Ukraine's green energy transition between the new cost-effective renewable technologies and heritage of old power generation units
/15th December 2020, RENEWABLE MARKET WATCHTM/ Before we start, please let us remind you the fact that Renewable Market Watch™ was the pioneer which more than eight years ago published the first-ever (and subsequently proven to be completely precise) detailed analyses concerning Ukraine’s renewable energy market. Taking into consideration that the country has achieved remarkable progress in this field since then, now we have the honour of presenting you the following updated prospect that aims to define the feasible development of sustainable energy sources in Ukraine in the foreseeable future. More precisely, the present prognosis is based on thorough insight into the country’s current situation, including its strategic conception, economic condition, national energy policy, and delicate political climate. In fact, Ukraine is currently facing the difficulties of continuing to follow the chosen direction of increasing both green energy and biofuels proportion, while decreasing coal and gas power plants dependence. For this reason, our present analysis assumes Ukraine’s overall vision of a possible transformation from non-renewable conventional energy production to probable wide accomplishment of renewable energy projects. To sum up, in the following lines, we are going to introduce our point of view not only on the respective issues that Ukraine is presently dealing with, but also on the opportunities on its way to green energy transition.
Ukraine’s Renewable Energy Potential and Prospects
The technical and economic potential for clean power generation from solar PV, wind, and bioenergy in Ukraine is considerable. Broader development of renewable energy would also play an essential role in existing policy goals of reducing the dependency on imported natural gas and diversification of the more secure energy supply. Ukrainian solar and wind power sectors scored remarkable progress between 2012 and 2020. However, further renewable energy deployment is crucial for the country's economic development and energy independence, according to the Ukraine Renewable Power Market Outlook 2020÷2030.
Chart 1: Breakdown of Installed Generation Capacity in Ukraine by Technology Type 2019; Source: IRENA, Renewable Market Watch™
Bioenergy production from biomass and biogas, cultivation of energy crops are under implementation. The proper biomethane market development can replace the equivalent of about 8 billion cubic meters of natural gas per year. The clean energy and energy efficiency sector of Ukraine could attract up to € 70 billion in investment in 2030 by the International Finance Corporation‘s (IFC) estimation, which is also confirmed by the State Agency for Energy Efficiency and Energy Saving (SAEE). Ukraine scored a number 8 position rank among 104 countries for 2019 (up from 63 position rank in 2018) in the Bloomberg’s New Energy Finance Climatescope Emerging Market Global Outlook for attractiveness for green energy investments. This was an outstanding recognition of the country’s gradual efforts in the renewable energy transition.
Historical Development of the Ukrainian Renewable Energy Market
The Ukraine renewable energy market saw fast-paced development in the past years, reported the Renewable Market Watch™. About €2 billion have been invested in energy efficiency and renewable energy of Ukraine between 2014 and 2018, according to the State Agency on Energy Efficiency and Energy Saving (SAEE). Almost half of this amount (approximately €0.8 billion) has been attracted in 2018. The total cost of electricity from renewable energy sources under the green tariff (including VAT) in 2018 amounted to €560 million. In 2019, a new 4.7 GW renewable power capacity was installed in Ukraine, excluding large hydropower. It is more than a six-fold increase compared to 2018 (+0.74 GW) and exceeds all the new capacity installed between 2008 and 2018.
Chart 2: Cumulative Installed Solar Photovoltaic (PV) Capacity in Ukraine 2011 – 2019; Source: IRENA, Renewable Market Watch™
The Ukraine Solar Photovoltaic (PV) Power Market Outlook 2020÷2030 reveals that most of the new renewable power facilities are solar photovoltaic (PV) power plants with a total cumulative installed capacity of 5.94 GW at the end of 2019. The largest share in the Ukrainian renewable energy market has power plants with an installed capacity of 10-50 MW followed by those with a 5-10 MW capacity. The projected volume of production by the renewable power facilities in 2020 in Ukraine will be ≈12 billion kWh, and the amount of payments will be UAH 47 billion (€1.37 billion). According to the study of the National Academy of Sciences of Ukraine, with appropriate investment, Ukraine is possible to generate about 90% of its energy from renewable energy sources.
Government Efforts and Initiatives on Support of the Renewable Energy and Energy Efficiency
Ukraine follows global trends and has support programs for energy efficiency and clean energy, taking into account the economy's possibilities. The country has significant development potential in these areas. In the last 5-6 years alone, approximately €7 billion of investments have been attracted to the Ukrainian green energy market, according to the State Agency for Energy Efficiency and Energy Saving (SAEE).
Chart 3: Ten Main Pillars for Ukraine's Green Energy Transition; Source: Renewable Market Watch™
To ensure cross-sectoral development of energy efficiency and renewable energy, the State Agency for Energy Efficiency and Energy Saving (SAEE), and the Ministry of Energy are working on legislative changes, development of incentives and financial instruments. After a detailed review of all existing and planned laws and green energy support programs, the Renewable Market Watch™ has summarised the above chart, the ten main pillars for Ukraine's green energy transition to an energy-efficient and energy independent country.
