04.04.2025
About how the regulatory environment in the energy sector has changed, what laws and initiatives have had the greatest impact on the industry, the prospects for the extraction of critical and rare minerals and the development of renewable energy in Ukraine in the conditions of war and post-war recovery, work with international investors and minimizing risks in energy projects, Maksym Maksymenko, partner of the law firm AVELLUM, head of the real estate and infrastructure practice, co-head of the energy practice, told journalist Andriy Kulikov in a Big Interview.
For over 20 years, he has been working with large-scale projects in energy, infrastructure, and construction. During this time, Maksym has helped implement more than 1,650 projects – from supporting industrial parks to developing renewable energy and energy efficiency. Among his clients: DTEK, Ukrenergo, Metinvest, Elementum Energy, Ferrexpo and many other key players in the industry. M. Maksymenko also participates in shaping state policy through working groups at the Verkhovna Rada, government structures and relevant ministries.
– When we talk about energy, instead of achievements, we often talk about challenges, but overcoming these challenges can also be an achievement. How is AVELLUM’s work related to the key challenges of energy that you have achieved here?
– Good question. We help attract investments and financing in energy projects, providing services to both foreign players, including international financial organizations, and Ukrainian companies.
If we talk about the types of services that help overcome challenges, then usually these are legal structuring, preparation of various types of regulatory documents, conducting audits, including Vendor due diligence, concluding, signing any types of project agreements in the energy sector, negotiations, as well as drawing up all permitted documents. That is, everything that a client needs in order to successfully implement their project.
There are actually many challenges in the energy sector. For myself, I highlight the main two: attacks on and damage to energy infrastructure, as well as the need to improve our regulatory field.
AVELLUM accompanies clients in the construction of renewable energy sources, Battery energy storage, helps clients participate in the balancing market, the market of ancillary services.
As for the regulatory field, we do indeed participate in working groups of specialized associations on priority areas, the main one of which is the adaptation of Ukrainian legislation to the legislation of the European Union. We prepare clients for legislative changes, show how they will affect their businesses.
– You know, Mr. Maxim, when I hear about legal support, I have an image of a caring uncle who almost leads the client by the hand. Is that really so? Are you just nearby, maybe half a step ahead, or maybe a little behind your client? How do you do it?
– Actually, it depends on the types of clients. There are those who really need to be led by the hand, because they are not from this sector, not from this industry, they are doing something for the first time, and you are engaged, in essence, in comprehensive care and support. There are more educated clients, there are those who understand the specific details of the industry much better than you, and they need support in some exotic things: not obvious, or unregulated, or in difficult negotiations, or in negotiations on English law. And in such a case, yes, my role changes depending on the request and the type of client.
– What are the most successful projects for the energy sector that you and your team have helped implement in Ukraine?
– I would probably divide them into two groups here. We head the energy practice together with the firm’s senior partner, Glib Bondar. In terms of financial law, Glib has supported such important projects for the market as the issuance of green bonds by DTEK Renewables, Metinvest, Ukrenergo. And the corresponding restructuring.
If we talk about my area of expertise, it is the construction of renewable energy sources. We supported about 20 projects with a total capacity of 2 GW: 15 wind power plants, 5 solar. And at the same time, we worked both on the side of borrowers, and these were large international players, such as the EBRD, the Black Sea Trade and Development Bank (BSTDB), Proparco, and on the side of project companies, which actually implemented the relevant projects.
We helped one of the largest agricultural holdings in the Ukrainian market to build the first biogas plant in Ukraine. We conducted an audit and fully supported the deal to acquire a large graphite quarry by Wolf Resort Limited (Wolf Systembau), an Australian company traded on the Australian Stock Exchange. I supported the victory of the Anglo-American company ALPHA-ENERGY in the tender for the conclusion of a production sharing agreement for gas and oil production in northern Ukraine, and then accompanied the entire process of negotiations with the government, with the interdepartmental commission of the Ministry of Energy and the conclusion of the relevant agreement.
Now we are helping the winners of special auctions for auxiliary services at the RPC to attract financing and build BES.
– Mr. Maksym, how has the regulatory environment in the energy sector changed recently? What laws and initiatives have had the greatest impact on the industry?
– Recently, the regulatory field has been changing in connection with Ukraine’s direction towards joining the European Union and, accordingly, Ukraine’s fulfillment of its obligations to adapt its legislation, including in the energy sector. And we must understand that much of these changes are embedded as financing conditions.
