ENERGY

 

Energy in Ukraine

Ukraine has a mixed generation of electricity. While, the country utilizes various energy sources, nuclear energy remains the main source of electricity in Ukraine, accounting for 57.94% of all electricity produced as of May 2017. Coal, oil, fuel oil and gas together constitute 32.74%; hydroelectrical power stations make up 7.2%, renewable sources of energy comprise 1.25% and 0.87% - block stations.

Graph

Coal

A reduction in coal production volumes was been evident in the last months of 2017 (6.9% less than 2016), specifically, steam coal production decreased by 3.6% and coking coal by 18.5%. This decrease has necessitated Ukraine to diversify its import supplies from places such as the USA and Australia. 

Oil and gas

Oil production volume has decreased by 3.1% during the period January-July 2017. This production index includes the 5.1% production decrease by Naftogaz.

Gas production on the other hand has increased by 7.3% compared to the same period in 2016, including the 2.3% production expansion by the companies in the Naftogaz group.

The third largest reserve of shale gas can be found on the territory of Ukraine, amounting approximately to 5-8 trillion cubic meters of which 1.2 are technically extractable today. Since, fracking in Ukraine has not been banned, the Oleksa basin in western Ukraine has been attracting large foreign interest with a number of companies having already signed multi-year exploration contracts in the basin.

Renewables

As per the Ukrainian Association of Renewable Energy, Ukraine has a very low percentage of electricity generated from renewable energy sources (RES) compared to most EU countries. Nonetheless, nearly 100 renewable sources were built recently, including approximately 70 new solar power stations. The percentage of electricity generated from RES is expected to rise. 

Solar power

The Ukrainian photovoltaic market is quite new but inviting. This year, more than 60 new solar power facilities with a total capacity of 382 MW will be built in Ukraine, with the overall capacity of the solar plants possibly surpassing 1.2 GW. The following information has been presented in an analytical report comprised for the 7th International Solar Energy Conference and Exhibition of Central and Eastern Europe, CISOLAR 2018 which was held in Kyiv in April 2018.

The country’s increasing PV capacity has now exceeded 700 MW, whereas total renewable energy generation has touched 1.46 GW.

The main feature which attracts the development of solar energy in Ukraine is the low cost of land compared to other European countries and the attractive feed-in tariff rate. Additionally, the industry is expected to grow fast this year as feed-in tariff rates will be reduced in Ukraine by 20% in 2019.

Data provided by the Ukraine’s energy regulator, the National Energy and Utilities Regulatory Commission (NEURC), as of January 1, 2018, the combined capacity of renewable energy under the FIT, excluding plants located in Crimea, amounted to 1,374.7 MW, of which solar power plants accounted for ca. 55% (741.9 MW), and wind power plants, ca. 33.8% (465.1 MW).

Wind power

Ukraine has an advantage of having a lot of wind, which is commonly aggregated on the coasts of the Black and Azov seas and in the Carpathian and Crimean mountains.

Biomass

Two-thirds of the country’s renewable potential derives from biomass. Ukraine has an extensive supply of geothermal resources that can be utilized primarily for heat supply. There are also prospects for binary geothermal power plant creation based on existing wells at abandoned oil and gas fields. Government policy is currently focused on developing this renewable energy sector as the cost effective inputs of labor and raw materials are among the lowest in Europe.

Hydropower

The estimated total potential of the Ukrainian hydropower generation is close to 20 billion kWh of electricity per year. 

Nuclear energy

Nuclear energy is the major source of electricity in the country, accounting for almost 50% of the overall electricity produced.

Changes in the energy situation

Due to the fact that Ukraine does not control certain parts of its territory, it faces the risk of losing part of its energy system; however it also wins an opportunity to reduce its dependence on oil and gas from Russia and has already turned to importing gas from European countries.

Energy strategy of Ukraine until 2035

In the summer of 2017, the Cabinet of Ministers of Ukraine adopted a New Energy Strategy for the period until 2035. The new energy strategy is a program defining a wide range of major reforms in the energy sector and sets its goals to be achieved by 2035. The goal is to achieve 50% of the country’s electricity to come from nuclear power, 25% from renewable resources, 13% from hydropower and the rest to be covered by thermal power plants. The key component of the strategy is the reduction of energy consumption in the Ukrainian economy by half by 2030, giving the country a boost in both traditional and renewable energy sources.

Integration with the EU energy market

Back in 2005 Ukraine and the EU, together with the European Atomic Energy Community (EURATOM), signed the Memorandum of Understanding on a Strategic Energy Partnership. This Memorandum has been renewed by its parties in 2016. Despite the Memorandum itself being of declarative nature, it provides the basic directions of cooperation, such as energy safety, gas and oil transit, integration of energy markets and the development of a low-carbon policy.

In 2011 Ukraine joined the European Energy Community and in 2014 the country entered into the Association Agreement with the EU, further increasing its obligations in the energy sector. Some of the obligations include the encouragement efficiency and safety of energy, the development and support of renewable energy, improvements of energy infrastructure, decrease carbon emissions and to develop a competitive market. Since the obligations came into force, Ukraine has been taking actions in its legislation in this regard. To some extent, the obligations came down to implementing the existing EU Directives and Regulations into Ukrainian law.

In 2017, Ukrainian state-owned power grid Ukrenergo signed the Agreement as per the terms for Ukraine’s integration to the European Network of Transmission System Operators (ENTSO-E), which was also one of the obligations under the Association Agreement. Presently, a small part of the Ukrainian ISP operates synchronously with ENTSO-E. Ukraine’s further integration with ENTSO-E would permit it to synchronize its energy system with that of the rest of Europe. Such integration is expected to take place in 2025, and with it increase Ukraine’s energy sector independence, attract new foreign investors to the Ukrainian market and resultantly have a decrease in electricity prices. 

