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WEO Week: How can social and economic dimensions be core elements of transitions?
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Report extract

Sustainable development

Renewable energy

Ukraine has made significant renewable energy progress in recent years. RES development is one of the government’s priorities because of its potential to reduce natural gas dependency and enhance energy security. The generous guaranteed feed-in tariffs for electricity produced from RES were thus designed to promote this development. In addition, phasing out residential price subsidies for gas and heat makes heat generation from biomass more attractive. In 2017, the SAEE introduced a map for tracking investment projects in renewables and energy efficiency in Ukraine. 

Ukraine’s feed-in tariffs, 2016

RES

Tariff (EUR/MWh)

Solar

160-172.3

Wind

58.1-101.7

Biomass

123.9

Small hydro

104.5-174.4

Geothermal

150.2

Solar in residential sector

190

Wind in residential sector

116.3

Source: SAEE (2017), “Summary of 2016 and tasks for 2017”, SAEE presentation.

There were 347 renewable energy projects supplying electricity at feed-in-tariff rates to the wholesale electricity market in Ukraine in 2018. According to the regulator, the number of contracts between energy supply companies and households for solar PV electricity also tripled in 2018. In 2019 the deployment of renewable power projects accelerated further, with total investments amounting to EUR 3.7 billion and total installed capacity increasing more than three times to 6 779 MW (http://saee.gov.ua/uk/news/3287). The DTEK Botievska wind power plant (WPP) and the Prymorska WPP are the largest projects so far, with total installed capacity of 200 MW each,  and the DTEK Pokrovska solar power plant (SPP) has a total installed capacity of 240 MW. MEEP projects that the renewables share (without large hydro) will increase to 6.8% (10 284 GWh) in 2020.

Ukraine’s renewable energy projects, 2018

 

Number of projects

Installed capacity (MW)

Wind

16

532.8

Solar

229

1 388.3

Small hydro

70

98.6

Biomass/biogas

32

97.5

Total

347

2 117.2

Source: NKREKP (2019), “Annual report for 2018”, National Commission for State Energy and Public Utilities Regulation, Kyiv.

Rapid development of energy generation from biomass can be attributed to the phasing out of natural gas price subsidies in the residential sector in 2015‑16, which removed numerous distortions and made heat production from biomass fully competitive with heat produced from gas in both the individual and district heating sectors. To remove any remaining legal barriers to biomass-based heat production, the parliament adopted draft Law No. 4334 on Heat from Alternative Sources Production Stimulation, which guarantees biomass heat production developers 90% of the tariff received by natural gas heat producers. The SAEE claims this law will cause up to 3 bcm of natural gas to be replaced with biomass in district heating production. The Bioenergy Association of Ukraine’s map shows both already-implemented projects and those at the developmental stage. 

Energy efficiency

While progress in energy efficiency policies and measures has been made in recent years, a co-ordinated policy framework with a portfolio of programmes to tap into Ukraine’s energy efficiency potential has yet to be established. An effective and balanced policy framework would emphasise market-based prices, regulatory and control mechanisms, fiscal measures and tax incentives, technology development and financial schemes.

The IEA developed 18 key energy efficiency recommendations for Ukraine based on assessment of its situation in 2015. These recommendations aim to inform Ukrainian stakeholders of the most important short- and medium-term demand-side energy efficiency policy priorities in buildings, appliances, lighting, equipment and industry. They also identify measures such as collecting data on end users, securing financing, and implementing strategies, action plans and procedures for monitoring, verification and enforcement that are crucial for policy success across all sectors.

Following formation of the new parliamentary coalition in April 2016, parliament approved the government’s Action Program. Chapter 12, Energy Industry Reform and Energy Independence (http://zakon5.rada.gov.ua/laws/show/1099-19), is dedicated to energy industry reforms to enhance energy security and efficiency, and it stipulates:

  • Implementation of Third Energy Package commitments.
  • Elimination of cross-subsidisation, transparent tariff-setting and commercial metering of energy consumption.
  • Energy market transparency to attract private investments to the sector.
  • Coal mining industry reforms, including the end of all subsidies and closure of ineffective mines.
  • Implementation of an energy efficiency action plan, with provisions for renewable energy incentives, support for energy service contracts, implementation of EU legislation on energy efficiency in buildings, and attracting private investments to improve the energy efficiency of public and communal property. 

