IEA (2020), Ukraine energy profile, IEA, Paris https://www.iea.org/reports/ukraine-energy-profile
Ukraine has a population of 41.9 million1 and at 603 549 square kilometres (km2) is the second-largest country in Europe by area. Located at the crossroads of the European Union, the Russian Federation (Russia), and the Black Sea and Caspian regions, Ukraine has abundant mineral resources including oil, natural gas and coal, and great hydro and biomass potential. With its considerable population and high energy consumption, it is one of Europe’s largest energy markets. It is also the country that transits the most natural gas in the world, playing a key role in delivering Russian gas to European markets.
Ukraine experienced a long period of very strong economic growth in 2000-07, owing to low gas prices, a strong national currency (the hryvnia [UAH]) and high foreign steel demand and prices. Ukraine’s economy remained open and export-oriented, and it joined the World Trade Organization in 2008.
Nominal gross domestic product (GDP) was UAH 3 559 billion in 2018 (USD 130.8 billion in 2018 USD). After sharp currency devaluation in 2014-15, per-capita GDP declined in 2018 to USD 3 095 (in 2018 USD) according to the World Bank. The share of steel and non-ferrous metals in total exports declined about twofold in recent years, to 21.7% in 2019, but the share of agricultural and food industry products reached 48% according to National Bank of Ukraine statistics. Machinery and manufacturing’s share in total exports decreased in 2014‑19 mainly due to trade restrictions imposed by Russia in 2013‑15. As its key trade partner, the European Union received 37.1% of total exports in 2019, whereas Russia accounted for only 10%, a dramatic decrease from 29% in 2013. Total exports to Commonwealth of Independent States (CIS) countries also declined in 2019, to 17.4% (https://bank.gov.ua/statistic/sector-external/data-sector-external#1).
Ukraine remains heavily reliant on oil product and gas imports. Variations in the UAH–USD exchange rate, access to export markets, closure of Russia’s market, external construction activity in Asia and the Middle East, agriculture, and energy supply and price trends have a substantial impact on its domestic economy.
Despite strong growth up to 2007, Ukraine underwent two severe economic crises between 2008 and 2017. Because of its exposure to foreign markets, Ukraine has been severely affected by the global economic and financial crises that began in autumn 2008: its economy fell into deep recession in 2009, with real GDP down 14.8% and industrial output plummeting almost 22%. The International Monetary Fund (IMF) offered support and agreed to a USD 16.4-billion Stand-By Arrangement (SBA) in November 2008 to stabilise the banking system and mitigate the impact of Ukraine’s collapse in output. A total of approximately USD 11 billion was released by the IMF under the arrangement, as well as USD 3.4 billion under a second SBA in mid-2010. Ukraine’s real GDP recovered 4.2% in 2010 and a further 5.2% in 2011.
Ukraine entered another recession in mid-2012, with GDP growth falling to 0% in 2013, ‑6.8% in 2014 and ‑9.9% in 2015. Due to factors such as insufficient capital investment, lower steel demand, high energy import prices, a lack of structural reforms, and corruption, the economy never recovered from the 2009 crisis. Month-long street protests in Kiev led to a change in government in March 2014, followed by loss of control of Crimea and the beginning of military conflict in Ukraine’s eastern regions, which resulted in casualties, significant damage to infrastructure and considerable economic loss. This has provoked strong depreciation of the hryvnia (from UAH 8 = USD 1 in December 2013 to UAH 26 = USD 1 in June 2018), far lower budget revenues and a 24% drop in industrial output in 2014‑15. In 2016-2019, the economy showed tentative signs of recovery: real GDP increased by 2.4% (2016) and 2.5% (2017) according to the State Statistical Service of Ukraine, and by 3.4% in 2018 and 3.2% in 2019. This precarious economic recovery may, however, be threatened by the COVID-19 pandemic. In April 2020, the World Bank projected a real GDP decline of 3.5% in 2020 but, according to this forecast, growth is expected to recover to 3% in 2021 and 4% in 2022 given swift progress on key pending reforms as well as prudent macroeconomic policy (https://openknowledge.worldbank.org/bitstream/handle/10986/33476/9781464815645.pdf).
