Ukraine is in the process of reforming is legal and regulatory framework to bring it in line with the European Union’s Third Energy Package. The country in 2010 joined the Energy Community, a body that assists the mostly east European member states to liberalize their energy markets and implement key EU legal acts in the area of electricity, gas, environment and renewable energy.
The reform process has so far led to changes in rules governing Ukraine’s gas market, environmental impact assessments, the national energy and utilities regulator, energy efficiency measures, feed-in tariffs for renewable energy, and Ukraine’s electricity market. However, the implementation of changes that are initiated through Parliament are slow.
The newest test of Ukraine’s ability will be how it implements the Electricity Market Law that was approved by Parliament in April 2017. This will require the adoption of more than 50 separate pieces of secondary legislation to be effective. The direction of movement is the right one, however, the speed of movement is not fast. This new law aims to introduce competition into the energy market, ensure there is free and non-discriminatory access to the grid, help introduce new technologies and improve the balancing and system safety of the grid.
Renewable energy accounts for 1.3 percent of the electricity generating mix in Ukraine. Adding in large hydro to that figure brings it to almost 5 percent. The country is not on target to reach its target of 11 percent of gross power consumption from renewables by 2020. In 2016, 120MW of new renewable capacity was added in Ukraine, 99MW of which was in solar, according to SAEE. That was four times more than in 2015, said Sergiy Savchuk, head of the SAEE. Rooftop solar has been growing fast, in part thanks to the FiT. Rooftops now account for 20.05MW of solar generation, according to SAEE.
Overall, the state plays a very important role in the energy market. Energy security has been of prime importance since the annexation of Crimea and further tension in the eastern regions of the country. Ukraine has secured its gas supply, which was initially from Russia, through reverse flows from European countries. Supplies of anthracite used in thermal generation have been slashed as mines in Crimea and the east have become inaccessible. The share of generation accounted for by nuclear power stations and large hydro, which are controlled by the state, has increased in recent years to compensate for these problems. Political risk in the country has been declining, according to some energy market players. The largest independent power producer in the country, DTEK, a vertically integrated utility that owns most of the countries thermal generation, has been reviewing its strategy, which now includes developing wind assets and to a less extend solar.
Most players in the energy sector have had to deal with changes resulting from the political upheaval in the country. Conditions for renewables have also changed radically in some respects. The feed-in tariffs introduced from 2008 were cut in 2015, and the latest revision of the rules in 2017 means they will end in 2030. The FiT is essentially state guaranteed, and payments are protected from currency risk by being pegged to the euro – the equivalence is revised every three months to ensure changes are reflected in payments to generators.
Grid connections were described by some developers as a sensitive issue. A number of players own more than three quarters of grid connection capacity rights, and developers have to negotiate a price with them to acquire the rights. The laws that granted these owners the rights in perpetuity may be modified to facilitate renewables development, either forcing them to develop assets themselves within a few years or face losing their rights.
The country has no tax incentives after earlier exemptions were abolished in 2015. Land tax incentives, as well as VAT and import duty exemptions were eliminated.
Privatization plans have been drawn out and will be closely watched this year – as regional power and heat companies come up for sale. Some developers have said land reform will be another marker for Ukraine this year, although it is still very unclear if there is enough support for reforms in this area and various politicians are campaigning against opening up the purchase of land to foreigners.
Ukraine’s Association Agreement with the EU requires the country to have an emissions trading system be able to monitor, verify and report GHG emissions. According to the Ministry of Ecology and Natural Resources, the implementation of this “systematic changes, elaboration of appropriate legislation, setting up of institutional architecture and putting in place needed organizational and technical preconditions in accordance with corresponding EU legislation and existing best practices.” It is focusing first on establishing the legal, methodological and technical requirements to get an MRV system up and running, according to Ostap Semerak, minister of ecology.
The State Agency for Energy Efficiency (SAEE) has undertaken a broad campaign to raise awareness and investment in energy efficiency, both in local heat and power companies and in residential blocks.
Ukrgasbank, a state-controlled bank that is facing privatization, has adopted a strategy to specialize in green investments. With the support of the IFC, it has set up an in-house specialist unit that serves businesses in renewable energy and energy efficiency projects. The bank has a loan portfolio of 450 large residential blocks that are implementing energy efficiency measures.
Ukraine was ranked 40th on Climatescope 2017, the first year it has been included in the project. Its score of 1.13 placed it ahead of its northern neighbour Belarus, but behind Russia. The latter’s annexation of Crimea in 2014 and continued tensions in the east of the country have had an impact on coal and gas supplies. It was strongest on Greenhouse Gas Management Activities Parameter IV.
In contrast, the country’s performance on Enabling Framework Parameter I was weak. Its score placed it 63rd out of the 71 nations assessed, reflecting the absence of clean energy policies, such as tax incentives and net metering, as well as high barriers to private sector participation. In addition, the sector has achieved only partial unbundling and the power utilities have not been privatised.
The country took 26th place globally on Clean Energy Investment and Climate Financing Parameter II. Since 2012, more than $2.6bn has been invested in renewables, mainly in wind and solar. The rate of investment fell sharply in 2014, with just $113m recorded in 2016. The absence of loan and grant programmes in the country were negative factors.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, Ukraine took 24th position. The score was supported by the presence of development and engineering value chains in the solar, wind, biomass and small hydro sectors, and a wide variety of financial and legal service providers.
The country ranked 10th globally on Parameter IV owing to its ambitious Nationally Determined Contribution. It aims to reduce emissions to below 60% of 1990 emissions levels by 2030 and will cover all five emissions sectors.