The delicate eastern regions whose sensitive political climate could restrain their transition to a sustainable energy future
When referring to Ukraine’s widely expected move towards green energy sources, it should not be missed the fact that for multiple reasons, connected directly or indirectly with the Russian political and economic influence in the East, the accomplishment of renewable energy projects in some regions is rather unrealistic. More precisely, because of the existing delicate political climate in the sensitive Russian speaking eastern areas as well as the continuing Russian – Ukrainian bilateral confrontation, there is almost no doubt that both the legislative and practical implementation of potential renewable energy projects under Ukrainian initiative in the East, especially in Donetsk and Lugansk regions, is probably going to face much more obstacles than the ordinary procedures valid in the rest administrative districts.
Map 1: Russian Speaking Areas of Ukraine; Source: CNN
In summary, taking into consideration the above, a hypothesis containing a moderate optimism about a fast-track smooth realization of alternative energy projects over the country’s whole territory should not be underestimated, reported the Ukraine Renewable Power Market Outlook 2020÷2030.
Ukraine’s deep-rooted dilemma between the pro-Western externally imposed orientation and the obvious total advantages of keeping its independence and military neutrality
Interpreting solely from the angle of Ukraine’s official political position and from the respective constitutional amendment implemented in 2019, ostensibly there is no doubt that the preconditions in question have already paved the way for the country’s straightforward geopolitical conception, which is steadily oriented towards both EU and North Atlantic membership.
At the same time, a more thorough look at Ukraine’s ethnic composition, cultural traditions, moral principles and major religion (Eastern Orthodoxy) undoubtedly gives the sense that it could be only an initial impression, which perhaps does not present completely the true dimensions of Ukraine’s real strategic national vision. In spite of the respective legislative changes and formal political will, demonstrating the country’s ostensible willingness to adopt the Western values as a whole, a foregone conclusion without taking into account the country’s delicate internal balance could be considered as a hasty judgement.
Besides, while yearning for the Western Promised Land, Ukrainian lawmakers perhaps realize that they cannot ignore the fact that the country’s political and economic transformation could not be achieved in case of complete disregard for Ukraine’s historical legacy, geographical location and last but not least its financial priorities. Taking into consideration the expected (and one way or another alluded) overall benefits from keeping Ukraine’s neutral position, the country’s geopolitical still existing hesitation is easily comprehensible and should be carefully considered in connection with strategic financial planning and long-term investment matters.
Key Wind Farm Developments in Ukraine
Ukrainian developer Wind Farm LLC signed a contract at the beginning of October 30, 2020, with Chinese company PowerChina on building a wind power plant with a capacity of 800 MW, according to the Ukraine Wind Power Market Outlook 2020÷2030. The project will take place on the territory of the Nikolsky and Mangush districts of the Donetsk region. The project's implementation contributes to the country's energy independence and corresponds to the direction of sustainable energy development of Ukraine. Favourable site location with an average annual wind speed of about 7.6 m/s at the 120 m hub height, providing an installed capacity of about 45% and AEP of about 3130 GWh (specified for P-50 scenario for Vestas V150 -5.6). The scheme of connection of wind power plant to electric grids selected together with NPC Ukrenergo foresees the construction of two 330 kV power lines for the formation of a 330 kV electric ring near Mariupol, which will significantly improve the reliability of the city’s power supply. The project's location in a region with large industrial consumers allows the use of produced electricity with minimal technical losses for transmission and advanced logistics for transporting wind turbines. Wind Farm LLC has signed a memorandum about intentions of cooperation with SE “PA Yuzhmash” and SE “Plant” Electrotyazhmash” to facilitate the involvement of wind power equipment manufacturers in the organization of local production.
Another wind farm project with almost similar size as the above one will be built in Ukraine by NBT AS (a utility-scale wind power developer based in Norway). With an overall planned capacity of 792 MW, Zophia Wind Farm is located in the Zaporizhia region of southern Ukraine and on the Azov Sea's northwestern shores. Once built and operational, it will produce about 2,770 GWh of electricity, enough to power over 340,000 local households. The wind farm will displace about 2 million tons of CO2 emissions per year, equal to one-fifth of the Ukrainian capital city Kyiv's yearly emissions. The wind farm will consist of up to 160 Siemens Gamesa wind turbines and will be built in three stages. China Electric Power Equipment and Technology Company (CET), a wholly-owned subsidiary of the State Grid Corporation of China (SGCC) shall be the engineering, procurement, and construction (EPC) contractor for the Zophia-II and the Zophia-III wind farms, according to the contract signed in October 2019. Commissioning of the wind farm is expected in 2021.
