in order to ensure electric power security, taking into account the expansion, modernization and diversification of generating capacities, bringing them up to 20 thousand MW in the period up to 2030 in accordance with the Decree of the President of the Republic of Uzbekistan dated October 23, 2018 No. PP-3981 " On measures to accelerate the development and ensure the financial stability of the electric power industry”.

The tariff system includes regulated tariffs and free (non-regulated) tariffs.

Regulated rates include:

• tariffs for electric and heat energy produced by generating organizations;
• mark-up for distribution and sales of electricity, applied by distribution organizations;
• electricity tariffs for various consumer groups, determined in accordance with the Rules for the use of electric energy, approved by the Resolution of the Cabinet of Ministers dated January 12, 2018 No. 22.

Free (non-regulated) electricity tariffs include tariffs for electricity purchased and sold under international agreements, including interstate transit through national networks.

The regulation of tariffs is based on the obligatory separate accounting of the volumes of products and services, income and expenses, as well as the assets involved in the production of electricity and heat, transmission, as well as distribution and sale of electricity, by organizations engaged in regulated activities.

Organizations carrying out regulated activities are required to keep separate records for the following types of activities:

• power generation;
• production of thermal energy;
• transmission of electricity through the main electric networks;
• distribution and sale of electricity to end consumers.
• When establishing regulated tariffs, it is not allowed to re-account the same expenses for the specified types of activities.

When regulating tariffs, fixed tariffs per unit of products and services are established.

Regulated tariffs are calculated based on the size of the required gross revenue of organizations engaged in regulated activities and the estimated volume of production of the relevant type of products and services for the period of regulation.

At the same time, regulated tariffs (markups) are determined by dividing the required gross proceeds by the estimated production volume according to the following formula:

Solar energy tariff

Tariffs for electricity produced from renewable energy sources are determined on the basis of competitive bidding

When setting tariffs for electricity for end consumers, all costs for the purchase of electricity from all sources of production, including renewable energy sources, are taken into account.

Regulation of RES projects and attraction of private investors

State management in the field of renewable energy use is carried out by the Cabinet of Ministers, the Ministry of Energy in the field of renewable energy use, as well as National and Regional Electric Networks.

The Cabinet of Ministers also ensures the implementation of a unified state policy in the field of public-private partnership.

State regulation of investment activity is carried out by government bodies, in particular the Ministry of Investments and Foreign Trade, as well as the recently created agency for strategic development in order to implement an investment policy that ensures the fulfillment of state tasks of the socio-economic development of the Republic of Uzbekistan and its territories, increase the efficiency of investments, ensure safe conditions for investments in various investment objects on the territory of the Republic of Uzbekistan.

The Ministry of Energy, in turn:

• implements a unified state policy in the field of the use of renewable energy sources;
• develops and implements state and other programs in the field of the use of renewable energy sources;
• coordinates the activities of state and economic management bodies in the field of the use of renewable energy sources;
• develops and approves, within its powers, technical regulations, norms and rules in the field of the use of renewable energy sources;
• monitors the implementation of state and other programs in the field of the use of renewable energy sources;
• submits proposals to the Cabinet of Ministers of the Republic of Uzbekistan on issues of state support for energy producers from renewable energy sources, as well as manufacturers of renewable energy installations, on pricing and tariff policies in the energy market produced from renewable energy sources;
• maintains state records of renewable energy resources, energy produced from renewable energy sources, and installations of renewable energy sources;
• promotes the introduction of innovative technologies, scientific and technical developments in the field of the use of renewable energy sources;
• takes measures to increase the investment attractiveness of the use of renewable energy sources through the development of public-private partnerships, improvement of pricing and tariff policies that stimulate the formation of a favorable competitive and business environment in the energy market produced from renewable energy sources;

Single purchaser of electricity - National electric grids:

• participate in the development and implementation of state and other programs in the field of the use of renewable energy sources;
• develop, approve and implement territorial programs in the field of the use of renewable energy sources;
• promote the creation and implementation of modern energy-efficient, energy-saving and innovative technologies in the field of the use of renewable energy sources, the organization of the production of installations of renewable energy sources;
• interact with producers of energy from renewable energy sources and manufacturers of renewable energy installations;
• make decisions on the provision of land plots for the placement of installations of renewable energy sources.

Power Purchase Agreement (PPA)

Risk mitigation is especially important in renewable energy projects due to their high capital requirements. Derisking financial instruments, accompanied by prudent policies, can lower the financial costs of renewable energy investments and help raise capital at scale.

Uzbekistan held its first auction for specific solar sites in 2018-19 with the assistance of IFC, a member of the World Bank Group, in structuring and implementation.

A PPA is a contractual agreement between a guaranteed energy buyer and an alternative energy generator (seller).

To date, there is no standard form of a power purchase agreement (PPA). However, the PPA is expected to be developed and approved by the Department of Energy in the near future.

Main risks:

• Currency risk arises in situations where project income is denominated in one currency and loan payments are denominated in another. For renewable energy projects, the mismatch between funding currency (hard) and revenue currency (local) is often a problem for debt repayment. Because of these concerns, some developers of transnational projects will only sign contracts in hard currency to protect themselves from foreign exchange risk. While this may eliminate currency risk, it also increases the risk of non-payment if the buyer cannot pay the hard currency price of the PPA. Some governments take on some of the foreign exchange risk by offering tariffs in US dollars payable in local currency.
• Technical risk when connecting a renewable energy facility to the grid, which investors should pay attention to: in the PPA, the Seller requires to ensure responsibility for the reception and transmission of electricity produced by renewable energy facilities and for the dispatching of the capacities of renewable energy facilities, including certain obligations in the PPA.

Privileges

Energy producers from renewable energy sources are exempt from paying property tax for installations of renewable energy sources and land tax on sites occupied by these installations (nominal capacity of 0.1 MW or more) for a period of ten years from the date of their commissioning

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.