You're reading: Powering Up Ukraine

Surging gas prices force nation to go green or bust

Ukraine’s energy sector is stuck in the 1970s.

It generates and distributes energy through inefficient monopolies using an obsolete infrastructure to an energy-intensive economy and wasteful residential sector that costs the nation billions of needless dollars annually.

This solar power plant was launched in Crimea this spring. (Courtesy)

Aging, Soviet-designed power plants and corroding pipelines contribute to inefficiencies throughout the energy system, as well as increased production and transportation costs.

Investment to improve efficiency and tap alternative energies is kept at bay because of the market’s non-transparency, a sea of bureaucratic barriers, not to mention lengthy green tariff permit issuance, experts told the Kyiv Post.

Wind farms could account for up to 30 percent of electric power.

– European Bank for Reconstruction
and Development

Globally, Ukraine is a top-10 natural gas consumer and is the 12th largest energy market. Gas is mostly used to heat homes and water, and produce steel and chemicals.

Yet the country only satisfies about 25 percent of its gas needs locally, and has a smaller population size than other leading gas guzzlers Russia, the U.S., Canada, and Germany, all of which have more developed economies with greater energy needs.

More than 15 percent of all Ukraine’s imports amount to increasingly expensive Russian natural gas, out of which the municipal sector consumes almost half, worth some $5 billion, said Grzegorz Gajda, project manager of the International Finance Corporation’s Ukraine Residential Energy Efficiency Project.

He estimates that nearly $10 billion, or 6.3 percent of Ukraine’s gross domestic product, is wasted due to inefficient structures in the municipal and residential sectors.

Overall, the entire post-Soviet region, accounts for just under one-fifth of world gas consumption, despite having less than one-twentieth of the world’s population, a July report by the Oxford Institute for Energy Studies reads.

Ending waste

Improving energy efficiency in Ukraine’s residential sector alone could reduce 25 percent of Russian gas imports, or 10 billion cubic meters, according to the European Bank for Reconstruction and Development. EBRD estimates $85 billion of investment is required to absorb energy efficiency in housing.

Two-thirds of the nation’s residential high-rises were built between 1956 and 1991 with an area of more than 300 million square meters in 460 settlements with outdated centralized heating systems, said Roman Zinchenko from Greencubator, a non-profit that supports energy innovation programs.

Simple solutions are available.

Installing heating sub-stations in multi-floor residential buildings that regulate heat along with balancing valves inside buildings and thermostats on individual radiators cost on average $2,000 per 50 square meters, said Gajda. Annual savings from this could be close to $2 billion for the nation’s residential buildings.

Zinchenko said energy conservation practices first must be promoted to break the wasteful energy consumption habits of Ukrainians who grew up with heavily subsidized utilities. It’s a sustainable concept he calls, “trias energetica” that emphasizes saving energy, optimizing the use of current generation energy sources while introducing renewable and alternative energy sources.


Watching the meter run when using water does have a psychological effect

Roman Zinchenko, ‘Greencubator”.

Homeowner associations should start installing rooftop solar panels to heat their water, pay for roofing and wall insulations, and install smart light bulbs and better windows, among other simple solutions, said Zinchenko.

Billing residents must be based on actual consumption, not living space, as most municipalities calculate energy rates. This could reduce water consumption by 30 percent, Zinchenko added.

“Watching the meter run when using water does have a psychological effect,” said Zinchenko.

According to National Utilities Regulatory Commission member Yuriy Khivrych, only 40 percent of flats are equipped with water meters, and 23 percent have heat meters. Meters aren’t enough, Gajda said, since much heat and water is leaked or lost along the way because of aged pipes and inefficient equipment.

Industry also plays a part, the Economist Intelligence Unit reported. Ranked amid the world’s top ten steel producing countries, Ukraine has done much to upgrade polluting metallurgical factories in recent years. But they are still the largest source of industrial carbon dioxide emissions.

This farm in Kyiv Oblast is no longer just producing milk from its cows. It is also using the manure to generate energy via so-called biogas technology. (UNIAN)

Many steel plants still use open-hearth furnaces, which consumes 1.5 to 2 times more energy than those using electrical processes.