Deep structural changes and an overall decline in economic activity caused total gas consumption to fall from 50.4 billion cubic metres (bcm) in 2013 to 29.8 bcm in 2019 and caused natural gas’s self-sufficiency to increase from 43% to 69%. Also during this period, a dispute with Gazprom over the price of gas and its transit through Ukrainian territory prompted Ukraine to source its imports from European suppliers instead, so Gazprom’s share in total gas imports shrank from 92% in 2013 to 0% in 2016‑19. Coal production and transportation have been severely disrupted in the Donbass region, as has electricity generation from co‑generation plants,2 especially in conflict areas.
In 2014, the Ukrainian government benefited from another IMF SBA and the disbursement of two financial tranches of USD 3.6 billion and USD 1.4 billion. The government of Ukraine agreed with the IMF to conduct structural reforms to stabilise its economy and put it back on a sustainable growth path. Strong financial support has also been provided by the European Union, the World Bank, the European Bank for Reconstruction and Development (EBRD) and several countries on a bilateral level. In March 2015, the IMF and Ukraine concluded a new Extended Arrangement for over USD 17.5 billion, cancelling the previous SBA. The parties agreed on policies to strengthen public finances, advance structural reforms and secure financial stability. In April 2017, the IMF disbursed USD 1 billion after the third review of Ukraine’s Extended Fund Facility (EFF) arrangement was complete, which resulted in a total disbursement of USD 8.38 billion. In December 2018, the EFF arrangement was replaced by a new 14‑month SBA for USD 3.9 billion, of which only USD 1.4 billion was disbursed. In December 2019, Ukraine and the IMF agreed on a new USD 5.5‑billion EFF arrangement, but no funds had been disbursed as of 20 April 2020 due to Ukraine’s delay in meeting the prior actions required under the agreement.
Ukraine co-operates with the European Union through the Eastern Partnership, which aims to foster political association and economic integration between the European Union and the Eastern Neighbourhood countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine).
Ukraine became an Observer to the Energy Community Treaty in November 2006 and a full Member in September 2010, and has begun adopting and implementing the energy acquis, namely the legislative frameworks for the electricity and gas sectors and requirements in the areas of renewable energy, competition and the environment.
The Ukrainian government also signed and ratified an Association Agreement with the European Union in 2014, and the Deep and Comprehensive Free Trade Agreement between Ukraine and the European Union entered into force on 1 January 2016.
- Ukraine produces all fossil fuels (in 2018: 14.4 million tonnes of oil equivalent [Mtoe] of coal, 16.5 Mtoe of natural gas and 2.3 Mtoe of crude oil), but in quantities insufficient to meet total energy demand.
- Still, nearly 65% of Ukraine’s total energy demand is covered by domestic production. This high self-sufficiency is explained by nuclear energy production, as Ukraine is the world’s seventh-highest producer (83 terawatt hours [TWh] in 2019). Over half of the country’s electricity is produced with nuclear power, and Ukraine and Armenia are the only EU4Energy countries that produce nuclear energy.
- Ukraine is the top energy consumer among EU4Energy focus countries. Its primary energy supply was 93 Mtoe in 2018, corresponding to around 90% of Poland’s consumption.
- Ukraine’s energy mix is relatively diversified, with no fuel representing more than 30% of the energy mix. In 2018, the share of coal (the country’s primary fuel) dropped to 30%, followed closely by natural gas (28%) and nuclear (24%).
- Ukraine depends on imports for around 83% of its oil consumption, 33% of its natural gas and 50% of its coal. In 2018 Ukraine imported 8.5 Mtoe (10.6 bcm) of natural gas, 13.8 Mtoe of coal and 10.4 Mtoe of oil products. Belarus is Ukraine’s main supplier of refined products.
- In 2018, Ukraine’s total final consumption (TFC; excludes transformation sector) accounted to 51.5 Mtoe.
- Industry is the largest final energy consumer (19.1 Mtoe in 2018). The residential sector is second (16.7 Mtoe), with households being the major users of natural gas (8.7 Mtoe in 2018). The share of coal in final consumption is very small (12%) because most of the coal consumed in the country is used to produce electricity and heat.
