Scatec Solar’s Efforts to Boost Ukraine’s Renewables Potential
By 2020, Ukraine plans to get 11 percent of overall energy from renewables.
Ukraine’s renewable sector has been one of the keys focuses on international investment into the country over the past three years. For example, Norwegian companies SCATEC SOLAR is among the largest investors in Ukraine’s renewable energy industry. This company entered the Ukrainian market in 2017 and it is quickly developing a significant project portfolio. In 2018 SCATEC SOLAR established half a dozen companies in Ukraine to implement its project on the construction of solar power plants.
To talk more about SCATEC SOLAR efforts to boost Ukraine renewable potential, we are joined in a studio today by Magnus Berg Johansen, Co-Chair of the Working Group of the European-Ukrainian Energy Agency and Business Development Manager of SCATEC SOLAR.
— Hello and thank you for joining us! What will you tell us about Norway’s role in Ukrainian renewable energy market?
— Well, I can, probably, better speak on behalf of SCATEC SOLAR rather than Norway, but I can do it jointly. I think, in terms of SCATEC angle, we are a global investor in solar energy projects. We are, basically, an investor and a construction company in one. And we have a bodle&&& where we tailor how risk markets basically. So, we are the first entry, into different what is considered how-risk markets. We’ve been very successfully around various continents around the world in installing and building large scale solar projects. It hasn’t been planned out within Norwegian parties, of course, it is a reaction of a market, that has been able to attract parties of Norwegian investors and it is so far have been quietly successful for a number of Norwegian renewable investors. And in our case, we have now, as you mentioned, half a dozen projects. We are trying to finalize the construction of what will be almost 400 megawatts in Ukraine, which we will put us as the absolute largest foreign solar constructing and owing company. It costs almost 400 million Euros. This is still quite a lot of work to do. We were just not even on a half of a construction phase, but so far it is looking fairly positive.
— Undeveloped or unstable market. That’s gonna be my next question because renewable energies are very popular investments right now, but Ukraine has a problem when some people can shy this market because of the conflict in Donbas. SCATEC has the experience, could you maybe list the other areas worldwide SCATEC has gone into areas that maybe weren’t stable?
— Well, when we have an operating asset in countries like South Africa, about now in Egypt, Honduras, South-East Asia, Brazil. So, we have the philosophy that sometimes their perceived risk that is not the same as the real risk. And we do assessments. In many markets, we assess the real risk to be lower than the perceived risk. And I think quite frankly in Ukraine the issue on the east border is, probably, slightly heightened in the national financial environment. And the other topics, I think, there are more high-risk elements or risky elements that you need to have in mind as the foreign investor. And we have a company culture which is very bullish, we believe, that, I think that a Chinese quote saying, if you jump safety net will unfold at some point. And it is partially our philosophy, and I think also we’ve been very successful in pulling things together historically and that’s why you’re seeing us in Ukraine as right now.
— Okay. You have a good track where could we know where your business works the best. Tell me a little bit more about Ukrainian geography. What are some of the best places in Ukraine for people or companies like yours to have solar power or solar panels?
— Well, obviously in the south. There you have the highest solar irradiation. The further south you go, the more solar resource you have and the more economics you produce. This is obviously a very well known topic for people operating in renewable in Ukraine. Partly, because you have the same aspect of wind. There is a lot of consistent strong winds blowing in the south. That’s why you see a lot of development happening in the south which percents is a bit of a challenge for Ukraine because it also means you need to be able to absorb all that energy produced. And so the big limitation for Ukraine right now is the national grid which cannot absorb everything from the south. And therefore, you will need to have installation more around central Ukraine, for example, or even northern Ukraine. But there you will have solar irradiation, for example, which is about 30 percent lower, which means comparing south to the north you will have about 30 percent fewer revenues which obviously has a tremendous economic impact.
— Infrastructure is obviously a problem here. That’s a problem with energy in Ukraine in general. Right now, Ukraine is dependent on Russian natural gas. Now looking at renewables but we have a foreign country coming in which will have a great share of this solar power grid. What is your discussion, your company’s discussion or your role with the European Union in trying to balance this and ease some of the worries of Ukrainians?
— We are facilitator, so basically you might say this is a model which is common around the world where the government has less of a capacity to make instalments in time, so they outsource that work and for that outsourcing, it’s a tender and you have a certain economic return. This is common in other industries as well. Basically, we don’t have a period when we’re sitting on this asset and thereafter it’s the ownership of Ukraine. So this is the model that you see around the world. So it’s not really us just coming in and taking advantage is more that we’re facilitating the infrastructural development at a higher pace and in the end, it ends up going to be an asset of the Ukrainian people or government, you might say.
— In 2010 about 90 percent of Ukraine’s energy came from coal. The goal now is at least 11 percent will come in 2020 from renewables. Are we well on the way there? That’s just next year.
