As one the most energy inefficient former
Soviet republics, Ukraine could benefit enormously from improving the way it
uses its power. This could both reduce foreign energy dependency, which comes
at a heavy political cost, and stimulate the economy as a whole. But government
efforts are stymied by lack of will in the best of cases, and conflicts of
interest in the worst.
According to the International Energy Agency
(IEA), the level of energy intensity of Ukraine’s economy is 13 times higher
than that of Germany and about 5 times higher than Poland’s (see graph). This means
Ukraine spends 5 times as much power per unit of gross domestic product as
Poland. A massive shadow economy means Ukraine’s problem is not quite so bas as
official figures suggest, the problem is clear.
Some progress has been made. Ukraine’s energy
intensity indicator fell from 3.19 in 2006 to 2.63 in 2009. The past two years
were particularly positive, bringing the measure down to 1.44 in 2012.
Despite these positive developments, the issue
of energy effectiveness remains low on the list of government priorities. As a
result, private enterprises are the main drivers of improved efficiency. In
practice, the only meaningful policy in this sector concerns the development of
alternative energy and specifically the so-called “green tariff.” A high guaranteed
price on electricity from renewable sources, the green tariff project has
produced a boom in Ukraine’s alternative energy sector.
It has also, however, ignited debates about
corruption and conflicts of interest, particularly after the introduction of
local content requirements that limit foreign investors’ chances to benefit
from the de facto state subsidies.
According to Serhiy Lyamets and Danylo
Nesterov from Ukrainska Pravda news website, amendments to the law of Ukraine
on electricity, approved in November opened the door for two groups to
monopolise the alternative energy market – companies belonging to Ukraine’s
richest man Rinat Akhmetov and Secretary of the National Security and Defense
Council Andriy Kluyev.
This has not helped with a dismal business
climate, which together with poor transparency is keeping investors away.
Authorities are now pushing the implementation of the “State Economic Program
for Energy Efficiency and Energy Production from Renewable Energy Sources and
Alternative Fuels for 2010-2015,” approved on March 1, 2010.
But this program leaves much to be desired.
Firstly, the document stipulates that only 7 percent of its financing will come
from state and local budgets – the remaining 93 percent are to come from
unexplained “other sources.” Yet even these 7 percent seem vulnerable – the
latest version of the 2013 budget did not include any funds for this program.
As a result, while considerable sums are doled
out under the green tariff program, the burden of implementing energy-saving
measures is put on private firms and international donors.
Furthermore, it appears that the political
will to approve laws and strengthen the insitutional backing for energy
efficiency improving investments is lacking. The main state body responsible
for the program, the State Agency on Energy Efficiency – is still only marginal outfit without real
powers. In fact, the role of the agency is limited to giving recommendations to
various government bodies. As a result, coordination between the agency and the
coal and energy ministry is very low.
Key laws, which would clear the way for mass
application of energy-saving technologies have yet to be updated, including the
laws on energy efficiency, on energy balance of Ukraine and on energy audit. Thus,
measures that could improve the nation’s efficiency are held back by the lack
of appropriate legislation, not to mention a lack of proper financing.
Public awareness of the problem is another big
problem. According to DiXi Group, an energy policy think tank, Ukraine is not
implementing in practice its commitments to the European Energy Charter in the
sphere of energy efficiency. The government does not conduct any information
policy towards Ukrainian society. This means a huge part of Ukrainians have no
idea why they should save energy sources.
Over the past two years Kyiv has shown a lot
of intiative in the energy sector. The beginning of work on extracing shale
gas, production sharing agreements on natural gas exploration, efforts to
develop alternative sources and plans to launch a liquified natural gas
terminal – this is but a partial list of the authorities’ efforts since Viktor
Yanukovych became president.
Yet the benefits of diversification and
increased domestic production are highly limited as long as much of the energy
is wasted. Moreover, the positive trend of the past two years will inevitably
fizzle out unless supported by conducive state policy. If the government
doesn’t get serious on reducing the economy’s energy intensity, getting its
power will remain just as big a headache for Ukraine.
Paweł
Kost is an independent consultant specializing in Ukraine.
