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Adoption of Renewable Energy Law

Monday, 17 June 2019

On May 21, 2019, the Law on the Use of Renewable Energy Sources (the “Law”) has been adopted. Unofficial English version of the Law can be found at: https://kostalegal.com/publications/legal-highlight/law-of-the-republic-of-uzbekistan-on-the-use-of-renewable-energy-sources.

The purpose of the Law is to promote the production of energy through the use of renewable energy sources (i.e. energy of the sun, wind, earth heat (geothermal), natural flow of water, biomass) and define the framework of the relationship between the state and private sector renewable energy producers. The Law provides for relatively broad definition of the term “use of the renewable energy sources” that include activities related to research, development, survey, implementation, design, construction, installation and maintenance works, as well as the production of energy from renewable energy sources, its transportation, accumulation, sale and consumption. The Cabinet of Ministers, the Ministry of Energy (the specially mandated governmental body) and local government authorities (local municipalities) are defined as key authorities in the renewable energy sector. 

First, the Law covers the issues of electricity generation from renewable energy sources. These include the generation itself and the production of the equipment that generate renewable energy. Additionally, power producers are now provided with the right to be connected to the Single Electricity Grid. Alternatively, the producers are allowed to create their own independently functioning networks (“Local Grid”).

Second, the Law determines the circumstances when there is the need of technical regulation, standardization, conformity assessment in the renewable energy sector.

Third, the Law vaguely covers the tariff issues and does not contain the detailed explanation of how the tariffs are set. However, the Resolution of the Cabinet of Ministers No. 310 of April 13, 2019 “On measures to further improve the tariff policy in the electric power sector”  provides for the Regulation on the Procedure for the Formation of Electricity Tariffs. The Regulation contains more detailed information concerning the tariff formation and is effective starting from January, 2020. The renewable energy producers are subject to tariff regulation, if they are connected to the Single Electricity Grid.

Fourth, the Law is also providing the tax incentives for renewable energy producers and renewable energy equipment manufacturers.

Key authorities

According to the Law, the renewable energy regulation in Uzbekistan is centered on the following government authorities:

  • The Cabinet of Ministers – adopts (i) regulations for connecting to the Single Electricity Grid of business entities that produce electricity, (ii) the procedure for state support of renewable energy producers, as well as renewable energy equipment manufacturers, (iii) pricing and tariff policies that stimulate the formation of a favorable competitive and business environment in the market of renewable energy and (iv) the procedure for maintenance of the state registration of renewable energy resources;
  • the Ministry of Energy - maintains state records of renewable energy resources, energy produced from renewable energy sources and renewable energy equipment. Moreover, the Ministry is obliged to publish on its official website the information regarding legal acts, technical regulations, norms and rules in the renewable energy sector, as well as innovative ideas, developments and technologies for the use of renewable energy sources;
  • local municipalities – interact with renewable energy producers and renewable energy equipment manufacturers and make decisions on the provision of land plots for renewable energy equipment.

Key players of the renewable energy market

The Law identifies two major players of the renewable energy market: renewable energy producers and renewable energy equipment manufacturers. In accordance with the Law, both legal entities and individuals are permitted to generate electricity from renewable energy sources. However, only legal entities are allowed to produce renewable energy equipment. As per the Law, both players have the following rights: (i) to participate in the development and implementation of state and other renewable energy programs, (ii) enjoy tax, customs and other benefits and preferences in the use of renewable energy sources, (iii) create a Local Grid (electrical, thermal and/or gas) and (iv) enter into agreements with legal entities and individuals for the sale of electric, thermal energy and/or biogas produced from renewable energy sources supplied through a Local Grid (electric, thermal and/or gas).

Renewable energy producers that choose to operate through its Local Grid are permitted to sale the produced energy on the contractual basis. They are not subject to certification or authorization procedures. The only requirements set by the Law is keeping records of renewable energy produced and be in compliance with technical regulations, norms and rules in this field, environmental, sanitary, town-planning norms and rules, and requirements for safe operation.

State regulation

The issues of technical regulation, standardization, conformity assessment come into play when the renewable energy producers wish to connect to the Single Electricity Grid. The connection procedure remains unclear, however, the Law sets out that the competitive bidding will be used and the cost of the creation of the infrastructure between such producers and end-consumers will be borne mainly by the renewable energy producers. Additionally, such energy will be subject to mandatory certification.

The government is also giving territorial electricity networks the right to enter into contracts for the purchase of electricity with renewable energy producers with the approval of the corresponding bodies.

Renewable energy producers are not required to obtain any permission for the generation of electricity or certification for the generated electricity, if such electricity is used for their own needs. Similarly, the renewable energy equipment is not subject to mandatory certification, if manufactured for personal use.

All renewable energy producers and renewable energy equipment manufacturers, regardless the chosen connection method (i.e. Single Electricity Grid or Local Grid), have the responsibility to keep separate records of renewable energy produced.

Tariffs for electricity

As the Law establishes, tariffs for electricity produced from renewable energy resources will be determined on the basis of competitive bidding. However, it is not clarified whether this rule is applicable to all players of the renewable energy market. It is more likely that the reference is made to renewable energy producers that are connected to the Single Electricity Grid.

All costs for purchasing electricity, including electricity from renewable energy sources, will be taken into account while setting the tariffs for end-consumers.

Tax incentives

The Law sets the following tax benefits in the renewable energy sector:

  • legal entities - renewable energy producers : exemption (i) property tax for the installation of the equipment and (ii) land tax for the land occupied with such equipment (with a nominal power of 0.1 MW and above) for 10 years starting from the equipment commissioning date;
  • individuals - renewable energy producers: exemption from property and land tax, when using renewable energy sources in residential premises that are completely disconnected from the existing energy networks, for 3 years starting from the first month of such use.
  • renewable energy equipment manufacturers – exemption from all types of taxes for 5 years starting from the registration date of the legal entity.

Moreover, legal entities and individuals may be exempted from customs duties when importing renewable energy equipment, the use of which significantly increases the efficiency of the renewable energy sources.