— Well, it’s different views on this because I think in some way we are advancing quickly because we are having a fairly big boom right now, especially this year. We were installing potentially few gigawatts of renewable which is quite a lot for a country like Ukraine. On the flip side, you have a strategy that is very ambitious and it’s partly coming from Brussels and Europe and it’s also partly coming from the fact that Ukraine wants to move towards Europe and away from Russia. I think irrespective of the strategy there are other aspects that are limiting the capacity of growing quickly which again is, for example, the national grid which will be the big limitation of continuing growth in Ukraine. And I think as long as there is the key focus on making this continue to facilitate more generation. Hopefully, Ukraine will be able to move closer to the high strategy ambitions they have with alignment of Europe.
— So people understand the importance of renewables and infrastructure that is needed for. Let’s look at how your country Norway and the rest of Western Europe and other countries of the world they really embrace renewable energy. Is it your opinion that Ukrainians are on par with this excitement to embrace renewable or is there a little bit of catch-up work that needs to be done with the general public?
I think I would separate between the people, the public and the public sector because our industry is not business to consumer, is not business to business, is business to the public. So basically the public is our buyer of service. And in this way, the public decides how much service they want. And this is different from the people who basically are consumers, you might say. On the consumer’s side, people are indeed embracing renewables whenever I say of working in solar they are chairing and they very happy. So feeling the sentiment on the ground is very positive. And I think also the sentiment on a government level, on a public procurement level is very positive. They are seeing the benefits of moving towards renewable energy. There are criticisms about the price of it because Ukraine is coming from historically low electricity cost market where most is subsidized and even nuclear plants are producing without preparing for the decommissioning and other aspects. So there is this balance at least from the public procurement aspect, I see that they are very happy to renewable and their questioning the cost in some cases rightfully so. And at the same time, it needs to be realistic. And this is where we see with excitement what will happen in the next couple of years in Ukraine. What will actually be the price and how will be the political push on the tariff costs.
— Now, are you buying up or renting large swaths of land for these solar panels and if so if the land reform that president Zelenskyi is speaking about is relevant for your company?
— So basically, we have different stages in our development strategy. We have someone locally who’s done early-stage development, which means we are allocating the land for electricity purpose. It means that the land can be on a lease agreement with the municipality for say 25-50 years and they get the allowance to connect the project to the grid. We come in just thereafter. We’re doing a bit of early-stage as well, but mostly we come thereafter. So basically our expertise is not about the land topic. We supervise that the land is being prepared according to law and regulations so that we can able to start to do the sign works of interconnecting, this is where our skill comes in. So I think, regarding this question, it’s not the topic we’ve been looking really into, because right now we have a process anyway, legally speaking, that we need to go through, which is in many ways assessed, evaluated, and confirmed by our legal experts. And then, thereafter we will go into the projects. So, the short answer is no, we haven’t assessed this new topic of agriculture.
— The reason I asked because Chinese have come into Ukrainian market and are buying a great deal of land and I am wondering if Chinese were also very active in the development of solar panels, as one of your competitors here in Ukraine.
— I would say they have different functions. Obviously, a lot of solar procurement comes from China, because they have built up a very large infrastructure of manufacturing of the solar industry globally. Also, they have very competently APC (A Professional Corporation) organizations. We have teamed up with one for one of the projects.
— APC means the party that basically is doing a lot of the physical construction work. So we are overseeing umbrella. Then we ask someone to do the physical work. In most cases, we find the partner in every country we go to, to do this physical work, who then find the subcontractors. For example, we have teamed up with one Chinese company in Ukraine. They are so far also bringing in financing capacities, so in many ways, you can say they are challenging the European investors, the development-oriented investors, like EBRD, which we are also now exploring. So they are coming in different ways and forms and it’s natural in the large country with the large resources and I think they are more risk-tolerant than the Americans and also the Europeans as well.
— Doing business in Ukraine can be unpredictable, with the new administration and the president Volodymyr Zelensky, how do you foresee how he could adjust your change policy to make your job easier?
— That’s a big and good question. I think, addressing bureaucracy is one of course that takes time. I think the key aspect is to ensure predictability, to ensure that what he is communicating is actually followed up in action. This is what we will be monitoring quite closely. And, of course, ensuring the reduction and removal of corruption possibilities in the system. We’ve been of course sensing this around the market, we have ethical standards, that doesn’t allow us to do that, which is very good. I think that when you have someone influential that can facilitate and allow for the continuation of an easier market it will create a more competitive market. It benefits both International and Ukrainian markets.
— SCATEC is right now on the market and you here to stay, what are your mid- and longterm plans here in Ukraine.
— We now have almost seventy people hired in Ukraine, it’s quite…
— Local nationals.
— It’s quite impressive how we’ve been able to scale up so quickly from just being a few people year ago. Obviously, that’s a pool of very skilled people who are basically ready to jump on the next phase as well. So we are assessing what are our future growth possibilities. I think and I hope that you will see us continue growing in this market in different ways and forms, and this market is very alive, you seeing predictability, you can also see it’s very alive, it’s moving and if you then competent, you can find mutual win-wins, you know, and I think in this case we are having some very good sensors, who are trying to understand where we can add value as a company and where we can have a good, where our business model works for Ukraine. I think and I hope that you will see us continue growing in Ukraine.