You're reading: Ukraine only starting to harness potential of renewable energy

Ukraine is beginning to harness what Mother Nature has endowed it in a big way.

Every shade of investor, from local and foreign, to municipal and portfolio, is starting to take advantage of Ukraine’s vast natural resources to produce renewable energy.

It’s an energy boom experts say that is being fueled by a practicable green tariff policy, institutional and Russian bank lending, and a range of tax exemptions for green energy companies and projects.

“Ukraine is a dynamic emerging market for renewables,” said Yuri Kubrushko, director of IMEPOWER, a consultancy that advises banks, and local and foreign renewable energy developers. “It’s a new market with many players where there are commissioned power plants with green tariffs and many more under development.”

The nation’s energy regulator says as of February that 61 companies receive green tariffs in wind, solar, biomass and hydroelectric energy for more than 100 projects, since it introduced a more conducive green tariff policy in 2009. There are at least as many in the pipeline.

Their contribution is not very noticeable yet. Currently, experts at the non-profit European-Ukrainian Energy Agency say Ukraine’s renewable energy accounts for just 2-3 percent of the roughly 140 billion kilowatt hours that the International Energy Agency says the nation consumes yearly.

At the same time, half of the energy comes from the nation’s nuclear power plants. Currently, Ukraine has the capacity to produce some 400 megawatts of electricity with renewables, 245 MW of which was commissioned in 2011, according to the government’s energy saving and energy efficiency agency.

The Economic Bank for Reconstruction and Development estimates that Ukraine has great renewable energy potential: the technical potential for wind energy is estimated at 40 TWh/year, small hydro at 8.3 TWh/year, biomass at 120 TWh/year, and solar energy at 50 TWh/year.

Part of the glowing attraction is that Ukraine is home to one of Europe’s highest green tariff rates for wind and solar energy, whose sources are located in the mostly flat southern steppes, and sunny and windy coastlines of the Azov and Black Seas.

Solar and wind farms already dot the coastline of the Azov Sea and southern steppes in Kherson and the Crimean peninsula. Wind farms are springing up in the west where the Carpathian Mountains lie. It’s part of the reason why tax advisory and audit giant Ernst & Young placed Ukraine in its November 2011 renewable energy country attractiveness index ranking it ahead of Austria, the Czech Republic, and Bulgaria at 32 out of 40 countries.

That’s welcoming news for one of the world’s most energy intensive economies and a residential sector that consumes approximately 25 percent of the country’s electricity and 40 percent of its heat energy resources.

Three large connected local developers are among the dominant players, two of which with foreign partners. Austrian-registered Activ Solar, linked to the political powerhouse brothers Serhiy and Andriy Klyuev, has commissioned three solar parks with 185-mega watt capacity in the south with locally and foreign produced equipment – one of the largest in the world.

DTEK, controlled by Ukraine’s richest man, Rinat Akhmetov, has already begun work on its 1.2-gigawatt portfolio of wind capacity on the Azarov Sea’s coast. And Wind Parks of Ukraine, linked to the governor of Donetsk with German expertise and equipment, commissioned 50 megawatts of capacity in 2011 and has projects exceeding 500 megawatts under development.

 

Also present are companies with foreign project managers based in Ukraine like Monaco-registered EuroCape New Energy with mid- and last-stage projects equaling 600 megawatts in the pipeline. Vindkraft Ukraina, a joint-venture with Swedish expertise recently installed its first wind turbine in Kherson with 3 megawatts of capacity and has plans to install nine more this year. A private investor purchased the first turbine, while the remaining nine will be purchased through bank financing.

In other cases Ukrainian developers are selling projects to foreigners. A Belgian-Turkish joint venture recently acquired the rights to build a 250-megawatt capacity wind park in Crimea making it one of the first foreign investors to build a large-scale project. The deal also includes a 125-megawatt expansion.

Ukraine has set a target for renewables to power 19 percent of energy by 2030. According to the government’s energy saving and energy efficiency agency, $103 million was allocated in 2012 for the government’s energy saving program, the majority of which will be used to upgrade the power grid.

Ernst & Young estimates that Ukraine’s overall grid capacity is around 7 gigawatts, far less than what is required to meet future renewable projects in the next ten years.

Apart from making significant upgrades, such as installing new power lines and transformers that requires the time-consuming process of land allocation, experts say Ukraine needs to make the energy market more transparent and streamline the green tariff approval process.

It can take up to two years to gain all the permits and approvals before construction can begin. Under the Energy Community Treaty it signed with the European Union, Ukraine also needs to separate energy suppliers, distributors and consumers and create a transparent, functioning market, said Elena Rybak, director of the European-Ukrainian Energy Agency.

But to really benefit from renewable energy, Ukraine must choose the right energy mix, something it neglects to do, said Rybak.
Each city should decide what is the best choice and what proportion of renewable energy to use, the NGO director said, adding that, energy efficiency should be at the top of the agenda in every sector of the economy.

“There’s no reason to invest in a new heat pump worth up to 15 million euros when 30 to 40 percent of energy is wasted before it reaches the end-consumer,” says Rybak, the NGO director.

Such projects are also underway, though they’re not systemic. Ivano-Frankivsk, a city of 240,000 in the foothills of the Carpathian Mountains, recently secured $450,000 from the Nordic Environment Finance Corporation to refurbish nine schools. The project will replace thermal insulation on water pipes, install new heating units and replace existing windows with double-glazed, energy efficient ones which will save $122,000 in heating costs and 416 tons of carbon dioxide emissions a year.

“Ivano-Franivksk is a city that realizes it’s worth spending on its future, the project will cover itself in 3.5 years,” said Yulia Shevchuk, NEFCO’s director in Ukraine.

The political situation and Ukraine’s low international investment ratings don’t help the situation, said IMEPOWER’S Kurbrushko.

The consultancy director said that although he has conducted five market studies for large strategic investors in the past two years, the companies are holding back because they “want to see consistency and predictability.”

And until there’s a “coherent government strategy with clear rules of the game, firms like Seimens or General Electric will remain at bay,” said Kubrushko.

They better hurry, projects that get awarded green tariffs this year require 15 percent of local content in terms of equipment, 30 percent in 2013 and will reach 50 percent by 2014.

Very few of those components and technologies are available in Ukraine – which may become either a problem for a big investor, or an opportunity to set up their own production in Ukraine.

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