On Saturday, Mar. 18, the International Monetary Fund (IMF) removed the discussion of granting Ukraine the next tranche from the agenda, which caused lively debates and search for the guilty within Ukraine. The energy blockade of Donbass may be the reason for this decision, the President of Ukraine Petro Poroshenko said during a meeting of the Regional Development Council on Mar. 20. The President appealed to all political forces to unite and solve the problem as soon as possible.
The same week, the Verkhovna Rada considers a package of laws affecting the implementation of energy independence reform. A number of important draft laws such as: “On Housing and Communal Services” (№1581-d), “On Commercial Accounting of Communal Services” (№4901), “On Energy Efficiency of Buildings” (№4941), “On Energy Efficiency Fund” (№5598) have to be considered by Apr. 1, Vice Prime Minister, Minister of Regional Development, Construction, Housing and Communal Services of Ukraine Hennadii Zubko said.
The energy question has always been painful for the Ukrainian economy and foreign policy. What exactly prevents Ukraine from the energy independence, and whether the state economy can do without coal, expert in the field of energy, president of the DiXi Group analytical center Olena Pavlenko has answered these and other questions.
Is the energy blockade of Donbas a real threat to the energy security of Ukraine, or is it only a threat for those who are interested in the coal business? Are the capacities of other energy sources such as nuclear power plants, for example, really not enough?
In terms of the blockade, nuclear power plants assumed the compensation of lack of electrical power generation, their share in some periods exceeded 50% of the total generation. However, this situation cannot exist permanently, because blocks should be closed for renovation, and security monitoring should be constantly carried out. Thus, this solution is temporary.
The National Security and Defense Council of Ukraine (NSDCU) decided to block the trade with the occupied territories including coal. Now the heat generation that runs on coal (both private and public TPP) should go completely on imported coal. And here difficulties emerge. Probably everybody knows about the so-called formula “Rotterdam plus,” set by the energy regulator to assess the value of coal. But if for example, coal is imported from Russia (where it can be supplied from the occupied territories), the price will be too high, won’t it? How can we ensure that conventionally a Swiss firm that sells coal “from Rotterdam” by documents, is not a “lining” of the same companies from the occupied territories? How can we get TPPs to buy coal not on the last day and by the highest prices, but to order supplies for half a year in advance?
Answers to these questions lie in complete transparency of tariff formation, their publishing, and explanation. The methodology should be more flexible and should allow planning of thermal power generation from six to nine months ahead. Moreover, there is a need to monitor and publish the results of all the players who work in the sector of the coal supply and consumption. As of today, the government and the regulator cannot clearly answer these questions. The electricity price cannot be risen in terms of the coal price change by the formula “Rotterdam plus,” it may provoke the next explosion of mistrust and resentment of all consumers.
If we talk about long-term planning, even now we should think how to replace coal with other energy sources. According to studies, coal production worldwide is becoming unprofitable due to the lower price of other “clean” sources. International donors have an unwritten rule not to support projects based on coal. Thus, sooner or later Ukraine will have to decide, how and when to substitute the heat generation. It would better, of course, if it is considered now, and not at the last minute, as often happens.
Is it possible to achieve energy independence in the present situation? What steps should be taken?
Ukraine has an excellent base to develop an independent power industry. First, it is natural gas production. According to studies, the country is able to increase the production of its own gas. Probably, it will be difficult to get 27 cubic meters of gas by 2020, as the government plans, but it is possible to create favorable conditions for speeding up the pace of extraction in two or three years and achieve this result in five or six years. And implementing energy efficiency projects, we will be able to achieve such level of energy efficiency that we won’t need the imported gas. But we should work with investors, not only inviting them actively but creating favorable conditions to compete with other countries. As of today, foreign investors believe that there are many political risks in Ukraine.
Second, the renewable energy sector is developing in Ukraine as well. According to the Ukrainian Wind Energy Association data, electricity generation from renewable sources increased by 11.5% in 2016. Foreign investors are very interested in such projects in Ukraine. Thus, it is very important to keep the regulation in this sector as transparent, clear and unchanged as possible, because investors usually plan their activity for decades ahead, and they should understand what to expect from the state policy. With the reduce of technology costs, more and more households will be interested in the transition to their own sources of power generation (solar panels or wind turbines). It is also very important to resolve the “rules of the game” and to simplify licensing procedures as much as possible.
Third, the reduce of energy consumption in Ukraine will be a major step to achieve energy independence. It isn’t a secret that we have great opportunities to reduce energy consumption in the residential sector (through insulation, installation of meters, transition to more efficient technologies). Industry sector has the similar objectives as well.
Actually, these things are discussed for a long time in Ukraine, and there is no exclusive or unique recipe. The main thing is to move from words to real changes.
According to the Paris Agreement, renewable sources have to provide 100% of electricity by 2050. At the same time, Ukraine, which was one of the first countries to ratify the agreement, plans to reach 21% by 2035. In your opinion, are these plans real? How should be the transition to renewable sources carried out? Is it possible to reach 100% from 21% for 15 years?
According to the Paris Agreement, countries should take measures to restrain the temperature increase on the planet to a level significantly less than 2 degrees Celsius. For Ukraine, this agreement means a commitment not to exceed in 2030 60% of emissions in 1990, that is to reduce emissions by 40%. Is it realistic? Here we should return to the planning issue, and decide what to do with the thermal generation on coal, and how it can be replaced. In terms of the blockade of coal supply, the situation itself makes us start thinking about alternative scenarios. Since Ukraine has similar obligations within the Energy Community, there is no sense to think whether it is possible or not. We should think how to achieve this.
At what stage is the renewal of the Energy Strategy of Ukraine project till 2035? When should be the new strategy presentation expected?
The Energy Strategy Draft is being reworked in accordance with the results of the next round of expert discussions. The Razumkov Centre and the National Institute for Strategic Studies (NISS) are responsible for the completion. There is a strong chance that the document will be approved before the summer. However, it is not a strategy similar to the previous ones, with lots of numbers and calculations. It will be a common vision of where Ukraine should move in accordance with its international commitments on environmental, energy efficiency and security issues.
This document does not remove from the agenda the other process that should start as soon as possible, that is work on estimates, modeling, and evaluation of Ukraine’s capacities to develop a particular generation. As far as I know, now the Ministry of Energy is negotiating with international partners and donors how to organize a process to get the plan confirmation with specific calculations and models in a year.
Illustration by Dmytro Zinchuk.