- Energy intensity per GDP at purchasing power parity (PPP) is very high: at 0.25 tons of oil equivalent (toe) per thousand2015 USD PPP, it is the second-highest among EU4Energy countries, after Turkmenistan, and over twice the world average (0.11 toe /1000 USD).
- Renewables accounted for only 5% of the energy mix in 2018, and for 9% of electricity generation (13.4 TWh in 2019).
The Cabinet of Ministers, the ultimate decision-making body, is responsible for policy co‑ordination and the oversight of state energy companies. Energy policy is high on its political agenda, with the parliament and the president also involved in decision-making. Seven main national-level institutions have energy policy responsibilities:
- The Ministry of Energy and Environmental Protection (MEEP) is responsible for most energy supply policies, sustainable energy policy and climate change policy, and for co-ordinating energy policies across the government and advising the parliament.
- The Ministry of Finance is responsible for taxation relevant to the energy sector.
- The Ministry of Regional Development, Construction and Housing (Minregion) develops local-level policies and programmes.
- The State Agency on Energy Efficiency and Energy Saving (SAEE), under MEEP, is the central government body responsible for advancing and promoting energy efficiency and renewable energy developments and technologies.
- The National Commission for State Regulation of Energy and Public Utilities (NKREKP), established by Presidential Decree No. 715/2014 in September 2014, supervises the natural gas and electricity markets as well as the heat sector. The NKREKP replaced the National Commission for the Regulation of State Energy Markets (NKRE) (liquidated by Presidential Decree No. 693/2014 in August 2014) and the National Commission for the Regulation of Municipal Services Markets. The NKREKP is subordinate to the president and accountable to the parliament.
- The Anti-Monopoly Committee is responsible for preventing excessive concentration of market power.
- The State Nuclear Regulatory Inspectorate has regulatory responsibility for the operation of nuclear facilities, including uranium mining, radioactive waste storage and decommissioning at Chernobyl.
Ukraine’s legislative process is defined in its constitution. The president, the cabinet of ministers, members of parliament and the National Bank of Ukraine are entitled to initiate draft legislation in the single-chamber parliament. For parliament to adopt a draft law, it must go through three readings (but quite often it is adopted on the second). After receiving the speaker’s signature, the law goes to the Office of the President: the president may either sign the law or return it to the parliament with a veto that may be overruled by a two-thirds constitutional majority of the parliament (300 votes). The law comes into force after its official publication, unless otherwise stipulated in the law itself.
Those entitled to issue normative acts in the form of decrees, resolutions, orders, etc., are the president, the cabinet of ministers, ministries, the National Bank of Ukraine and government state agencies – within the scope of their responsibilities and the general provisions of the law. These documents are registered at the Ministry of Justice.
Sub-local governments adopt their regional budgets as prescribed by the Law on State Budget of Ukraine and issue local resolutions and orders within the limits of their competence.
In mid-2016 the parliament adopted a judiciary reform that will result in large-scale transformation of the judicial system. The new legislation stipulates a three-pillar structure for the court system: 1) courts of first instance, consisting of circuit courts (criminal and civil jurisdiction), circuit administrative courts and circuit commercial courts; 2) courts of appeal, consisting of appellate courts (criminal and civil jurisdiction), appellate administrative courts and appellate commercial courts; and 3) a supreme court (http://www.lexology.com/library/detail.aspx?g=8bc6f8b6-1c53-4e3c-a56f-0cbf8519a729).
With Ukraine’s ratification of the Energy Charter Treaty, investors may appeal for international arbitration within the framework of the investment protection mechanism, or provisions for international arbitration may also be made in the contract, as in the gas supply and transit contracts between state-owned Naftogaz and Russia’s Gazprom. Recent cases include the JKX Oil & Gas appeal under the arbitration rules of the Stockholm Chamber of Commerce in 2015 after Ukraine increased royalties on gas production from 28% to 55%, and the request from Naftogaz production subsidiary Ukrgasvydobuvannya to the Arbitration Institute of the Stockholm Chamber of Commerce to terminate its agreement with LLC Karpatygaz and Misen Enterprises AB.
