Summary of 2019: Economic Сhanges in Ukraine
Interview in Kyiv with director of European-Ukrainian Energy Agency, Oleksandra Gumeniuk
What would you say are the main achievements of Ukraine in 2019 when it comes to energy efficiency?
Well, if we talk energy efficiency in the framework of Ukrainian achievements under the Association Agreement and all the reforms that Ukraine is now handling, we can talk about, for example, the State Fund of Energy Efficiency, which finally started its work, and arranging competition between the condominiums of Ukraine and providing them with grants for energy-efficient measures. Because it was established a few years ago, but there was a long procedure of preparation of its work and internal procedures on how the grants would be launched. So nowadays we see, like, piled projects that were implemented, and the continuation of their work.
Almost $5 billion, to be exact, it’s $4.8 billion that have been invested in the renewable energy sector of Ukraine over the last five years. Our Prime Minister Oleksii Honcharuk said, quote: “This is the highest performance in all the years of independence of our country.” Now, which Ukrainian regions can boast of the fastest adaptivity to renewable energy sources?
If I understand correctly, you are asking what regions are leaders in the renewable energy sector. Well, of course, if we talk about the wind power and solar energy, these are the regions in the southern part of Ukraine, where the wind is better near the sea, and when the sun is better in the southern part. Of course, the windy regions are always where there are hills, so the Carpathian Mountains are one of the leading regions. But if we’re talking about specific regions, then in solar energy, for example, the leaders are Odesa region, Kherson region, Mykolaiv region, Dnipro region. But there are also big solar projects in Cherkasy and Zhytomyr. And they are the same with the wind energy: Odesa, Kherson, Mykolaiv, and there are projects in the Carpathian Mountains, and that’s it.
Electricity market reform. Where is Ukraine on the path of totally implementing this reform, and what outcome are we expecting to get once it’s fully implemented?
As experts say about this reform in the electricity market, it was a highly important and very needed point under the implementation of the third energy package and international obligations of Ukraine. It was appointed for July 1, 2019 under the legislation, so it was impossible to postpone without changing the legislation. That is why the new electricity market was actually launched on July 1. But all the stakeholders and the majority of experts were very worried about the poor preparation for this launch of the electricity market, and everyone was worried about a huge increase in prices both for the commercial sector, residential buildings, and for the population as well. But there was no instrument to postpone the launch on this date. So as we know, it was launched on July 1, 2019. And as international experts encourage Ukraine, they say, “Well, Ukraine is the fastest country to implement this reform, including taking into account the political risks, economic volatility of Ukraine, and the conflict in the eastern part of Ukraine as well. So it showed the international community that Ukraine is ready for reforms, that Ukraine respects international obligations that it takes. But at the same time, it is a huge signal for stakeholders and experts and all market participants that it is not just written in the legislation, that yes, we have a new electricity market thanks to the hard work of each participant of the market.
Recently, in the recent years, Ukraine has demonstrated quite a higher level of awareness when it comes to the need of environmental protection. And in 2019 in particular, crucial steps were made in that area. Are there any particular examples of what exactly has been done that you can name right now?
Well, of course, environmental protection is a topic that the population thinks about only, like, after it is under the…
When we are approaching a disaster, right?
Yes, absolutely. So, first of all, the population thinks about food, about their jobs, about children, about family, about health, and after a long list of different important points for the population, people start to think about the environment. Anyway, we can see that the process is moving, and for example, a lot of households are participating in moving Ukraine to energy independence. Because we see about 8,000 household entities that have implemented renewable energy projects in their households, and it shows wonderful results in the present day share of renewable energy generation in the whole energy system of Ukraine. Of course, if we talk about 56 or 52 gigawatts of the whole Ukrainian capacity of energy generation: nuclear, coal, gas, and renewable energy, then of course, the part of households is really small. But still, it is good to emphasize that yes, there are very well-aware people who care about the environment and would like to have clean energy in Ukraine.
In 2019, Ukraine took the 8th place in the world rating on the attractiveness of investments in alternative energy, rising 55 steps. This is stated by the annual report of Climatescope 2019 that was prepared by the research agency Bloomberg New Energy Finance. How did we manage to jump that fast that high from the 63rd place to the 8th?
I guess this rating took into account not just the legislation and all the business climate opportunities in Ukraine, but also the activity of investors, who jumped into Ukraine to develop their business investment projects. From one side, why did it happen? Because we had a good policy framework, good legislation with a very attractive feed-in tariff for the renewable energy sector. And actually, it attracted the majority of investors to come to Ukraine. But if we look at the previous years, like 2014, 2015, 2016, 2017, there was a step-by-step growth of renewable energy. But we can observe the bigger movement in the renewable energy sector in 2018 and 2019. Actually, in 2019, this year, about two gigawatts of renewable energy projects have been implemented, and it is a really huge.
Any international projects that are particularly important for Ukraine launched within this number you’ve just named?
Well, these were the projects that were implemented in Ukraine during 2019, they were implemented by both Ukrainian and international companies with different stakeholders and investment organizations, private intergovernmental organizations. So it demonstrated, the Ukrainian market demonstrated its attractiveness not just from the side of the fantastic and very business-attractive feed-in tariff. But there is also the framework and the policy, and the government showed its interest in attracting more and more investors. But then, we are worried about the really high feed-in tariff, and Ukraine is not one of the best economies in the world. So how will it handle it? That is why the new policy frame for renewable energy as an auction system was developed last year, and the appropriate law was adopted in April this year. Actually, it was signed by the previous President Mr. Poroshenko. And yeah, so this year a lot of work had to be done for the preparation to the auctions to start them in 2020. But unfortunately, we don’t see any activity in this way either, so investors still don’t understand if they are going to remain on the feed-in tariff or switch to the auction system. Because the major thing for investors to make their decision to stay on the feed-in tariff or switch to the auction system is a clear understanding of what quotas are going to be set for the auction system. For now, we don’t have any official announcement from the Cabinet of Ministers, and even from the Ministry of Energy on what those quotas will be, which is why it is unclear for the investors. So if we don’t see any clarification in the auction system, the investors will choose to stay on the feed-in tariff. The legislation also encourages, if you want to stay on the feed-in tariff, you can sign a previous power purchase agreement and stay on the feed-in tariff if you commission your power station in 2020. When the government saw that so many companies assigned these pre-PPAs, it began to worry about its ability to pay those feed-in tariffs in the following years. That is why now the government is discussing the opportunity of the restructuring of such power purchase agreements for the electricity that was produced by renewable energy sources, which is another wave of worries for the investors, another wave of uncertainty for the investors. Also not just for the investors, but also for the bank sector, where different banks provided huge amounts of money for these renewable energy projects.