In 2010, Ukraine’s industrial sector used 24 billion cubic meters of natural gas, 6.4 billion of which in metallurgy, according to Energobusiness magazine.
The nation’s natural gas-intensive chemical sector would also benefit from cheaper liquefied natural gas, which needs to be imported and de-liquefied.

Advertisement

All sectors would also benefit from converting methane into energy and extracting shale gas located where Ukraine has coal mines in the east and west.

But Ukraine has only begun to explore the possibility of using the potentially environmentally risky shale gas extraction process.

Green energy

At present the use of renewable energy in Ukraine, excluding large hydropower, is less than 0.5 percent of total primary energy demand, the EBRD said.


A small number of successful projects are not enough to create a critical mass when the process becomes selfsustaining.

– Denis Savka, Dragon Capital analyst.

“Renewable energy with wind, solar and biomass makes less than one percent for Ukraine’s energy market,” said EBRD director Andre Kuusvek. “It could be raised by up to 10 percent in the next five years. And hydro energy could be also lifted up from 7 to 10 percent.”

Ukraine’s government plans to make alternative energy account for 30 percent of the total over the next four years.

Although solar and wind power projects are starting to pop up across the nation, their impact have yet to be felt to jumpstart a thriving market.

“A small number of successful projects are not enough to create a critical mass when the process becomes selfsustaining: more projects lead to higher demand for services, which decreases the costs of such services and eventually leads to even higher demand,” said Dragon Capital analyst Denis Savka.

Worldwide in 2010, wind continued to dominate in terms of new financial investment, with $94.7 billion compared to $26.1 billion for solar and $11 billion for biomass and waste-to-energy, according to a recent report financed by Bloomberg.

“However these numbers do not include small-scale projects and in that realm, solar, particularly via rooftop photovoltaics in Europe, was completely dominant,” reads the report.

More environmentally clean wind power stations are popping up across Ukraine, including this one in Crimea. (Courtesy)

Greencubator’s Zinchenko said Ukraine has five times the solar power potential of Germany, which is currently rolling out an ambitious renewable energy campaign while phasing out nuclear power.

Southeast regions of Ukraine, especially Crimea, possess the largest potential for solar energy. The average amount of solar energy received annually in Ukraine is about 1,200 kilowatt hours per square meter.

In June, Ukraine finished building its first solar power station in Crimea capable of supplying 5,000 households with electricity.

The same EBRD report says that wind farms, if brought online, could account for 20 percent to 30 percent of Ukraine’s demand for electric power. “The greatest wind energy potential is located in the vast areas adjacent to the Black Sea and the Azov Sea, as well as the Carpathian, Transcarpathian and Lower Carpathian areas,” the EBRD report read.

Since the introduction of the Green Tariff [in 2009], there is an opinion on the market that the situation when the tariff is granted only when a wind park is ready for operation (i.e. the final step of the project) is not investor-friendly and contradicts…world practices, where green tariff is granted at the initial step of the project.

– Yaroslav Petrov, Asters law firm associate.

As for biomass, Ukraine currently gets under one-half of one percent of its energy from these resources and biofuels, despite a substantially large agriculture sector that produces livestock manure that can be converted into energy. EBRD estimates that Ukraine could produce more than 10 times its current level.

Obstacles

But investment into Ukraine’s energy sector is delayed because of corruption, complications with receiving useful land plots and underdeveloped energy-related services, said Dragon Capital’s Savka.

The country’s recently implemented green tariff, though favorable, is cumbersome for investors. Ukraine still has much to do to bring green tariff terms and conditions in-line with international standards and practices.

Investors are usually granted the tariff at the final stage of their project, an investment discouragement.

“Since the introduction of the Green Tariff [in 2009], there is an opinion on the market that the situation when the tariff is granted only when a wind park is ready for operation (i.e. the final step of the project) is not investor-friendly and contradicts…world practices, where green tariff is granted at the initial step of the project,” said Asters law firm associate Yaroslav Petrov.

Moreover, Petrov said, investment into renewable energy encounter problems connecting to the nation’s main energy grids.

“In this respect it would be essential to suggest changing terms and conditions for granting the Green Tariff and regulating the procedure for connecting of projects to the grid,” he said.

Read also ‘Ukraine shows signs of opening energy sector to investors’

Pauline Tillmann contributed to this article. Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].