On 17 June 2024, the amendments to Resolution N556 of the Government of Georgia regarding the Support Scheme for Production and Use of Energy from Renewable Sources and Capacity Auction Rules (the Resolution) came into force. This article provides a brief overview of the Resolution and assessment of the significant changes introduced by these amendments.
Background and Framework of the Resolution
The original Resolution was adopted by the Government of Georgia on 7 December 2024 to align with the objectives outlined in Article 11 of the Law of Georgia on “Promoting the Generation and Consumption of Energy from Renewable Sources” (the Law). Article 11 stipulates mechanisms such as supportive schemes to promote renewable energy development, including investment aids, reduced tax rates, and special green and premium tariffs. Thus, the Resolution serves as a key instrument for implementing the Support Scheme for the Production and Use of Energy from Renewable Sources (the Support Scheme), which aims to encourage and facilitate the use of renewable energy.
The Support Scheme is applicable to energy projects that qualify as public-private partnership projects under the Law of Georgia on “Public-Private Partnerships,” as well as to those that do not fall under this classification. It includes ongoing projects that were in the feasibility study phase as of the date of the resolution’s enactment but excludes projects that were already in the construction phase prior to this date.
Key Features of the Support Scheme
The Support Scheme consists of measures designed to support the construction and operation of power plants with more than 0.5 megawatts of installed capacity (the Power Plant). The Support Scheme features a contract for price difference (the CfD) — an agreement between the capacity auction winner or directly selected entity and the JSC Electricity Market Operator (ESCO). Under the CfD, ESCO compensates for the price difference if the day-ahead market price during the support period is lower than the tariff specified in the CfD. Conversely, if the day-ahead market price exceeds the tariff, the selected entity must pay the price difference to ESCO.
The Support Scheme includes a support period of 15 years following the commissioning of the power plant, varying by the type of renewable energy source:
- Hydropower Plants: 8 months (September to April)
- Wind Power Plants: 9 months (August to April)
- Solar Power Plants: 12 months (all year)
- Power Plants Using Other Renewable Sources: 12 months (all year)
Significant Amendments to the Resolution
Direct Selection Procedure
Prior to the amendments, the Support Scheme was exclusively available to entities selected through capacity auctions. The amended resolution introduces a dual selection process for beneficiaries:
- Capacity Auction Selection: Entities can still be chosen through competitive bidding.
- Direct Selection: The Ministry of Economy and Sustainable Development (the Ministry) is now empowered to directly select beneficiaries of the Support Scheme, thereby enhancing the efficiency of the selection process.
In case of selection through the capacity auction, the capacity auction commission (the Commission) is tasked with ensuring compliance of applications with the Resolution’s requirements. Under the amendment, the selection of the applicants for direct selection procedure is undertaken by the Ministry itself. Selected applications are forwarded to the Government of Georgia (the Government) for approval.
Granting the Ministry the authority to directly select applicants streamlines the process significantly. By bypassing the Commission’s review, the Ministry can expedite decision-making, leading to faster approvals and a more efficient overall selection process. This direct approach enhances the agility of the procedure, ultimately benefiting all stakeholders involved.
Technical-Economic Feasibility Agreement and Implementation Agreement
Upon government approval of an application, a Technical-Economic Feasibility Agreement (the Feasibility Agreement) is signed between the Government and the interested entity. The Feasibility Agreement stipulates that a CfD can be executed if the conditions specified in the Feasibility Agreement are met. Additionally, the recent amendments have introduced an Implementation Agreement as a new procedural step, which formalizes the relationship between the Government and the project implementer after fulfilling the Feasibility Agreement requirements. The Implementation Agreement is new step in the procedure which sets the additional requirements on the stage of implementation of the project.
New Bank Guarantee Requirements
The amendments also introduce new procedures for submitting bank guarantees. Project implementers are now required to provide guarantees on each stage of execution of agreements with the Government. Thus, the applicant provides two types of guarantees to ensure compliance with obligations defined by the Feasibility Agreement and the Implementation Agreement:
- Pre-construction Guarantee: This ensures obligations outlined in the Feasibility Agreement are met.
- Construction Guarantee: This guarantees fulfillment of the obligations specified in the Implementation Agreement.
Prior to the amendment, the applicants were required to provide both guarantees on the stage of execution of the Feasibility Agreement. Now, one guarantee is provided after execution of each, the Feasibility Agreement and the implementation Agreement. Furthermore, the amount of the both Pre-construction and Construction Guarantees have doubled and amount respectively:
- Pre-construction Guarantee: USD 20,000 (twenty thousand United States Dollars) or its equivalent in EURO multiplied on the installed capacity of the plant.
- Construction Guarantee: USD 40,000 (forty thousand United States Dollars) or its equivalent in EURO multiplied on installed capacity of the plant.
Implementation Timeline
On 23 August 2024, the Ministry issued Order N 1-1/323 regarding the announcement of the direct selection of beneficiaries of the Support Scheme (the Order). Key details of the Order include:
- Start Date for Receiving Applications: 9:00 a.m., 2 September 2024
- Fixed Tariffs for the Scheme:
- Hydroelectric Power Stations: 6.5 US Dollar Cents
- Wind Power Plants: 6.0 US Dollar Cents
- Solar Power Plants: 5.6 US Dollar Cents
- Deadline for Submission of Applications: 6:00 p.m., 31 December 2024
The amendments to Resolution N556 represent a significant advancement in the support framework for renewable energy development in Georgia. By introducing direct selection procedures, new Implementation Agreements, and stricter financial guarantees, the government aims to enhance operational efficiency and attract increased investment in the renewable energy sector. These changes not only streamline the application process for potential beneficiaries but also reinforce accountability and foster a more sustainable energy landscape in the country.