Key Solar Photovoltaic (PV) Power Project Developments in Ukraine
Scatec Solar and partners have grid-connected and started commercial operations of the 54 MW Boguslav project in the Kyiv region, Ukraine on May 7, 2020. The project is realised under Ukraine’s Feed-in-Tariff scheme and is expected to deliver about 61 GWh per year. The Boguslav plant will be providing clean energy for up to 27,000 households. Public land has been leased for an extended period, and the solar power plants are expected to deliver power also beyond the Feed-in-tariff period. With this project, Scatec Solar passes the milestone of 1.5 GW in operation globally. Also, a portfolio of 399 MW is under construction, of which 235 MW in Ukraine (Progressovka Solar Project – 148 MW, Chigrin Solar Project– 55 MW, etc.), revealed the Ukraine Solar Photovoltaic (PV) Power Market Outlook 2020÷2030.
The Naftogaz Group received a green tariff and a license to sell electricity for a new solar photovoltaic (PV) power plant with 33.3 MW capacity in Chudnov (Zhytomyr region) in Ukraine on October 21, 2020. The plant was built in September 2020 using the most modern technological solutions and highly efficient equipment from the world's leading manufacturers. The solar power plant uses graphene-coated monocrystalline photovoltaic modules with one of the highest power in its class - 430 W from ZNSHINE PV-Tech Co., as well as SUN2000-185KTL string inverters from Huawei. All auxiliary equipment elements and materials are of Ukrainian origin. We have to remind you that Naftogaz Group’s Andriivka Solar Power Plant (SPP) in Balaklia district (Kharkiv region) has begun operating on July 13, 2020. Andriivka SPP is a pilot project of the New Energy business division responsible for the technical and regulatory analysis of renewables development within the Group. The plant’s capacity is 0.99 MW.
Bioenergy Market Development Opportunities
The development of bioenergy is especially promising for municipalities and local communities in Ukraine, according to the Ukraine Renewable Power Market Outlook 2020÷2030. It is possible to replace imported gas of 37 billion cubic meters per year with maximum utilization of the existing potential of biofuels and biogases (agricultural waste, energy crops, biogas, biomethane, etc.) in the country. „Even the use of less than half of this potential will be enough to get rid of dependence on gas imports, which in 2019 amounted to 14 billion cubic meters and for which $ 3 billion was paid”, according to Yuriy Shafarenko, Deputy Head of the State Agency for Energy Efficiency and Energy Saving (SAEE). The issue of biomethane market development is also under consideration in Ukraine. Its potential can replace the equivalent of about 8 billion cubic meters of natural gas per year.
Recent Legislative Changes Impacting Renewable Energy Market
The Renewable Market Watch™ reported that Law № 738-IX of 19.06.2020 was adopted and signed in Ukraine. This Law defines green bonds as a particular type of securities and establishes the legal basis for their circulation in the country. The Law was adopted, and a concept and action plan for the introduction of the green bond market were prepared. This is a new type of securities for the country, which will attract funding for large-scale renewable energy and environmental protection projects in the country. The potential of this market in Ukraine is estimated at €29.7 billion ($36 billion) by 2030.
The Law of Ukraine №810-IX “On Amendments to Certain Laws of Ukraine on Improvement of Conditions of Support of Electricity Production from Alternative Energy Sources” entered into force on August 1 2020, and the green tariffs for renewable energy producers shall be reduced. The Law is based on the agreements structured in the Memorandum of Understanding (MoU) signed on June 10, 2020, between the Government of Ukraine and the Ukrainian Wind Energy Association (UWEA), and the European-Ukrainian Energy Agency (EUEA). These two associations represent the interests of most of the renewable energy investors in the country. This Law will have a retroactive effect on the revenue of the installed renewable power facilities in Ukraine.
Investors and local and international banks are seriously concerned about the current situation in the Ukrainian renewable energy sector because six months after the signing of the MoU the main promises are still not fulfilled by the government. The government still has obligations for payments under the green tariff to renewable energy producers. However, we believe that this MoU shall contribute to reducing the cost of renewable electricity for consumers. Also, the state's burden to pay high tariffs shall be decreased in a period when Ukraine faces an economic recession caused by the COVID-19 pandemic. Therefore, Ukraine has an excellent chance to reconfirm its position on the global renewable energy investment scene in the next few years.
The Verkhovna Rada registered for consideration of a bill to amend the Budget Code of Ukraine and introduce a State Decarbonisation Fund (Bill No. 4347). The source of the fund is a tax on CO2 emissions. It is planned to increase this tax from 10 UAH/ton (€0.29/ton) to 30 UAH/ton (€0.88/ton). The initiative to implement the Decarbonization Fund was developed by the Ministry of Energy with the support of the Ukrainian-Danish Energy Center and the State Agency for Energy Efficiency and Energy Saving (SAEE). The fund's accumulated financial amounts shall be used exclusively for energy efficiency measures and decarbonisation projects that also have environmental and social effects.
