Andriy Konechenkov, Chairman of the Board of the Ukrainian Wind Energy Association

Edited by Volodymyr Omelchenko, Director of energy and infrastructure programmes of Razumkov Centre

The article was written within the framework of the joint project of Razumkov Centre and Hans Seidel Foundation "Decarbonisation of Ukraine's Energy Industry".

On February 24, 2022, the countdown began not only to Ukraine's military victory over the Russian invaders but also to its energy independence. This bloody war transformed the value of renewable energy sources from environmental to security-related and economic. Just six months ago, renewable energy sources were mainly seen as safeguard against climate change and carbon emission. Today, wind, solar, bio, small hydro and hydrogen energy can guarantee energy security and independence, and its cost is much lower than of fossil fuels. In 2021, the Ukrainian renewable energy sector began operating under fair conditions guaranteed by the state; in 2022, it is going to be one of the pillars of Ukraine’s post-war reconstruction and energy independence.

In 2021, Ukraine’s energy sector found itself at a crossroads, as the state was choosing the vector of energy development. The sector of renewable energy sources (RES) was also in uncertainty. After all, Ukraine’s Government began meeting its obligations stipulated by the Memorandum "On Mutual Understanding in Settlement of Problem Issues in the Field of Renewable Energy in Ukraine", concluded in June 2020 with mediation at the Dispute Resolution Center of the Energy Community between the Government and NERC, on the one hand, and two leading specialised associations — the Ukrainian Wind Energy Association and the European-Ukrainian Energy Agency — on the other, and began repayment of the debt owned to RES producers in the past years. But on the other hand, there were attempts de-legitimise the "green" tariff as illegal state support or unconstitutional. Ukraine’s government continued to support the outdated nuclear energy infrastructure and adopted a state program of the nuclear power sector development through 2026.

RES producers had to stand up against the initiative of some people's deputies of Ukraine who lobbied introduction of an excise tax on electricity from RES.

The large-scale war launched by Russia in Ukraine in February 2022 left the RES sector in a state of uncertainty caused not only by active hostilities, damage and occupation of energy facilities, but also by the problems in the market created by some state bodies.

In 2019, Ukraine entered the TOP-10 countries in the world in terms of renewable energy development, and in 2020 — in the TOP-5 European countries in terms of solar energy development. Since 2019, investments in new renewable energy projects in Ukraine have been consistently higher than in fossil fuel projects. In the past 10 years, international and Ukrainian RES investors invested more than USD 12 billion in the Ukrainian economy, and the share of foreign investors in the installed RES capacity as of the end of 2021 exceeded 35%. Today, the list of the largest international creditors and investors in the RES sector in Ukraine includes the European Bank for Reconstruction and Development, the Black Sea Bank for Trade and Development, the American International Development Finance Corporation, the Federal Land Bank of Bavaria BayernLB, the Investment Fund for Developing Countries, NEFCO and many others. Investments in the Ukrainian renewable energy power plants came from China, the USA, Great Britain, Germany, the Netherlands, Sweden, Denmark, Norway, France, Luxembourg, Belgium, Spain, Canada, Turkey, etc.

1. UKRAINIAN RES SECTOR BEFORE THE WAR

According to NERC, as of December 31, 2021, the installed capacities of the renewable energy sector in Ukraine reached 9,655.9 MW.

However, active development in 2021 was observed in only one segment — domestic solar power plants, the capacity of which increased by 426.1 MW in 2021 — 36.4% of new RES capacities put into operation last year. The total installed capacities of all household solar systems reached 1,205.1 MW at the year end. The industrial solar energy sector showed a downward trend. In 2021, its capacities increased by only 305.5 MW.

Wind energy remained second, after solar energy, in the national RES sector in terms of installed capacities. It added the bulk of new capacities to the country's "green" energy mix last year. The share of wind power capacities commissioned in 2021 made 30.6%, or 358.8 MW — 2.5 times more than in 2020. Before the war, "green" electricity in Ukraine was generated by 34 wind power plants.

