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‘A strategic gateway:’ Ukraine’s renewable gases sector after 12 months of war

Shortly before the one-year anniversary of Russia’s invasion of Ukraine, senior EU figures inked a Memorandum of Understanding (MoU) with Ukraine on establishing a strategic partnership for accelerating the continent’s role in renewable gases. As part of this new partnership, Ukraine and the European Union will now collaborate on the production, trade, transportation, storage and use of hydrogen and biomethane.

With its large areas of solar radiation and strong winds, Ukraine’s impressive availability of renewable energy and thus competitive potential in green hydrogen production is particularly interesting. According to the National Academy of Sciences of Ukraine, the country’s natural potential allows the installation of 874 gigawatts (GW) of capacity from renewables, of which 83 GW would come from solar and 688 GW from wind power. The corresponding energy would amount to an estimated 2,717 terawatt-hours (TWh) of annual green energy production.

The International Renewable Energy Agency (IRENA) estimated that Ukraine has the capacity to install more than 320 GW of wind and 70 GW of solar energy. However, as seen above, estimates of Ukraine’s green hydrogen potential are varied, partly due to the country’s security instability since 2014. For example, as the CEO of Hydrogen Ukraine, Iaroslav Kryl, tells CEENERGYNEWS, IRENA’s figures do not include an assessment of the potential for installing wind and floating farms in Crimean waters, which the World Bank estimated and could add more than 250 GW.

Shape of renewable gases in Ukraine following a year of war

The ongoing hostilities naturally become a major factor in merely every scenario for the prospective Ukrainian renewable gases industry. Looking into the impact of the invasion on the hydrogen sector, Mr Kryl points out the damage to the existing infrastructure as a major challenge: “The Russian invasion has damaged Ukraine’s energy infrastructure, which includes natural gas pipelines and electricity transmission lines. The Russian war against Ukrainian civilians brought severe damage to the energy infrastructure for Ukraine, but nevertheless, synchronisation with the EU system gives a positive momentum for restoration and modernisation.”

Kateryna Polyakova, Director at the European-Ukrainian Energy Agency, also points to the acute demand for Ukraine’s energy security which has “boosted” the development of non-fossil energy sources in the country. “The number of projects in development has increased, however, war-related risks limit investments and prevent from these projects being realised,” she tells CEENERGYNEWS.

Nonetheless, Mr Kryl notes that despite such challenges, the country continues to “actively work” to prepare for its hydrogen strategy launch. He points to the international support following the invasion which could provide an opportunity for the sector’s growth in the country. Here, he references Ukraine’s inclusion in the EU’s hydrogen strategy and support from the US for Ukraine’s efforts to develop its hydrogen industry.

Interestingly, Hydrogen Ukraine is also planning to build a renewable hydrogen plant in the Odessa region in the near future.

Indeed, Mr Kryl also points to the paradigm shift in the EU’s post-invasion energy policy: “As stated in the REPowerEU implementation action plan published by Gas for Climate in March of this year, the Russian invasion of Ukraine caused the price of natural gas to increase sixfold, from 20 euros/megawatt-hours (MWh) to around 120 euros/MWh in the period from March 2021 to March 2022. At a natural gas price of 100 euros/MWh, grey hydrogen production costs around 6 euros/kg, while green hydrogen costs between 4 euros and 7 euros/kg. This indicates that renewable gases can be competitive in the short term, reducing energy costs for consumers and businesses.”

Looking further into the short-term perspective, Ms Polyakova points to the expected growth of the country’s biomethane sector this year. “While hydrogen projects have mid- to long-term potential, bio-methane is to obtain additional development stimulus now and it is expected that several production facilities to be commissioned this year. Ukraine already had solid expertise in biogas production, which would be a good base to move to bio-methane production,” she highlights.

Resilience of Ukraine’s competitive landscape

Notwithstanding the unavoidable impacts of a 12-month armed conflict, Ukraine’s competitive advantage in renewable gases appears unshaken. Alongside the aforementioned renewable energy potential, the country’s geographic location provides a natural edge over competitors.

“Ukraine’s location makes it a strategic gateway between Europe and Asia, which could give it a competitive advantage in supplying hydrogen to the EU. Ukraine is located on the crossroads of major energy transit routes, including gas pipelines and electricity grids, and has access to important transport infrastructure, including seaports and railways,” says Iaroslav Kryl.

Prior to the war, Ukraine had one of the largest and most extensive gas transmission systems in Europe. Despite the war’s impact on the country’s energy infrastructure, the CEO of Hydrogen Ukraine believes that the country’s existing infrastructure could be repurposed for hydrogen production and transportation. In addition to repurposing the transmission system, existing industrial sites could also be repurposed, Mr Kryl says.

Indeed, as Mr Kryl further highlights, Ukraine also has a highly educated and skilled workforce, with labour costs significantly lower than those in the US, EU and the CEE, presenting a major incentive (cost-effectiveness) for potential investors interested in hydrogen production in the region.

Unpacking Ukraine’s strategic partnership with Europe

Considering the country’s potential and competitive advantage in renewable gases, Brussels’s interest in Ukraine comes as no surprise. As the European-Ukrainian Energy Agency points out, the EU’s strategic partnership creates an important framework and stimulus for Ukraine’s renewable gases, setting out a roadmap for the preparatory work on the development of the sector and calling for closer cooperation of Ukrainian lawmakers and regulators with their EU counterparts.

A similar view is shared by the CEO of Hydrogen Ukraine, who notes that the strategic partnership agreement acknowledges the potential of Ukraine as a producer and exporter of green hydrogen to the EU and commits to supporting the development of the necessary infrastructure and regulatory frameworks to facilitate this.

Crucially, the new agreement reaffirms the plan for a hydrogen import corridor from Ukraine to the EU until 2030 and proposes using Ukraine’s gas grid for renewable gases. The MoU, as Mr Kryl highlights, set out four key provisions related to financing, research and development (R&D), skills development and standards and certification.

In terms of financing, the agreement included plans for a financing mechanism for relevant infrastructure projects via grants, loans or investment funds. Secondly, in terms of research and development, it includes plans for joint R&D projects, which, as the Hydrogen Ukraine CEO highlights, could help to accelerate the deployment of these technologies in the country.

Thirdly, the MoU included provisions for skills development and capacity building, including training programs for workers and support for education and research institutions. This is a major factor for the development and scaling of hydrogen energy, Mr Kryl notes. Lastly, the MoU included standards and certification provisions for hydrogen production, transport, and use, which could help to ensure the safety and quality of hydrogen products.

However, whilst the recently-inked strategic partnership and its key provisions may provide room for optimism for the emerging Ukraine’s renewable gases industry, such optimism ought to be ‘restricted,’ suggests Ms Polyakova. As she points out, in terms of exports to the EU, the MoU does not exclude the scenario that by the time the Ukrainian renewable gases capacities are ready, the EU may have already covered its supply from other sources.

Ms Polyakova’s “restricted optimism” touches on a broader uncertainty over the demand for renewable gases and fuels sector in the EU. Whilst the EU has made its biogas/biomethane ambitions clear with the aim of building 5,000 new biomethane plants by 2030, the European Commission’s recent transport emissions proposal reflects a rather blurry landscape of the future European biofuels market.

Notwithstanding the potential nuanced regulatory challenges ahead, what appears more defined is Ukraine’s potential, resilient competitive landscape and prospects for becoming a strategic European hub for renewable gases in its post-war recovery.

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