Taxation

In 2017 tax rates for rent payments for oil exploration were reduced. Consequently, oil extraction from over 5,000m is now taxed at 29% compared to the previous 45%, while extraction from below 5,000m is now taxed at 14% compared to the previous 21%. Furthermore, part of the rent payments (5%) for extraction of oil, natural gas and gas condensate will be apportioned to the local budgets of respective municipalities where mineral deposits are situated. These measures are estimated to increase the local budget income and stimulate local authorities to issue special permits for the use of subsoil in order to receive additional rent payments.

Another step by the government towards liberalization was the amendment of the Tax Code of Ukraine as per the rent payment of rates for parties to production-sharing agreements (PSA). Previously, the parties to the PSA could set the rate in PSA yet such a rate could not be lower than the rate established by law. Presently, the parties are entitled to a rent payment rate at any level, even lower than that provided by the Ukrainian Tax Code.

Establishment of a gas hub in Ukraine

Lately, eight companies have signed agreements with PJSC Uktransgaz as per gas storage in a customs warehouse regime, permitting traders to store natural gas in the warehouses of the country for up to three years without paying custom duties. This possibility arose due to the lack of natural gas in the storage facilities of the country. The aforementioned agreements can provide a basis for Ukraine to become one of the largest European gas hubs. The plans of creating a gas hub in Ukriane were also announced by the Polish and Ukrainian governments in the summer of 2017 as a remedy to both countries’ gas dependence on Russia. The hub is planned to be established on the border of the two countries as the required infrastructure to suit this purpose is available.

Unbundling of Naftogaz

Ukraine has taken its first steps towards unbundling Naftogaz, the state energy company into separate domestic supply, transit and storage companies. Such unbundling would include the transfer of a part of the assets of Naftogaz to a newly established PJSC Mahistralni Gazoprovody Ukrainy, which would serve the role of transporting gas via the main gas pipelines and gas storage. The move will bring the oil and gas sector closer to the EU energy market standards. Although some steps have been taken towards the unbundling, there are still many actions are left to be taken.

Alternative sources of energy

The importance of the renewable energy market in Ukraine is gradually rising, especially given the advantageous geograph¬ical conditions, high prices for electricity and heating, the implementation of green-tariff for renewable energy sources (RES) and the new Ukrainian Electricity Market Law (2017) which greatly improved the outlook for the country’s renewable energy industry and stabilized the legal framework.

For many years, Ukraine has been trying to financially incite the generation of electricity from renewable sources of energy. The said incitement is resultant of the legislative provision for the feed-in tariff, namely the state’s guaranteed obligation to purchase generated “green” energy from RES producers. Until 2030, the feed-in tariff has been fixed to the euro and is paid in the national currency.
All the gener¬ated electricity, excluding the amounts for personal needs shall be paid under under this feed-in tariff.

Ukraine has several laws which govern the use of alternative sources of energy, including:

- Law of Ukraine “on Alternative Energy Sources”;
- Law of Ukraine “on Alternative Fuels” (aims to increase the share of alternative fuel use to 20% of the total amount of fuel consumed by in Ukriane by 2020);
- Law of Ukraine “on Combined Production of Heat and Electric Energy and Utilization of Waste Power Potential”;
- 2020 National Action Plan on Renewable Energy.

In the summer of 2016 Ukraine has applied to become a member at the International Renewable Energy Agency (IRENA). Currently, it is in the process of becoming a member. IRENA membership would benefit Ukraine in establishing cooperation with developed countries on renewable energy and the option to apply to Abu-Dhabi Fund for Development (AFD) for green project loans.

Implementation of EU Directives

The following EU Directives regarding alternative energy use are required to be implemented:

- EU Directive 2003/30/EC on the promotion of the use of biofuels or other renewable alternative energy sources;
- EU Directive 2001/77/EC on electricity production form alternative energy sources;
- EU Directive 2009/28/EC on the promotion of renewable sources of energy use.

“Warm loans” for the private sector for energy efficiency and green energy use

State-owned banks subsidies private sector consumers by covering 20% of the borrowed amount for the acquisition of gas-free boilers for private use, 35% of the borrowed amount for the acquisition of energy-efficient equipment for private use and 40% of the borrowed amount for communal energy measures for multi-apartment houses.

Carbon Emissions

The Paris Climate Agreement has been ratified by Ukraine in 2016, based on this the country also adopted the concept of implementation of state policy regarding climate change for the period of 2030.

It is obligatory for Ukraine to implement the provisions of EU Directives 2010/75/EU and 2001/80/EU on emissions. A commitment has been made under the Association Agreement to implement provisions of the Directive 200/87/EC setting a scheme for greenhouse gas emission allowance trading. The legislation has not been yet developed. However, Ukraine used other measures for decreasing carbon emission levels, in the form of environmental tax.

Foreign investment initiatives

An increase in the number of commissioned renewable energy projects has been observed in the past years. Many of these projects are carried out by foreign investors who chose the Ukrainian market following the introduction of legal reforms in relation to feed-in tariff regulation.

Prospects

Ukraine has the potential to cover more than 90 percent of its own energy needs with renewable energy resources by 2050. These were the results in the report Ukraine's Transition to Renewable Energy by 2050 presented at the Ukrainian Crisis Media Center. If the country strengthens its transition to renewable energy, it may achieve a share of 40 percent by 2035. The transition will happen primarily due to biomass, wind, and solar energy. The share of the wind power stations in the overall structure of energy production may reach up to 45 percent, solar power stations – up to 36 percent, whereas biomass and waste may reach up to 73 percent in the overall system of thermal power production. Overall, as per the estimates of the Ukrianian Cabinet of Ministers, the country has the potential to not only become self-sufficient in energy, but also a major exporter.