Ukrainian wind power plants as of the end of 2021

The gas crisis of the late 2021 — early 2022 confirmed the significant prospects for the development of the Ukrainion bioenergy sector (bioES). Against the background of record-high prices for natural gas, bioenergy can cover part of the deficit of natural gas for thermal and electrical energy production. In general, 21 MW (or 1.79%) of biogas plants were put into operation in 2021, twice more than in 2020.

The share of small hydropower capacities that were put into operation in 2021 made 1.24%, or 14.6 MW.

The geography of RES facilities is varied and corresponds to the natural potential of RES of a particular region. Wind power plants are located mainly in the southern and southeastern regions, primarily on the coast of the Black and Azov Seas — about 85%; solar generation is more common, but about 60% of industrial solar power plants is also concentrated in the south and southeast of Ukraine.

As of the beginning of 2022, Dnipropetrovsk (1,350.06 MW), Kherson (1,139.65 MW), and Mykolaiv (1,121.16 MW) regions were the leaders in terms of installed renewable energy capacities. These regions accounted for 37.3% of all RES capacities in Ukraine. New RES facilities in 2021 appeared mainly in Mykolaiv (168.7 MW), Odesa (149.1 MW), Kherson (145 MW) and Zaporizhia (98.8) MW regions.

Installed renewable energy capacities by region of mainland Ukraine as of 2021, MW.

In 2021, the share of electricity generated from RES reached 8.1%, or 12.8TWh, in that, 56% — solar, 33% — wind, almost 8% — biomass and biogas, and 3% — small hydropower. Thus, in 2021, all RES power plants produced 12,804 million kWh of clean electricity — 17.8% more than last year:

WPPs produced 3,866 million kWh, or 614.4 million kWh more than in 2020 — 2.97% of all electricity;

SPPs produced 7,670 million kWh, or 4.8%, which is 1,065.4 million kWh more than in 2020;

generation of hydroelectric power plants increased by 56.1 million kWh, reaching 276 million kWh or 0.17% of the total balance;

bioelectric power plants generated 992 million kWh, or 0.6%, which is 206 million kWh more than in the previous year.

2021 has become a milestone year for the national RES sector: on May 11, 2021, the daily production of electricity from RES for the first time in Ukraine’s history exceeded generation by thermal power plants — 79 million kWh vs 77 million kWh.

Electricity generation and installed capacity of the RES sector, by type, as of the end of 2021

Thanks to successfully implemented renewable energy projects, annual emission of CO2 was reduced by more than 10.3 million tons, which is equivalent to emission from 2.2 million cars.

The year 2021 was also marked by the adoption of more ambitious goals for renewable energy development in Ukraine. According to the National Economic Strategy of Ukraine through 2030 adopted in March 2021, the share of RES should reach 25% in the country's electricity balance by 2030.

However, at 4:00 a.m. on February 24, 2022, implementation of the projects aimed at improvement of the business climate in the RES sector was suspended due to the Russian invasion. Since then, the national RES sector has appeared in a new reality.

2. UKRAINIAN RES SECTOR IN WARTIME

From the very first hours after the invasion, Russian troops not only massively shelled Ukrainian cities but also tried to destroy critical energy infrastructure facilities. After nuclear power facilities and transmission lines, renewable energy power plants became the second target for the Russian invaders.

Reducing renewable generation

The vast majority of renewable energy facilities in the country are concentrated in the south and southeast of Ukraine, where active hostilities have been going on for the past 6 months. As of August 2022, 30–40% of RES power plants in these regions, or 1,120–1,500 MW of installed capacities, were affected.

Deepening of the financial crisis in the RES market

The war aggravated the financial crisis in the energy sector. The lack of funds has become an urgent problem for all sectors of the Ukrainian energy system. However, it had a particularly painful effect on the sector of renewable energy. It became a matter of survival.

