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Renewables in Ukraine: poised for renaissance and waiting for the new market model

Prior to 24 February, RES power generation made up 14 per cent of the total generation capacity in Ukraine, with 20 per cent of RES capacities coming from wind power stations. As of the end of September 2022, 90 per cent of wind power projects and up to 50 per cent of solar stations were located on temporarily occupied territories. Southern and Eastern regions of Ukraine have particularly strong wind and solar resources, hence a heavy concentration of RES stations on occupied territories.

It is difficult to estimate the damage to the stations, yet we know that some solar stations were already de-installed and stolen, whereas for wind projects the situation is better, yet the operators have no access to them. Overall, the generation of RES facilities fell by 50 per cent since the beginning of the invasion.

The month of October marked two international conferences on the reconstruction of Ukraine and both conferences touched on topics of renewable energy development. On 24 October Berlin hosted the Ukraine Recovery, Reconstruction and Modernisation Conference under the leadership of the EU, where the President of Ukraine said that the country is eager to become a major exporter of electricity to the EU after the war. Two weeks earlier, in Vienna was held the 13th EUEA Energy Day, dedicated to the future developments of the Ukrainian energy sector.

The European-Ukrainian Energy Agency (EUEA), which hosted the conference, is an association, which represents major local and international investors in Ukrainian renewable sectors and advocates EU-bound regulations and the investors’ interests. Among the speakers of the Energy Day conference were representatives of the Ministry of Energy of Ukraine, the Energy Community, the European Commission, Energy Community, the European Investment Bank, the European Bank for Reconstruction and Development, the International Finance Corporation, the World Bank, GiZ, UNIDO and major RES producers such as Guris, DTEK and Scatec. The most discussed subject of panel discussions was the future of renewable energy in Ukraine.

The representatives of major development banks stated that there will be no funding for fossil-fuel energy projects and a similar approach will be applied by a number of PE funds, such as IFU of Denmark or FMO of Netherlands. Dirk Buschle of the Energy Community Secretariat said that he expects no less than a renewables renaissance in Ukraine. According to Mr Buschle, the quest for energy security, both for Ukraine and the EU and the need to comply with EU standards and implement energy transition as a candidate for the EU, will be the key drivers for Ukraine to develop the RES sector.

Ukraine possesses a vast resource for renewable energy with good wind speeds, sufficient solar irradiation and good land availability. Additionally, the change in the business landscape and the “build back greener” approach, which was presented during the Ukraine Recovery conference in Lugano in July, will drive the growth of renewables. A number of metallurgical sector facilities, located in the East of Ukraine, have been damaged or destroyed during the invasion. Hence, the process of their reconstruction creates a chance to upgrade their energy supply as well as the technologies used.

There are also additional perspectives on the electricity export market: Ukraine joined ENTSO-E in March and since June it was able to export electricity to the EU. By September, Ukraine was exporting at a capacity of 300 megawatts (MW) during daytime and evening hours and 250 MW during the nighttime at intersections with Romania and Slovakia. Experts forecast that Ukrainian energy exports can reach 10 gigawatts (GW) in a decade. Currently, the limiting factor is the availability of interconnection, yet its expansion is listed among the key planned energy infrastructure projects.

Certainly, a mandatory prerequisite for the above-mentioned renaissance to happen is the synchronisation of the Ukrainian regulatory framework with EU standards, the introduction of a new model for the RES power market and the liberalisation of the procedures. As an industry association, EUEA observes that there are a lot of regulatory projects now under development, despite the hefty agenda of other pressing issues.

The Ukrainian renewables sector was relying on a feed-in tariff, which is applicable for capacities put to work until 2022 and shall last until 2030 with a price decrease in 2025. Although the state provided lucrative tariffs, the timely payments to RES producers have been an acute issue for the sector. The sector was at the turning point towards a new market model prior to the beginning of the war.

Given the recent developments, including the level of damage to the energy infrastructure, energy security demands and the requirements Ukraine has to meet with the candidate for EU status, the Ukrainian RES sector is poised to get new momentum after the war. This momentum calls for a new market model and there are already some stepping stones for this model being laid down. Ukrainian policymakers have a selection of models to choose from and develop: feed-in-premium contracts, green auctions, or PPAs.

The bottom line is that this work of development of a new market model needs to be done and presented to the investors now. For the renewables renaissance to happen, investors have to know now what market model they will be working with and be able to start planning new projects now.

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