The NKREKP or Regulator (called the National Electricity Regulatory Commission until 2011) regulates both energy and communal services. It is responsible for economic regulation of the market and for its transparent, predictable, non-discriminatory and efficient functioning. In November 2016 Ukraine adopted the Law on NKREKP to fulfil its duties in line with Energy Treaty requirements. The law aims to establish the NKREKP’s legal status and its regulation authority, and to ensure its economic and financial independence for effective regulation of the energy market.
The NKREKP sets prices for gas transportation, distribution and supply, and has the authority to set tariffs for electricity transmission and distribution, nuclear and hydropower plant generation, and steam coal prices for coal-fired power plants. It also approves tariffs for heat and hot water supplies for the largest district heating companies and approves feed-in tariffs for renewable energy source (RES) developers after project completion. According to the Law on the Natural Gas Market, the cabinet of ministers is responsible for regulating public service obligations (PSOs) in the gas sector. It currently sets the price of gas as a commodity for a regulated segment of the market (households and district heating companies) for heat production in the residential sector, but PSOs are expected to be abandoned with residential gas market liberalisation in 2020. For the international transit of oil and gas, tariffs are set by intergovernmental agreements.
The State Nuclear Regulatory Inspectorate of Ukraine (SNRIU) (called the State Nuclear Regulatory Committee until 2010) has regulatory responsibility for the operation of nuclear power plants and two research reactors; decommissioning of
the Chernobyl Nuclear Power Plant (Units 1, 2 and 3) and construction of the New Safe Confinement for Chernobyl Unit 4; two spent-fuel storage facilities and one under construction at Chernobyl; radioactive waste storage facilities; uranium mining; radioactive material transportation; and the production and use of ionising radiation sources. The SNRIU also informs the public about the safety of the country’s nuclear installations through its website and public consultation meetings.
In August 2017, the government adopted the new Energy Strategy of Ukraine (ESU) to 2035 (http://zakon3.rada.gov.ua/laws/show/605-2017-%D1%80). It replaced the Energy Strategy to 2030, which was already outdated at the time of its adoption in July 2013. The new ESU envisions the decoupling of energy consumption and economic growth: GDP in 2011 USD at PPP is projected to increase by 2.3 times over 20 years, at an average annual rate of 4.2%, while total primary energy supply (TPES) expands just 7%. As a result, energy intensity is projected to drop more than twofold from 0.28 to 0.13. Furthermore, the structure of TPES changes considerably, with the total RES share jumping from 4% in 2015 to 25% in 2035, and Natural gas self-sufficiency is expected in 2020.
Liberalised competitive energy markets are prerequisites for sustainable energy sector development. The ESU ensures full compliance with commitments to reduce carbon dioxide (CO2), nitrogen oxides (NOx) (nitric oxide and nitrogen dioxide) and dust emissions of large combustion plants, and to introduce an emissions trading system (ETS), by 2035. At the same time, coal will continue to fuel electricity generation through 2035. Although major modernisation of coal-fired generation plants is projected to begin after 2025, their electrical efficiency will increase to a modest 36.8% by 2035.
ESU implementation is divided into three stages:
- The first stage (2018-20) aims to create liberalised, competitive energy markets and minimise state inference in their performance.
- The focus of the second stage (2021-25) is on developing energy infrastructure and integrating it with the European system, and attracting necessary energy sector investments.
- Finally, the third stage (2026-35) is concerned with sustainable development: meeting greenhouse gas (GHG) emissions reduction commitments; rapidly developing renewables; and ensuring energy security by further boosting gas production, including unconventional gas and offshore drilling, after achieving gas self-sufficiency in the second stage.
Instead of modelling total final energy consumption by sector, the ESU focuses solely on Instead of TPES.. The government is, however, scheduled to conduct comprehensive energy modelling of energy demand through 2035 for its National Action Plan (NAP) on Energy Strategy of Ukraine Implementation for 2018-2020 (task 171 of the NAP: http://zakon2.rada.gov.ua/laws/show/497-2018-%D1%80). The NAP also envisions that all Ministry of Energy and Coal Industry (MECI) plans, strategies and other documents will be based on energy modelling after 2020.