For example, the Ukraine Plan, on the basis of which the European Commission approved the Ukraine Facility for 50 billion euros of support for Ukraine in early 2024: more than half of the first tranche of 38 billion euros is support for the energy sector. But this provides for specific steps that Ukraine must take and specific regulatory acts that it must adopt in order to receive the appropriate financing.
In my opinion, the last four major legislative changes have often occurred. The first is the approval of the National Energy and Climate Plan until 2030, which defined our state strategy for decarbonization and confirmed our course for all international partners.
The second is the introduction of REMIT: the Law on Prevention of Abuse in the Wholesale Electricity and Natural Gas Markets was adopted, which established the rules for handling insider information, the rules for disclosing such information, and liability for failure to comply with the relevant provisions.
The third is the main legislative act that significantly changed the regulatory field: the Law on the “green” transformation of the energy system of Ukraine No. 3220-IX. It provides for five serious innovations. The market premium mechanism, under which the State Enterprise “Guaranteed Buyer” can compensate either RES producers who were on the “green” tariff, or those who are building new RES projects and received support at auctions, compensate for the negative difference between the “green” tariff or auction price and the market price at which the electricity will actually be sold. In turn, producers are obliged to compensate such a difference to the “Guaranteed Buyer”, but this provides price predictability and reduces the financial burden on the “Guaranteed Buyer”.
The progressiveness of this act is offset by the actual economic situation in Ukraine and the capabilities of the “Guaranteed Buyer” to actually pay and not accumulate new debts.
The second innovation of Law No. 3220-IX is the self-generation mechanism, under which non-domestic consumers are allowed to sell excess electricity to the grid. There are some restrictions here: if the installation is 1 MW or more, then it is not possible to release more than 50% of its annual consumption and more than 50% of its installed contractual capacity into the grid. The mechanism allows not to replace the producer with an active consumer, but to achieve the possibility of credits between the electricity supplier and the consumer in the context of the amounts that they have to pay each other based on the results of the year.
The third important point of the Law is the guarantees of origin of energy, which have officially appeared in Ukraine, the possibility of confirming that energy is produced from renewable sources, and labeling goods and services of producers who purchase the corresponding guarantees of origin of energy as eco-friendly.
In my opinion, the recognition of our guarantees in Europe – a process that is currently underway – will help with attracting financing, and will also help Ukrainian producers of relevant goods and services to more successfully enter European markets.
In addition, Law No. 3220-IX introduced the current mechanism of contracts for difference – a financial instrument that allows both producers and consumers of electricity to insure risks on the future sale or purchase price without actual trade between them. That is, the parties agree on a price, and if the producer sells more expensively, he pays the difference to the consumer, if the consumer buys cheaper, he pays the difference to the producer, and they insure each other.
The last point worth noting under Law No. 3220 is the removal of the auction restriction for alternative energy producers. That is, they have the opportunity to leave the balancing group of the “Guaranteed Buyer” and trade energy at their own risk, on market terms, without claiming support under the market premium mechanism, without concluding contracts for difference. This was not the case before, as was the opportunity to return to the “green” tariff if they change their mind.
An innovation that has significantly revitalized the market is the holding of special auctions for ancillary services on the RPC. Given that this market has started operating, permits are being issued, and BESs are being built, this is very interesting for both potential lenders and potential players who want to implement these projects in Ukraine together with the Ukrainian winners. Since we are talking about postponing the provision of services on 1-3 years after the auctions, this is a certain predictability of payments for 5 years.
– Judging by the fact that you use a lot of English-language terms, you have to deal with people who speak English. How difficult is it to explain our realities to them? Do you work with those who are already well-versed in the situation in Ukraine, including over the past three years?
– In fact, if we are talking about joint work with partners from international law firms who understand the topics of the relevant direction in the energy sector, they may not know certain legislative nuances, but they know examples of regulation. And for them, this is more of an imposition of Ukrainian differences on the general picture in the world. And it works. If we are talking about a client in the relevant sector, then he understands the business aspects well, and the regulatory field is terra incognita for him, and he has to explain much more.
As for investors, they are usually more like partners from international law firms – they have knowledge and experience in concluding deals. It is very rare that a person was engaged in one thing, and then decided to extract gas, and he has to explain everything from scratch. But we are not talking only about investors. When entering the Ukrainian market, the question arises of how to create a company, open a bank account, who to appoint as a director, how to withdraw dividends, what will be the taxation, whether it is necessary to obtain permission from the Antimonopoly Committee. And when all these points are taken together, then yes, you have a lot to explain.
