You're reading: Private sector carrying burden of lucrative biomass market alone

Brazil uses sugar cane residue. Southeast Asia uses rice husks. So why can’t Ukraine use wood byproducts and straw to produce electricity from biomass?

Ukraine’s abundant agricultural and forestry waste make biomass the most promising alternative energy source after small hydro, experts say.

If the country’s biological byproducts, residue and waste products are managed properly, biomass could become a steady year-round source of energy. That means no seasonal fluctuations, as in the case of solar energy.

“Biomass is one of the four most unrealized investment opportunities that Ukraine offers,” says Dave Young of the European-Ukrainian Energy Agency, a green business association.

Source: Bloomberg 2011

Around 15 percent of Ukraine’s territory is covered by forests that offer plenty of convertible by-products and waste, mostly in the north and west of the country, reads a position paper co-authored by Young.

Already an emerging global agricultural powerhouse with 42 million hectares of agricultural land, Ukraine’s agricultural sector can harness biomass from crop residues like sunflower husks, livestock manure, or from energy crops like willow.

“Half of Ukraine’s economic potential from biomass stems from agricultural residues,” said Edward Klaeger, chief executive officer of Alter Energy Group, a Swiss corporation engaged in biomass development in northern Ukraine.

Altogether, Ukraine has the potential to produce 24 million tons of oil equivalent from agriculture, forestry and organic waste, according to a February European Bank for Reconstruction and Development presentation.

Currently, however, less than 1 percent of fuel consumption is based on biofuel, the EBRD says.

Part of the reason is that Ukraine lacks the proper logistics chain to collect, deliver and store biomass, which isn’t profitable if it needs to be transported over long distances, said Yuri Kubrushko of IMEPOWER, an energy advisory group,

“Also there should be long-term guaranteed contracts in place to ensure that there is a steady supply of requisite volumes required at a biomass plant,” Kubrushko said.

Corruption and complicated procedures to obtain the biomass green tariffs – the rate at which the government agrees to purchase the electricity – are also holding the market back, said AEG’s Klaeger.

Power purchasing agreements can only be signed after a biomass plant is built and commissioned, contrary to North American and European markets where the off-take is used to secure funding, he added.

Currently, only two biomass projects receive the green tariff out of 58 renewable projects overall. Biomass from animal and municipal solid waste doesn’t qualify, despite having been included in a bill voted by parliament on July 4.  Moreover, the bill offers no information on the green tariffs’ long term prospects, Klaeger said.

Despite a bold government plan to have renewable sources account for 10 percent of energy use by 2030, the situation regarding biomass remains unclear.

“Biomass isn’t even part of the newly published 2030 Ukraine Energy Strategy,” said Klaeger. “Ukraine lacks a strategy for utilization of its biomass sources.”

Meanwhile, the World Bank’s International Finance Corporation has more modest expectations. The IFC said that 7 percent of Ukraine’s energy supply in 2020 will come from renewable energies, with 4.2 million tons of oil equivalent coming from bioenergy.

On the export side, at least one company is banking on the potential of biofuel consumption in the European Union. The 27-member bloc is targeting a 20 percent share of renewable energy in its overall energy mix by 2020.

London-listed Active Energy Group with operations in western Ukraine has this year started exporting timber biomass to Poland, which is still behind on EU targets. Poland needs to have 15 percent of its energy mix from renewables by 2020, up from 8 percent today.

“The potential in timber biomass is absolutely huge,” said Richard Spinks, chief executive officer of Active Energy Group. “Ukraine has the same potential in biomass as it does in agriculture of feeding itself and the rest of the world.”

Spinks said his company has secured large amounts of timber and pellets through contracts with the state forestry agency and defense ministry.

Currently, Spinks is exporting 8,000 tons of biomass a month, to Poland and through Mykolayiv’s three ports to supply Turkish and Italian customers. He has plans to scale up to 80,000 tons a month and build an $11 million biomass-fired electric power station in western Ukraine.

“We’re aiming for more vertical integration,” said Spinks.

Klaeger’s Alter Energy Group is also considering building a biomass plant to process 120,000 metric tons of wood pellets yearly for export to the EU and a certain amount of chips for the local market or district heating systems.

But if the government is serious about harnessing renewable energy sources, it needs to upgrade the energy grid. Experts say the overall grid capacity of around seven gigawatts isn’t enough to meet expanding energy projects in the next ten years.

“Ukraine needs significant upgrades to its infrastructure to meet its energy targets,” said Klaeger. “Under Ukraine’s green tariff, there is no allowance for the cost of connecting to or upgrading the grid. This allows for infrastructure upgrades at little or no cost to the state but comes at the expense of the investor.”

Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].