The National Renewable Energy Action Plan (NREAP) was adopted in 2014 in accordance with Ukraine’s Energy Community commitments. According to the SAEE, the NREAP’s ambitious goals require investment of UAH 60 billion to UAH 70 billion (USD 3.5 billion to USD 4.3 billion) to raise the country’s wind energy capacity to 2.28 gigawatts (GW) by 2020 – a 500% increase from the 410 megawatts (MW) of capacity when the NREAP was approved. Solar energy would expand from 450 MW to 2 300 MW and small hydro capacity would be boosted from 120 MW to 150 MW. Last but not least, the installed capacity of biomass electricity generation is set to increase 40 times, from 24 MW to 950 MW. The NREAP’s overall intention is to raise current installed capacity (excluding large hydro) by more than five times, from 1 024 MW to 5 700 MW.
Ukraine also adopted a National Energy Efficiency Action Plan (NEEAP) in 2015 aligned with the Energy Community Treaty. The NEEAP outlines energy efficiency measures to achieve energy savings of 9% in 2020, compared with average domestic final consumption during 2005-09. However, two major recessions in 2009 and 2013‑14 and the loss of government authority over Crimea and part of the Donbass region already reduced total final consumption 29.6% in 2015 compared with the 2005‑09 reference average, far exceeding the approved target for 2020. Since this consumption decline can be attributed mostly to structural changes in industry and an overall drop in activity, the NEEAP energy efficiency targets should be revised to capitalise on Ukraine’s significant untapped energy efficiency potential.
The approved NAP therefore prescribes that a new NEEAP and an updated NREAP be drafted, both effective through 2030, assuming that all plans through 2019 (for the NEEAP) and 2020 (for the NREAP) have been implemented. In June 2019 the NAP also made the Ministry of Regional Development responsible for reporting estimated energy efficiency indicator (EEI) values to the SAEE, based on International Energy Agency (IEA) methodology, and publishing the EEIs for industry, agriculture, services, construction and the residential sector by the end of 2019. EEIs are essential to gauge untapped energy-savings potential, set energy efficiency targets and ensure the monitoring of progress.
The State Statistics Service of Ukraine (SSSU) is responsible for publishing the country’s official statistics data.
The main statistics sources are monthly and annual surveys on industrial production, electricity generation and consumption of energy by enterprises, including for transformation purposes. These are complemented by data from household surveys and administrative sources, including from the State Customs Service.
Since 2012, the national energy balance has been compiled and published in the Statistical Yearbook of Ukraine. Commodity and energy balances are also published in the dedicated publication Fuel and Energy Resources of Ukraine, available online in electronic format, with downloadable Excel sheets. The layout and quality of the energy balance meet the International Recommendations for Energy Statistics (IRES), and data are accompanied by key graphics. Since 2016, a leaflet has been issued summarising the key findings in a more compact format.
SSSU shares data with the UN Statistics Division (UNSD), the IEA and Eurostat through the joint IEA/Eurostat/UNECE joint questionnaires. Ukraine also contributes to the Joint Organisations Data Initiative (JODI) by sending monthly oil and gas data to the UNSD.
In addition, every year SSSU organises a meeting to present the energy balance to the main data providers and users. It also oversees a large energy-statistics working group, involving energy associations and various ministries including those for the economy, the environment and energy.
Despite its difficult political situation, the quality of Ukraine’s energy data has improved each year. SSSU is actively engaged with data providers to resolve identified data gaps and divergences with other sources. Plans for development are closely linked with Ukraine’s reporting requirements as a Contracting Party to the Energy Community, such as collecting modelling data on end-use consumption in households and complying with Directive 2008/92/EC on the transparency of gas and electricity prices.
In 2019, SSSU proactively adopted the responsibility of compiling energy efficiency indicators that will strongly support energy efficiency planning in the country.
Excluding the temporary occupied Autonomous Republic of Crimea, Sevastopol-City and parts of Donetsk and Luhansk regions.
Co-generation refers to the combined production of heat and power.
Excluding the temporary occupied Autonomous Republic of Crimea, Sevastopol-City and parts of Donetsk and Luhansk regions.
Co-generation refers to the combined production of heat and power.