Ukraine trades future-energy tariffs for auctions to get fair price

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2040

By Pat Davis Szymczak

Ukraine has enacted a new law that trades future-energy tariffs for auctions to set a fair market price for green electricity.

A new law just signed requires solar plants that generate over 1 MW to participate next year in energy auctions. The same will apply to wind farms of over 5 MW capacity.

Ukraine set a goal in 2015 to produce 25 percent of its energy from renewables within 20 years. But its green feed-in tariffs benefited mostly large players, enriching a new class of what has come to be called “green oligarchs”. Ukraine’s green tariffs are the highest in Europe and make the scheme unsustainable because the government must buy renewable energy at above market prices.

Feed-in tariffs are a scheme that governments use to attract investment into future-energy projects. The tariff guarantees the investor a price for energy fed into the power grid. But Ukraine’s tariffs are too high. So the new law is intended to correct the error.

This year, solar and wind power are Ukraine’s fastest growing energy sources. Power from nuclear, thermal (coal and gas fired) and hydro plants is declining slightly.

The government aims to cut feed-in tariffs for solar plants by 25 percent next year and by 2.5 percent from 2021 to 2023. Feed-in tariffs for wind plants over 2 MW will drop 10 percent in 2020. Biomass and biogas energy rates will stay unchanged.

Solar accounted for 80 percent of the 860 MW of newly installed renewable energy capacity this year, according to Ukraine’s Energy Efficiency director. Of Ukraine’s three gigawatts of installed renewable capacity, solar accounts for 71 percent.

Overall though, the amount of renewable energy produced does not justify the higher energy costs that consumers pay because of sky-high tariffs, Katya Gorchinskaya writes in a Politico article titled: “Ukraine’s Green Oligarchs.”

Current rates paid producers, in euro cents per 100 kilowatt hours, are: solar – 15 to 16 cents; wind — 10.2 cents; small hydro 10 to 17 cents; thermal – 5.8 cents; nuclear 1.7 cents. As a result, renewables provided 1.9 percent of the nation’s electricity last year, but accounted for 8.6 percent of the nation’s €5.5 billion power bill, Gorchinskaya wrote.

Ukraine’s largest solar producer, DTEK, said this to Politico: “Investments in renewables have become the third most attractive sector for direct investments in Ukraine besides the agricultural and IT sector.” DTEK, owned by Rina Akhmetov, adds: “As in other countries, the introduction of a specific regulatory framework was instrumental for DTEK’s and other investors’ decision to kick start investments in this sector, and a precondition to attracting foreign long-term debts for the financing of the imported equipment required.”

Michael Yurkovich, CEO of TIU Canada, has two solar plants, totalling 24 MW, in southern Ukraine. Working on two more plants, in Odessa, for an additional 32 MW, he recently told Renewables Now: “Investors need confidence that there is an ongoing commitment to renewables; a consistent level of support during the investment cycle; a supportive regulatory and permitting environment; transparency in the distribution of support; and a level playing field for investors.”

Over $1 billion in solar projects are under construction this spring, racing the Dec. 31 sunset of the sky high green tariffs. Adjusting to a new auction regime, investors plan billions of dollars in additional investments through 2020. The investment action largely focuses on Ukraine’s three sunniest southern regions – Mykolaiv, Kherson and Odessa.

Here follows a partial list prepared by Ukrainian Business News:

– In Mykolaiv, 400 MW of solar capacity is under construction or in the planning phase. Foreign investors nvestors include: Estonia Energy Invest, Turkey’s Eko Yenilenebiler Enerjiler AS, and Norway’s Scatec Solar. With EBRD financing, Scatec is building two Mykolaiv solar plants, investing a total of €232 million to build 197 MW capacity.

– In Kherson, Scatec, through its Atlas Capital Energy LLC, is building this spring a 50 MW solar station in Hola Prystan. With about a dozen companies in Ukraine, Scatec is working on 414 MW of projects – 251 MW under construction and 163 in the design and permitting stage, reports Interfax-Ukraine.

– The Arab Investment and Development Authority, AIDA, signed a deal in Dubai last month with STC Energy Ukraine to invest $2 billion in solar power plants in Ukraine. The first phase is to build solar plants totaling 170 MW, under the agreement signed by AIDA chair Adil Al Otaiba, STC Energy CEO Natalia Tykhonova, reports Emirates News Agency.

– In Kirovohrad region, there are plans to commission 46 solar stations with a generating capacity of 500 MW by 2023, reports EcoTown news site. Almost half of this will come from three solar plants, totaling 190 MW, that DTEK plans to commission by the end of this year.

– In Nikipol district of Dnipropetrovsk region, DTEK inaugurated earlier this month a 200 MW solar farm, the second largest in Europe. Now DTEK Renewables is building nearby a €200, 240MW solar polar plant, due for commissioning this year.

– Companies from Belgium, Denmark, Ireland, Lithuania and Turkey are among the investors building about a dozen solar projects for over 100 MW in central Ukraine’s Zhytomyr region. Establishing the region’s reputation as solar friendly, the Zhytomyr Regional Administration signed 14 memorandums with solar investors last year.

– Turkey’s Emsolt is building this spring 20 MW of solar capacity at two sites, in Zhytomyr and Khmelnitsky. The company has 85 MW ready for construction and another 50 MW under development, reports UNIAN.

– Kness Group, the Vinnytsia-based engineering, procurement and construction firm, is building 500 MW of solar capacity across Ukraine this year. This adds to 500 MW in projects completed by the company in earlier years, Yevhen Didichenko, co-founder of Kness, told a recent renewable energy conference organized by GOLAW firm in Kyiv.

– Two Japanese companies, Green Power Development Japan and Deloitte Touche Japan, are talking with the Energy and Coal Industry about building solar plants with a total capacity up to 1.2 GW in the Chornobyl exclusion zone, reports Interfax Ukraine. In addition to the symbolic value of building solar at the site of the 1986 nuclear disaster, solar developers want to plug into existing power transmission lines.

Odessa region now has 500 MW of installed solar capacity, including a 260 MW project commissioned in January. From Danube to the Mykolaiv border, Odesa now has 23 solar plants in the below 50 MW size. Spain’s Acciona Energia Global is seeking to win permission to buy majority control of two solar projects in Izmail owned by UDP Renewables of Vasyl Khmelnytsky.

With the spread of solar, southern Odessa increasingly faces the problem of excessive daytime power for local electricity grids. To address this, France’s RTE International and Ukrenergo are designing Ukraine’s first energy storage system. RTE International is a unit of RTE, the French electricity grid operator. The first phase of work is financed by a €560,000 grant from France’s Economy and Finance Ministry.

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