– What prospects for the extraction of critical minerals in Ukraine do you see, taking into account the needs of the energy transition and European initiatives?
– The energy transition and growing industries such as aerospace, electric vehicles, IT and telecommunications are increasing the demand for critical and rare earth minerals. According to the International Energy Agency, the demand for critical minerals will increase fourfold by 2030: from the current 7 million tons to 28 million tons per year.
Ukraine prioritizes the development of critical minerals to attract investment. Our country owns from 5 to 10 percent of all world reserves of various minerals and half of the minerals that are designated as critical by the US, EU, Great Britain. In my opinion, the main opportunities in Ukraine are associated with such minerals as titanium, zirconium, lithium, graphite and rare earth minerals. Currently, we have about 30 active special permits for the development of relevant deposits, about 30 more vacant ones that can be purchased, and potentially about 400 deposits that can be explored and organized for production. From 2022, the Government is going to grant the right to develop 7 such deposits for critical minerals through tenders for the conclusion of production sharing agreements.
During the war, we do not conduct development, respectively, the terms for obtaining more interesting investment commitments from potential investors increase. When the war ends, the cost of this will increase.
To improve the investment attractiveness of the sector, we need to conduct geological exploration in accordance with international standards. It should take into account not only the volume of reserves, but also the economic feasibility of developing and extracting minerals. We need to remove the secrecy labels from some reserves, types of critical minerals, because otherwise we will not be able to highlight to interested investors what is there at all. It is necessary to improve the legislation, adapt it in the field of production sharing agreements in accordance with the practices of more developed jurisdictions, and create additional benefits and opportunities for projects for the extraction of critical minerals, both in industrial parks and within the framework of projects with significant investments.
As for the initiatives of the European Commission, it is true that Europe has adopted a list of 47 projects in the field of critical minerals, and the main idea is that they want to ensure the independence of their extraction in their supply and production chains, so as not to depend on countries outside the EU for critical minerals.
Ukraine can really help Europe achieve these indicators for minerals such as graphite, lithium, and rare earth minerals. These are not indicators of one hundred percent independence. According to the EU Critical Raw Materials Act, the parameters are prescribed in percentages depending on the type of activity until 2030. Ukraine is moving towards the EU, perhaps at some stage we can help Europe very well with these critical minerals.
Our legislator has adopted rules according to which only member states of the Organization for Economic Cooperation and Development can obtain the right to explore for critical minerals in Ukraine. In fact, these are all countries of the European Union, with a few exceptions. Or such a right can be acquired by a country with which Ukraine has signed a direct agreement on cooperation in the exploration and extraction of critical minerals.
– The number of critical minerals is exhaustible. And there are seemingly endless resources – renewable energy sources. Your view on prospects for the development of renewable energy in Ukraine in the context of war and post-war recovery. What legal challenges arise in this regard?
– The prospects are huge. If we believe the most ambitious figures announced for renewable energy, Ukraine has the potential for 89 GW of solar, over 430 GW of onshore wind and about 250 GW of wind built on water. Biomethane potential – if we talk about the most ambitious figures, we can completely replace the volume of natural gas supplies that were transported through Ukraine to EU countries with our own biomethane, thus replacing up to 20% of the needs of the EU biomethane market. These prospects are strengthened by the energy transition. Given the current level of damage to the energy system, the fact that, according to the latest official information, 50% of the demand for electricity was formed by the commercial and industrial sectors before the full-scale invasion, it seems to me that there are great prospects in BES – energy storage facilities. As part of the public procurement reform, which our government is currently engaged in together with international partners, creating organizations that will help prepare projects for financing. In all these public investment projects, there is a requirement for prioritization of the project – that is, the project that, according to various criteria, gains the highest priority, will be financed first. One of the requirements is the use of renewable energy in the operation of such a project.
I would call the continued adaptation to European Union legislation a legal challenge. Even if we take the main acts that we need to bring into line, there are about 70 of them. And this is really a lot of work. We must not forget that the things that we have partially implemented also need to be tightened up and we need to respond to the comments of European bodies and the European regulator about what was implemented in the wrong way, to the wrong extent or in general incorrectly, all of this needs to be redone. This will be a serious legal challenge. For the state, for players, for investors, I see commercial opportunities, for legal consultants – the opportunity to provide high-quality service to clients in the renewable energy sector.
