Ukraine is an emerging market with great potential for trade and investment. An uncertain economy and political instability have caused potential investors to hesitate though, and aging powerplants and corroding powerlines have resulted in inefficiencies in the energy system.
There are signs though that it is committed to its goal of generating 19% of energy from RES by 2030. In mid 2010, the International Monetary Fund secured a US$15b (€11b) credit line over two-and-a-half-years, which will hopefully spur investment.
In April 2009, a new “Green Tariff Law” was approved. It applies coefficients to the Basic Tariff, set as at 1 January 2009, and also introduced a fixed minimum GT in Euros based on the exchange rate at the time, to mitigate any impact of a devaluation of the Hryvnia.
The law obliges the state to buy green energy under the tariff system until 2030 and ensure grid connection. Where there is a change to its rules, an energy producer will have the right to either follow these, or those valid at the start of operation.
It also states that, from 1 January 2012, a generation company can only charge the GT rate where at least 30% of the materials, works and services are based on domestic supply, increasing to 50% from 1 January 2014.
To meet its 2030 target, Ukraine will first need to address the challenges posed by its complex permitting procedures and inadequate grid. Overall grid capacity is around 7GW, but only 2GW around strong RES areas such as Crimea.
Tax incentives and finance
It offers a range of tax exemptions to green energy companies and projects including:
- corporate tax exemption on the sale of RES electricity for 10 years from 1 January 2011
- VAT exemptions on certain imports
- a 75% land tax reduction on the purchase of land for green energy projects.
The main source of finance for RES projects has historically been the Government. In April 2011, it approved a €7b increase for the 2010-15 “economic program on energy saving” to €32b, most of which will be used to renovate the grid.
Ukraine has significant wind energy potential, but remains an under developed market, with only 87MW installed at the end of 2009 and no installations in 2010. Potential is estimated to be 19-24GW and a strong project pipeline exists, although only a few of these have construction permits. MAKE forecasts an additional 750MW in the next five years.
Crimea expects €1.2b to be invested in a 900MW wind farm, due to begin construction by the end of the year. Wind Power, a subsidiary of utility DTEK, has also started work on its 1.2GW portfolio of wind capacity on the coast of the Sea of Azov. Government goals indicate that by 2030, 20%-30% of power will be wind generated.
Ukraine also has strong solar potential. Installed capacity was negligible at the end of 2010, but Austria's Activ Solar has this year finished its 80MW Ohotnikovo project on the Crimean Peninsula, claimed to be the largest PV project in Central and Eastern Europe. Ukraine's target capacity for the period 2010-15 is 1GW.
Biomass represents more than two-thirds of Ukraine's total estimated renewable potential thanks to its traditional agriculture focus. It currently produces less than 0.5% of its energy from biomass, but it is estimated it could produce more than 10 times this.
Hydropower is currently the country's leading source of renewable energy. It has around 22,400 rivers of which only 110 are longer than 100km, so there is significant potential for small hydro plants, around 2.3GW compared with current 150MW installed capacity.