Although renewable energy producers, especially producers of solar and wind energy, did not receive full payment for the electricity supplied in 2021 and continued to bear the operating costs of maintaining their power plants, they had financial obligations both before the state and their staff, as well as international investors, but did not oppose such financial policy in the RES sector, because they realised the importance of stability and reliability of the power system. However, after the assessment of the financial capacity of the electricity market it became clear that such state companies as SE "Guaranteed Buyer" and NEC "Ukrenergo", which in accordance with the legislation of Ukraine are responsible for settlements with RES producers, receive enough funds to increase the payments for "green" generation. This opinion gained more credibility with the beginning of commercial export of electricity to EU countries, as in the first month of export, NEC "Ukrenergo" earned a profit of UAH 1 billion. According to the assessments of renewable energy associations, NEC "Ukrenergo" and SE "Guaranteed Buyer" at that time had approximately UAH 3.2 billion and UAH 12.7 billion, respectively.

After official appeals and a PR campaign launched by the RES sector, SE "Guaranteed Buyer" was obliged to use all the funds solely for settlements with "green" electricity producers.

In addition, "Ukrenergo" from June 2022 began to pay RES producers located out of the occupied territories and generating electricity in Ukraine. However, these settlements made only 21% of what was required.

Suspension of construction of wind farms

In addition to the above-mentioned financial problems, the national wind energy sector appeared unable to complete some wind power plants within the time limit stipulated by the current legislation. In an effort to maintain investors’ confidence in Ukraine’s RES market, UWEA asked for extension of the deadline for commissioning new wind energy projects while extending the "green" tariff for the period of the martial law plus a small period of time necessary for the restoration of supply chains. However, this initiative met strong opposition in the VRU Committee on Energy, Housing and Utility Services.

This problem could be resolved through the adoption of the Law "On Amendments to Some Laws of Ukraine Regarding Extension of the Term of Commissioning of Renewable Energy Facilities under Contracts for Purchase and Sale of Electricity at the Green Tariff, made before December 31, 2019". The relevant bill currently undergoes public discussion.

Cancellation of the "green" tariff?

In addition to the above-mentioned challenges, since March 2022, state authorities have been discussing suspension of the "green" tariff, due to the war and shortage of funds in the electricity market. A decision to cancel the "green" tariff for RES producers and to stop the relevant payments, even temporarily, deprives Ukraine of more than 8 GW of RES capacities due to bankruptcy. This will worsen Ukraine’s energy security and undermine the confidence of foreign investors. In addition, without RES generation, it will be very difficult to pass the autumn-winter period in the conditions of the Russian aggression. According to expert estimates, the United Energy System of Ukraine has lost approximately 4% of generating capacities, and another 35% of capacities is located in the occupied territories.

Equally important is the fact that real market prices for electricity are 4–5 times higher than the prices of electricity sold in Ukraine. Moreover, today's green tariff, fixed until 2030, is extremely competitive when compared to European electricity prices. Given the loss of generation in the occupied territories, there is a risk that Ukraine may become an importer of very expensive electricity from the EU. Therefore, Ukrainian solar and wind power plants, whose electricity is cheaper than the European, may guarantee Ukraine's energy security, and simultaneously generate profit from increased exports to Europe. However, at present, the initiatives regarding possible cancellation of the "green" tariff do not correlate with the plans of green transformation, the EU plan REPowerEU and Ukraine Recovery Plan.

Decisions of state authorities regarding further development of RES, made during the war

The main barrier to large-scale development of renewable energy sources is presented by instability and inconsistency of the state energy policy. In March 2022, the power systems of Ukraine and Moldova were fully synchronised with the ENTSO-E power grid of continental Europe. After Ukraine's transmission capacity to Romania and Slovakia was increased from 100 MW to 250 MW at the end of July 2022, Ukrainian electricity, especially produced by RES, rose in profile for the European consumers. According to "Ukrenergo", Ukraine has sufficient infrastructural capabilities to increase the capacity of the connection with neighbouring countries from 4 to 6 GW. Taking into account the short terms of construction and environmental attractiveness of the generated electricity demanded by the European consumers, the role of renewable energy cannot be overestimated.