To implement this programme, the Ukrainian government developed a draft Action Plan to 2020 and presented it to the public in December 2016. The energy efficiency component of the Plan identifies excessive energy consumption in buildings as a major challenge and prescribes measures to tackle it. However, it neglects many other important issues applicable not only to specific sectors (industry, transport, appliances and lighting) but that cut across sectors: improved energy data collection and analysis; refinement of the NEEAP; leveraging of private investments; and policy monitoring, evaluation and enforcement.

It also relies on the outdated goals of the NEEAP to define current government tasks: for example, to reduce total final consumption by 9% in 2020 compared with the average for 2005-09 – even though it was already 30% lower than this target in 2015 due to two severe recessions, the annexation of Crimea by Russia, and the Donbass conflict. Plus, the Plan does not quantify energy consumption savings from proposed policy measures in the residential sector, which means that the government may overestimate potential natural gas savings in the residential sector if current consumption is compared with the EU benchmark of 90 kWh/m2 of floor area. Because of climatic differences, the EU average cannot be used as a benchmark for residential energy efficiency in Ukraine; in fact, ODYSSEE data show that consumption for heating, hot water and lighting per m2 is higher even in energy-efficient countries with milder climates such as Denmark (142 kWh/m2) and Germany (186 kWh/m2).

For affordable energy efficiency financing, the government continues to rely solely on its “warm credits” programme that offers households and homeowners partial compensation for energy efficiency improvements. The number of participants as of December 2016 approached 160 000 and total financing had reached UAH 2 727 million (EUR 94 million at the 12 February 2017 exchange rate); of this, the government reimbursed UAH 1 068 million (EUR 37 million). Although the Energy Efficiency Fund was established in 2018, the credit disbursement was negligible by the end of 2019, and even so, the two mechanisms together will be able to meet only a small fraction of energy efficiency investment requirements. The government must instead leverage private financing to tap into Ukraine’s large energy-saving potential.

Total final energy consumption in the agriculture, industry, construction, services and residential sectors, as well as energy transformation at fossil fuel power plants (FFPPs), decreased by 30.9 Mtoe (‑36.4%) from 2012 to 2017. However, only one-third of this decline resulted from energy efficiency improvements, with the remaining two-thirds stemming from a drop in activity in 2014-15 and structural changes within sectors (see figure below). The greatest energy efficiency improvements over 2010‑17 were recorded in the residential sector (+22.7%) and agriculture (+27.7%), while the energy efficiency index for industry rose by 13.2%. No energy efficiency improvement was recorded for FFPP energy transformation; in fact, it even decreased by 1%. Overall, energy efficiency improved 12.5% during 2012‑17.1

Ukraine energy consumption decomposition, 2012-2017

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Fuel switching

Numerous strategies, programmes and plans have been proposed for fuel switching, but is not always clear how they have been developed. The tendency has been to focus on natural gas substitution by coal and biomass in the heating sector because of Russian gas price increases in 2010‑14, and the environmental impact has often been ignored or underestimated in cost-benefit analyses of switching from gas to other fuels. Difficulties in accessing financing for such multi-billion-dollar projects, as well as the diminished profitability of coal following the conflict in eastern Ukraine, make the feasibility of these projects uncertain.

In its Energy Strategy for Ukraine through 2035, the Ministry of Energy and Coal Industry predicts several changes in TPES from 2015 to 2035: reduced consumption of coal (from 27 Mtoe to 12 Mtoe) and oil products (10.5 Mtoe to 7 Mtoe); and increased consumption of natural gas (26 Mtoe to 29 Mtoe), nuclear (23 Mtoe to 24 Mtoe), solar and wind (0.1 Mtoe to 10 Mtoe), biomass (2 Mtoe to 11 Mtoe) and hydro (from 0.5 Mtoe to 1 Mtoe).

The government expected biomass to replace 3 bcm of natural gas in district heating, as the parliament adopted legislative amendments in March 2017 guaranteeing biomass heat producers 90% of the average tariff for heat produced from natural gas. Despite the successful deployment of several renewable heat projects with the assistance of international financial organisations (in particular the construction of a state-of-the-art bio-thermal CHP in Kamianets-Podilskyi as part of the World Bank District Heating Energy Efficiency Project), overall progress towards biomass switching in district heating is very limited and far below the expected 3 bcm of natural gas.

Among the most prominent projects realised in recent years is pulverised coal injection (PCI) in the steel industry, which substitutes coal for natural gas. The technology was successfully introduced at ArcelorMittal Kryvyi Rih and Metinvest Azovstal Iron and Steel Works in 2016, and it has been implemented at all large steel mills in the last five years. Another interesting fuel-switching project at ArcelorMittal Kryvyi Rih substitutes biomass (sunflower seed husks) for natural gas in lime production, an important input for iron- and steelmaking.