– Mr. Maksym, should I tighten it up with a wrench, a screwdriver, or maybe just take a hammer, hit it and it will go where it needs to go?
– It seems to me that it is better to combine a screwdriver and a wrench here from the point of view of the legal part of this equation. But from the point of view of its practical implementation – unfortunately, it is still difficult to do without a hammer in Ukraine.
– Given this, which energy projects are the most attractive and which are the most difficult to attract investments from abroad?
– The most attractive are RES and BES, which corresponds to the trends and policies of international financial organizations on project financing. And this really impresses me: I love nature.
– Mr. Maksym, besides the obvious risk of war, what other risks do you most often see in energy projects in Ukraine and how can they be minimized?
– If we put war in parentheses, then the next category is probably economic risks. And there is no magic recipe for how they can be minimized at the investor level. We have the debts of the “Guaranteed Buyer”, cross-subsidization of the sector, we have low tariffs and price ceilings. All this reduces investment attractiveness, this needs to be changed, but we need to make difficult political decisions and stick to them. But the economic demand of any investor is predictability. He must understand that he will sell at understandable prices that fit into his business model, and then he will receive a settlement, or the debtor to whom he provided funds will receive a settlement, or there will be a cash flow that will ensure the repayment of the relevant borrowings, or he will be able to withdraw these investments from Ukraine at all, in what amount and with what risks. Accordingly, this is a more general and broad question.
If at this stage we cannot raise prices or tariffs, then we need to issue some debt obligations. Because otherwise we are spoiling our reputation more and more, and investors will simply either accept or not accept the corresponding risk. Yes, they see the prospect and opportunities, yes, they can take a risk. But I have seen very few such players in the energy market who are inspired to take risks, that is, if there is no risk, they do not go into the project, in the agricultural sector, in the real estate sector. In the energy sector, it usually works a little differently.
– Mr. Maxim, when we talk about attractiveness, unattractiveness, risks in attracting investments, we very rarely talk about an important aspect: the presence of a company like AVELLUM, or another qualified law firm that is able to provide support. To what extent is this an additional factor of attractiveness? Can you remember when, perhaps, it was even decisive that people realized that they would not be left to their own devices here?
– This is a very important aspect. And I try to build my relationships with clients only on adding value. That is, if I can’t I want to add value to a project, or if I objectively see the quality of the problem and the possibilities of how these problems can be minimized or eliminated, we communicate directly with the client about it. And I often hear from clients, including international ones, who have never done business in Ukraine, that they are confident in making management decisions and implementing projects because, when communicating with you, they see that you have already been there, you have already done it, you know how to do it and you can ensure the implementation of this project. This feeling is sometimes really decisive in their decision to implement such projects. My last experience, although not in the energy sector, was related to a trip to Korea. At the end of 2023, I held an event there for more than 100 managers of Korean companies who were interested in implementing projects in Ukraine. Several of these companies asked for separate meetings after the seminar and we communicated with them for several days. Before I had time to get to Ukraine, all these companies decided to work in Ukraine and do projects.
– I think that the South Koreans will not have to wait too long. What did you advise them and what can you advise Ukrainian companies that are looking for international financing for energy projects?
– I would advise choosing among priority projects, monitoring existing programs and conditions for providing support. For medium-sized players, I would advise conducting preliminary legal training before starting to communicate with potential international borrowers or partners. In order to, when such communication begins, fall into their game with the least risky potential partners or borrowers.
That is, you must first build a clear corporate structure, remove unattractive from a reputational point of view judicial, criminal, tax and other disputes, and then enter into negotiations with this.
If we are talking about big players who know a lot, have done a lot, and are able to do a lot, my only advice here is probably to expand the potential circle of partners with whom they can implement projects, benefit from this together, using the help of lawyers who have contacts all over the world and who will provide you with partners better than an investment banker or consultant. And most importantly, contact AVELLUM.
– When I listen to professional lawyers who work in a particular industry, I think: do they really not have special education in this industry as well? Of course, lawyers who work in the energy sector operate with concepts, but today you also demonstrated knowledge of geology. Do you have additional education besides legal?
– In addition to law, I have an education in practical psychology and am currently studying at the Ukrainian Catholic University, but I have not yet received a full-fledged financial education, as well as a special geological one.
The big interview is a special media project of the Energy Club business community, within the framework of which we communicate with the heads and top managers of companies that are Energy Club members. A frank professional conversation about everyday business activities and plans for the future.