In May 2022, the European Commission approved the REPowerEU plan, which provides for an increase in the RES share in the EU electricity balance in 2030 from 40% to 45%.

Another positive wartime decision for the sector is the Law of Ukraine "On Amendments to Some Laws of Ukraine Regarding the Development of Energy Storage Systems", which gives the "green" light to large-scale construction of energy storage systems in Ukraine.

The Ministry of Energy also resumed "green" auctions. On August 2, 2022, it announced that the Cabinet of Ministers had adopted the Resolution "On Amendments to the Cabinet of Ministers of Ukraine Resolutions dated May 23, 2018 No. 420 and No. 1175 dated December 27, 2019", which established the schedule of auctions in 2023 and approved indicative indicators of quotas for the next 4 years.

A positive signal for the market of distributed generation from RES was given by the Ministry of Energy, drafting the bill "On Amendments to Some Laws of Ukraine on Improving the Conditions for Production of Electricity from Alternative Energy Sources by Consumer Generating Installations", which proposed a new model of support (net billing).

All these positive decisions testify that the state authorities understand the importance of renewable energy sources for post-war reconstruction.

Volunteer activity

Despite the shutdown and damage to RES facilities, all companies dealing with RES have focused on defence of Ukraine’s sovereignty and integrity, support for the Armed Forces of Ukraine, aid to local communities, evacuation of personnel, and relocation of their businesses. During the first 10–12 weeks of the war, 60% of Ukrainian wind energy companies spent more than 1 billion hryvnias to support local communities, the Armed Forces and refugees.

3. FUTURE RESEARCH

Before the war, a number of regulatory documents and national strategies were adopted in Ukraine, outlining the prospects of renewable energy development in Ukraine. The Energy Strategy speaks about the need to develop RES generation, including "smart" energy networks (Smart Grids).

According to the Economic Strategy of Ukraine, the share of RES in electricity production should reach 25% by 2030.

The concept of Ukraine’s Transition to Green Energy by 2050 presented by the Government in 2020 states that "it is quite possible and economically expedient to achieve a 70% share of RES in electricity production in Ukraine by 2050."

In the conditions of the war with Russia, the Ukraine Recovery Plan through 2032 presented by the Government in July 2022 at an international conference of donors in Lugano prioritised further development of RES. Taking into account the current trends, the post-war development of Ukraine's economy will take place in accordance with this Plan. By 2032, it is planned to build 5-7 GW of new solar and wind power plants to expand Ukraine's export capacity, 30+ GW of RES facilities for production of renewable hydrogen, and 3.5 GW of hydroelectric and pumped hydroelectric plants. The volume of future investments in the national program "Energy Independence and Green Course" is estimated at $130 billion.

The Ukraine Recovery Plan through 2032 does not set specific goals for the development of offshore wind turbines. At the same time, according to the World Bank, Ukraine has a vast technical potential of offshore wind energy in the Black Sea. It is estimated at 250 GW.

According to the White Book "Offshore wind energy and "green" hydrogen: opening new frontiers of Ukraine's energy capacity" prepared by the Ukrainian Wind Energy Association and Asters law firm in cooperation with the Ukrainian Hydrogen Council and the Institute of Renewable Energy of the National Academy of Sciences of Ukraine, the development of the offshore wind energy market will significantly contribute to Ukraine’s export capabilities.

Seizure of Zaporizhia NPP and attempts to disconnect it from the national energy grid, occupation of more than 60% of Ukrainian coal and 20% of gas deposits, and the permanent Russian gas and oil blackmail of Europe clearly indicate that the time has come for large-scale development of renewable energy sources. This war demonstrated the price of traditional energy to the whole world. That is why specialised European and Ukrainian RES associations, such as WindEurope, SolarPowerEurope, the Ukrainian Wind Energy Association and the Solar Energy Association of Ukraine, are convinced that the post-war reconstruction of Ukraine should be based on RES and that Ukraine has the potential to achieve a 50% share of RES in the electricity balance by 2030.