The unclear future of oil and gas supplies from Russia to Ukraine and Ukraine’s still existing binding to its coal-depending energy production
Despite the renewal of the Agreement between Russia and Ukraine, reached at the end of 2019, concerning the continuation of Russian gas supplies to Europe via Ukraine and the feasible Ukrainian expectations of restoration of steady (and affordable) Russian gas supply for Ukraine’s domestic needs, the still existing political tension between the two countries on the one hand and the continuing EU plans for gas supply diversification on the other will probably affect the smooth future of the processes in question.
Map 2: Donetsk and Lugansk Regions; Source: Kiril Polukhin, RBTH
In this regard, the long-term permanent gas supplies from Russia to Ukraine seem rather uncertain. In support of the prognosis in question is the fact that the volume of the new gas supplies from Russia to the EU is relatively limited in comparison with the gas quantities delivered on the basis of the previous gas deal. In addition, the sensitive political climate in the eastern regions will probably impact negatively the regular coal supplies from the eastern parts of the Donbass area (Donetsk coal basin) to the historically (and to some degree politically) coal-relying Ukrainian energy market.
Therefore, the reasonable (and surely cost-effective) solution could be the country’s clear turn into renewable energy sources (wind, solar, bioenergy, hydro, geothermal), but from a different point of view, taking into account the above-mentioned specific atmosphere in the East, a Ukraine’s sudden refusal to use the existing coal resources of Donbass eastern areas could be mistakenly perceived as a hint of Ukraine’s indirect withdrawal from its strategic national interests in the eastern zones, which could lead to some unpleasant political consequences both nationally and internationally.
Chart 4: Natural Gas Consumption and Import in Ukraine 1991-2019; Source: Naftogaz Europe
In this respect, regardless of the logical expectations which are closely connected with Ukraine’s energy transition from the usage of conventional non-renewable sources of energy towards a wide accomplishment of sustainable energy projects, a precise insight into Ukraine’s renewable energy prospect should be refracted through the prism of Ukraine’s potential financially unprofitable compromises with the aim of stabilizing its positions in the eastern regions and continuing the political dialogue with Russia concerning their sensitive bilateral issues.
Conclusions
Ukraine’s transition to green energy can support economic activity, create jobs, and manage challenges such as the increased impact of the COVID-19 over the economy, dependence on energy imports, and replacement of ageing power generation units, according to the Ukraine Renewable Power Market Outlook 2020÷2030.
Meanwhile, there is a strong probability that Ukrainian legislators are going to face the dilemma of whether to continue relying on the existing (but obviously not cost-effective) coal-depending domestic energy market, which to a great degree depends on the coal resources of the eastern zones of Donbass area, by keeping the respective local manpower, traditions and existing infrastructure, or to choose the more logical, much cheaper and widely expected fast transition to a renewable energy future whose practical implementation could affect Ukraine’s strategic national vision.
The Ukrainian government firmly believes that energy efficiency and green energy are the right way to energy independence, a stronger economy, and a prosperous society in the country. Shift to renewable energy shall reduce the Ukrainian economy's high energy intensity (2 times higher than the world average). Already there are cities in the country switching to alternative energy sources instead of imported gas. Insulation of walls and modernisation of HVAC systems of buildings is among the key priorities in the country.
Ukraine has historically been one of the larger CO2 emitters per unit of GDP in Europe. Currently, GHG emissions are substantially lower than historical highs, decreasing from roughly 783.2 million metric tonnes of CO2 in 1990 to 196.4 Mt of CO2 in 2019. Despite this decrease, Ukraine’s energy sector remains a strong driver of emissions, given its heavy reliance on fossil fuels.
Energy efficiency and green energy have a special priority in Ukraine. Furthermore, policy formulation and implementation are carried out in compliance with international obligations and the principles of the European Green Deal directions.
Finally, taking everything into consideration, the rather gradual acceleration of the country’s inevitable move to renewable sources of energy could be also a possible scenario instead of a fast-track process, led (and driven) by economic and environmental reasons only.
The more information about the renewable power market in Ukraine, including full contact details of renewable energy project owners and developers you may read here: Ukraine Renewable Power Market: Outlook 2020 ÷ 2030
The more information about the solar PV market and wind power market in Ukraine, including full contact details of solar and wind energy project owners and developers you may read here: Ukraine Solar Photovoltaic (PV) and Wind Power Market: Outlooks 2020 ÷ 2030
In order to download an executive summary brochure with sample pages of the Ukraine wind power market, please access from here: Ukraine Wind Power Market: Outlook - Sample Brochure
For a better understanding of benefits from using our reports, you may read here: Benefit List - Reports of Renewable Market Watch - 2020
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