Environmental protection

Ukraine has a considerable body of environmental legislation, including extensive rules, regulations and standards for the efficient use of energy resources, energy conservation and renewable energy. Among its approximately 50 national standards are those pertaining to energy efficiency, including method definition; construction and analysis of energy balances; regulation of specific consumption and loss of fuel; energy labelling of household electrical equipment; energy auditing and management; and energy performance standards for certain types of equipment. These standards will have to be successively aligned with EU standards in accordance with the Energy Community Treaty.

Climate change

Ukraine is an Annex I party to the UNFCCC. Under the Kyoto Protocol, Ukraine agreed to keep its GHG emissions at the base year (1990) level during the first commitment period (2008-12). In fact, its GHG emissions in 2018 totalled 344.1 million tonnes of carbon dioxide-equivalent (MtCO2-eq), which is actually 61.2% lower than in 1990.

Furthermore, Ukraine’s energy-related CO2 emissions totalled 166 Mt in 2017 – 75% less than in 1990 owing to a strong decline after the breakup of the Union of Soviet Socialist Republics (USSR). Power generation accounted for 50% of these emissions, followed by manufacturing (18.7%), transport (15.1%), households (13.1%), other energy sectors (1.8%) and commercial and other services (1.2%).

In 2016 Ukraine ratified the Paris Agreement on climate change, pledging to reduce its GHG emissions to 60% of the 1990 level by 2030. However, with the economic collapse in the 1990s that followed the dissolution of the USSR, two severe recessions just when the economy was recovering in the 2000s, and loss of sovereignty over part of its territory in 2014‑15, Ukraine’s current GHG emissions are only 39% of what they were in 1990. Even a strong economic rebound up to 2030 would not be likely to jeopardise Ukraine’s compliance with the Paris Agreement.

Ukraine has made significant progress in setting up the necessary legal and institutional frameworks and in implementing two Kyoto Protocol mechanisms: joint implementation (JI) and international emissions trading of assigned amount units (AAUs). It is one of the most active countries in the JI market, but still has considerable GHG emissions abatement potential. The government and industry must make a stronger effort to realise this potential through power sector modernisation and energy efficiency improvements, which will also contribute to energy security.

Carbon capture and storage (CCS) has significant potential in Ukraine. Coal has been exploited for many decades, and the existence of a well-established coal industry and technical expertise are factors that may catalyse future efforts. However, current priorities related to clean coal are focused on technologies for increasing coal-fired plant efficiency and emissions reductions rather than on CCS. 

Technology research, development and deployment

Energy-related research and development (R&D) activities in Ukraine are dedicated to the nuclear sector, where a high level of R&D activity is required in areas that are particularly important for safety upgrade programmes and extension plans for nuclear reactors, such as nuclear safety, material science and simulation tools. As R&D requires access to costly experimental facilities such as research reactors, irradiation facilities and hot cells, international collaboration is being encouraged as a means of optimising efforts, offering multinational access to experimental facilities and sharing expertise. The European Commission has considerable experience fostering such activities through co-funded research among EU and other countries under the Euratom framework programmes. Ukraine is also participating in the International Atomic Energy Agency (IAEA) International Project on Innovative Nuclear Reactors and Fuel Cycles (INPRO).

As in other countries that have a long history of nuclear energy use, there is a pertinent need to educate and train skilled workers for employment in the nuclear sector as ageing engineers, scientists and technicians retire. For this purpose, Ukraine has many academic institutions, universities and nuclear research institutions: the Kyiv Polytechnic Institute, the Sevastopol National University of Nuclear Energy and Industry, and the Odessa National Polytechnic University graduate roughly 140 master’s students annually in the field of nuclear energy. This may not be enough, however, as newly qualified engineers and technicians may decide to work in other economic sectors or relocate to countries that offer higher salaries. In addition, the National Training Centre for Energoatom Personnel, opened in late 2012 and partially funded by the European Union (EUR 14 million, or one-third of the project’s cost), provides training in nuclear maintenance, management and safety.

Numerous research programmes relate to energy technology development under various academic institutions and universities, but state funding in energy technology R&D remains scarce and more efforts in both professional training and research segments of R&D are required. 

References
  1. IEA for EU4Energy estimates.