RES to replace obsolete power plants

According to "Ukrenergo", as of the end of 2021, the total installed capacities in Ukraine amounted to 56,169 GW, in that: 49.7% — thermal power plants of all types, 24.6% — nuclear power plants, 11.2% — hydroelectric power plants and hydraulic storage power plants, and 14.3% — power plants using RES.

Nuclear generation, being the core of electricity generation in the country, features 4 nuclear power plants with the capacity of 13,835 GW, 15 power units in total. As of the end of 2021, 12 power units have run out of their normal 30-year operational life. By 2030, even the "extended" licenses for operation of 10 power units will expire. Most of Ukrainian nuclear reactors continue to use Russian nuclear fuel, which creates great risks associated with its import from the Russian Federation.

In the winter period of 2021–2022, for the first time in Ukraine’s history, all 15 power units of the NPPs worked simultaneously.

Since the Ukrainian energy system is overloaded and experiences a shortage of manoeuvring capacities, TPPs with the total installed capacity of 21.8 GW are used to balance the power system. However, since many TPPs are located in the occupied territories, some units are decommissioned, are under repair or are unavailable due to lack of fuel, only 5–6 GW of thermal generation are available.

Ukraine is to modernise or decommission a significant part of its thermal generation capacities by 2033. In case of non-fulfilment of the plan by 2033, Ukraine will have to stop operation of thermal capacities. In this case, the installed thermal generating capacities of Ukraine will decrease to 3,957 MW, of which only 882 MW will actually be available.

Hydropower, the total installed capacity of which makes 6.3 GW, plays a key role in balancing the UES of Ukraine. HPPs cover the peak demand for electricity. However, these capacities depend on the season and weather.

In view of the above, the energy system of Ukraine now has a significant share of basic capacities that are not designed for frequent and rapid changes in operating modes, and the capacities that are able to do this for the sake of balancing the system (mainly TPPs) have already exhausted their resources.

Renewable energy power plants alone may compensate for the electricity that will be lost in the next 5 years. Generating electricity from the wind and the sun, consumers do not depend on fuel. Energy generation from renewable energy sources makes the country independent from global fuel price fluctuations.

4. INSTEAD OF CONCLUSIONS

With the transition to RES, energy will cease to be a tool of influence on other countries. Almost all the wars that took place in the world until now were related to the struggle for energy resources: oil, gas, coal. Ukraine is trying to survive under permanent Russian energy blackmail and pressure for 31 years of independence. Heat and electricity for Ukrainian consumers depend on the decision of the Kremlin. Russia is using the same fuel tool now to influence the European countries providing humanitarian and military support to Ukraine in the war. Using renewable energy sources, countries will not have to fight for them.

The Chornobyl disaster has shown how dangerous nuclear energy is for the mankind, and the present occupation of Zaporizhia NPP by Russia demonstrates how effective "nuclear terrorism" may be. Neither the Ukrainian nor European public knows how many bombs and projectiles hit the wind stations, because they are safe. The world's attention focuses on the situation at Zaporizhia NPP and the Russian terrorists there.

Finally, it is worth noting that wind energy makes society independent not only in terms of electricity but also in terms of decarbonisation of other carbon-intensive sectors of economy, including transport. Hydrogen produced at the expense of the wind and the sun may fuel all modes of transport, instead of imported petroleum products.

The economic and social benefits of renewable energy development are indisputable. However, no sector of economy can develop without proper state support and an attractive business climate. The Government of Ukraine now faces the task to keep national and international investors in renewable energy sources.

In order to solve possible future problems related with the development of a modern carbon-free energy sector in Ukraine, including RES, it is necessary:

— to adopt one fundamental strategic document that defines the lines of energy development, including RES

— to adopt a 5–10-year implementation plan, binding both on the state (the President, Verkhovna Rada, Cabinet of Ministers, Ministry of Energy, "Ukrenergo", NERC, etc.) and market actors

— to oblige all state bodies and state enterprises dealing with energy to incorporate measures from that plan in their programs and to provide political/administrative responsibility for their non-implementation.

