November 8, 2018
On October 22, 2018, EuropaNova NGO with the support of the Ukrainian Embassy in France has organized in Paris a conference “New Generation Europe”. The event was aimed at enhancing perception of Ukraine as a good place for foreign investments.
Ukraine undergoes reform of energy sector in accordance with the European Directives, the EU-Ukraine Association Agreement and the Energy Community Treaty. Five years of the Russian aggression have become a very strong incentive for development of renewables, energy efficiency and gas sector to increase resilience in terms of energy security. The last reforms and the government bottlenecks in Ukrainian energy sector were deeply studied by the Centre for Global Studies Strategy XXI as a participant of consortium of Enable.EU project (Enabling the Energy Union through understanding the drivers of individual and collective energy choices in Europe) under the umbrella of the EU Framework Program for Research and Innovation – Horizon 2020 with the leading role of French Institute Jacques Delors and the Institute of Studies for the Integration of Systems from Italy.
Over the past three years, contrary to the war that Russia wages in Donbas, more than 740 mln. euro have been invested in Ukrainian renewable energy. As of 1 July 2018, in Ukraine, the installed capacity of RES facilities was about 1.7 GW, as of the second half of 2018, according to State Agency on Energy Efficiency and Energy Saving.
Ukraine has adopted the National Renewable Energy Action Plan (NREAP) for the period until 2020, where the aim is fixed to achieve 11% of renewables in final energy consumption (including large-scale hydropower plants). National energy efficiency action plan is aimed at achieving 9% decrease of final energy consumption by 2020 through the provision of energy services and the implementation of energy efficiency and energy saving measures. Energy Strategy of Ukraine till 2035 fixes following targets: 9 % of RES by 2020, 12% by 2025 and 25% by 2035 with the aim to achieve 5 GW of total installed generation capacities.
Ukraine has introduced the following incentives for investors:
– ‘green tariff” valid until 2030 for projects which will have been commissioned and connected to the electricity grid before 2020. Green tariffs are fixed in EUR, being the highest in Europe – up to 18 eurocents for kilowatt-hour, whereas in most European countries it does not exceed 9 eurocents. That makes them very attractive for domestic and foreign investors, as it limits financial risks of national currency devaluation,
– fixed obligation to buy all produced electricity from solar and wind energy projects until 2030 under the green tariff.
– Premium for usage of Ukrainian equipment is provided at 5-10% of existing tariff.
– Stimulating tariffs for heat produced from alternative sources is envisaged.
In 2018, discussion on changes in governmental policy has started wіth the aim to develop acceptable for the business frameworks for launching green auctions and starting planning developments beyond 2030. As previously envisaged, green auctions will start to function from July 1, 2019.
According to the data of State Agency for Energy Efficiency and Energy Saving, in the 1st half of 2018, in Ukraine were installed 307 MW of capacities from renewable energies. From the beginning of 2015, 767 MW were introduced. Solar capacities have a leading role with total volume of installed capacities 1037 MW, at the second place is wind power – 515 MW, biomass – 41 and biogas – 44 MW.
According to the estimates of international agency IRENA, which Ukraine joined as a member in February 2018, as of February 2015, the annual technically achievable energy potential of renewable energy sources in Ukraine was 68.6 million tons of oil equivalent per year. This would be enough to replace approximately half of the total energy consumption in Ukraine.
Many international financial institutions are actively supporting investments in renewables and energy efficiency in Ukraine. EBRD (has invested more than €200 million in RES and EE projects), World Bank, European Investment Bank, KfW are very active in terms of supporting commercial projects.
Speaking about innovative potential of Ukraine and strong positive examples in the sphere of renewables, one should mention the Solar Chernobyl project, officially commissioned in the beginning of October 2018, with installed capacity of 1 MW and possibility to expansion up to 100 MW, on the territory of decommissioned Chornobyl NPP; building of the Nikopol SPP in Dnipro region that should be commissioned in 2019 and became the third biggest SPP in Europe, with capacity of 200 MW.
Except renewables, Ukraine undergoes radical reform of the gas sector in accordance with the Third Energy Package of the EU, the EU-Ukraine Association Agreement and the Energy Community Treaty. In 2016, the government adopted the Concept for development of Ukraine’s gas production industry until 2020. It provides for a clear action plan to create an attractive for investors regulatory framework for the industry, including the introduction of incentive taxation for drilling new wells, decentralization of rent, and simplification of permitting procedures. This means that there is a solid legal basis for the development of the gas industry.
The government has taken a number of measures aimed at accelerating the conduct of oil and gas auctions. It is expected that about 40 new areas will be put for auctions in November 2018. Besides increasing transparency, open access to geological information, improving of the legal basis, Ukraine has possibilities to ramp up domestic production.
According to IHS CERA projections, up to 2030 Ukraine could reach the level of gas production of the mid-1970s. Under these circumstances, domestic gas would not only satisfy all needs of the country but also would be exported to Central and Eastern European countries, displacing Russian gas. The main prospect linked to exploration of offshore fields in the north-western sector of the Black Sea between Crimea and Odesa region. Moreover, in the neighboring Romanian block, geological exploration works by ExxonMobil and OMV have yielded positive results.
The prewar period was characterized by the fact that the Government of Ukraine has signed production sharing agreements (PSA) with transnational energy companies. Two PSAs concerned projects of unconventional gas extraction on land, while the third was exploration of the Black Sea’s deep-water shelf. The Ukrainian sector of the Black Sea shelf could fully meet the country’s needs in hydrocarbons. According to the State Service for Geology and Subsoil of Ukraine potential reserves of energy resources (oil, natural gas) on the Ukrainian Black Sea shelf were estimated at 2.3 billion tons of oil equivalent (equals to 2.3 trillion cubic meters of gas), which accounted for 40% of all energy resources of Ukraine.
Russia tries to prevent possible exploration of hydrocarbons in the Ukrainian Black Sea shelf. The drilling rigs of the Ukrainian state-owned company Chornomornaftogaz (a subsidiary of Naftogaz of Ukraine) were captured by the Russian Special Forces in March 2014, during an operation on the occupation of Crimea, became a proper playground for the Black Sea Fleet of Russian Federation to practice signals intelligence based on civilian marine infrastructure located in the northwestern part of the Black Sea. During the third and fourth quarters of 2016, the State Unitary Enterprise Chernomorneftegaz controlled by Russia purchased and installed surveillance systems for surface and underwater environment at jack-up drilling rigs and fixed offshore platforms. The expert team of the CGSS21 described this topic in the in-depth research untitled “Offshore gas infrastructure in the Russian counteraction to NATO: Potential for a hybrid use in the Black and Baltic Seas.” Experts’ team came to the conclusion that Russian streams – the existing Nord Stream, possible new Nord Stream 2 and TurkStream, will be used as platforms for enhancing Russia’s intelligence and combat capabilities in the Baltic and the Black Sea regions and increasing of Naval presence in regions under argument of necessity of additional protection for critical gas infrastructure.
Thus, considering radical reforms undergone by Ukraine in the energy sector, the European Commission should take into account existing energy infrastructure, in particular, Ukrainian GTS, while taking a decision on Russian bypassing pipelines. That principle is incorporated in Article 274 of the EU-Ukraine Association Agreement.
Author: Oksana Ishchuk, Energy analyst, Centre for Global Studies Strategy XXI (Kyiv, Ukraine)
Author : Ukrainian Liaison Office in Brussels