In the short term, for the stable functioning of the RES sector, it is critically necessary:

1. To ensure the immutability of the legislation on support for RES producers and gradual repayment of debts, as well as to comply with the existing legislative guarantees provided to investors;

2. To amend the Ministry of Energy Order "On settlements with producers under the "green" tariff" dated June 15, 2022. No. 206, for payments to RES producers to be economically justified, covering all operating costs;

3. To fully repay the debt to "green" generation for 2021.

4. To lift restrictions on RES imposed by "Ukrenergo".

5. To develop and adopt amendments to the NERC Resolution "On approval of regulatory acts regimenting the activities of the guaranteed buyer and the purchase of electricity under the "green" tariff" No. 641 of April 26, 2019, in order to introduce a mechanism under which RES producers will bear proportional responsibility for imbalances.

6. To ensure settlements with SE "Guaranteed Buyer" for imbalances on the part of NEC "Ukrenergo" and to stabilise the payments for increasing the share of RES.

7. At the legislative level, it is necessary to extend the terms of wind energy projects proposed by the Ministry of Energy of Ukraine, the construction of which was interrupted by the war, as well as the terms for their completion for application of the "green" tariff, by at least 2 years.

8. To establish the cash basis method of VAT calculation and payment for the load reduction service.

9. To allow renewable energy producers to export electricity, to create a transparent and non-discriminatory mechanism of tariff-setting and distribution, to simplify the transit procedure based on the principle of free access to transit capacities.

10. In order to encourage electricity sales by RES producers on foreign markets, export special obligations require exclusion of RES producers from the list of exporters to whom such special obligations apply.

11. To promptly adopt a legislative mechanism of guarantees of electric energy origin from RES and to create a national register of guarantees of origin for electric energy produced from RES.

In the long run (after the war), large-scale development of "green" generation and creation of a new model of Ukraine’s energy sector will be possible on the condition of:

1. Adoption of clear National strategies for RES development, production of renewable hydrogen and development of offshore wind energy. Revision of the Energy Strategy through 2035 with account of replacement of decommissioned generation facilities with new ones with adequate energy storage capacities. Adoption of the Energy Strategy of Ukraine through 2050;

2. Setting ambitious goals of RES development, which will correspond to the current EU energy policy, namely to achieve at least a 50% share of RES in the electricity balance of Ukraine by 2030 (with account of large-capacity hydropower plants) and a carbon-free economy by 2050;

3. International PR campaigns to encourage strategic international financial investors to enter Ukraine’s RES market;

4. Implementation of new market mechanisms to promote RES development, including "green" auctions, corporate PPAs, contracts for difference, etc.;

5. Greater use of biomass in electricity and heat generation;

6. Development of the renewable hydrogen market, namely:

• to provide guarantees of origin for hydrogen, to revise and raise the carbon tax;
• to check and technically substantiate the possibility of using the Ukrainian GTS, to localise hydrogen production projects, to connect them to the GTS;
• to ensure implementation of national hydrogen projects;
• to develop a reliable infrastructure for production, consumption and export of renewable hydrogen;
• to encourage scientific organisations to make research in the field of hydrogen technologies;

7. Study of the potential and development of the appropriate legislative framework for construction of hybrid power plants using RES;

8. Promotion of local energy initiatives, such as energy cooperatives, small and medium-sized enterprises in the energy sector, generation and supply of electricity taking into account regional specificities, development of distributed generation;

9. Encouragement of domestic production of equipment for RES facilities, including wind turbines.

10. Application of best practices of environmental protection;

11. Development of the legislation on introduction of a trading scheme for greenhouse gas emission quotas and other market and non-market tools reducing greenhouse gas emissions;

12. Introduction of automated electric energy accounting systems;

13. Reliable functioning of the energy infrastructure, its modernisation to rule out breakdowns and accidents.

For the full article in Ukrainian please see: https://razumkov.org.ua/statti/sektor-vidnovlyuvanoyi-energetyky-ukrayiny-do-pid-chas-ta-pislya-viyny