How to accelerate the development of the bioenergy industry in Ukraine?

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Current status of bioenergy development

  • The growth rate of bioenergy in 2010-2019 in Ukraine was 16%
  • In 2019 in Ukraine the share of bioenergy in total energy consumption was 4.2% (the biggest share of which was heat production)
  • 2.2 GW of biomass capacity were put into operation in Ukraine since 2014
  • As of January 1, 2019, total capacity is 5.3 GW
  • As of February 1, 2021 green tariff was set for:
  1. 53 energy companies using biogas, with a total installed capacity of 103.4 MW
  2. 18 energy facilities using biomass, with a total installed capacity of 108.7 MW

*According to the State Statistics Service, the Bioenergy Association of Ukraine, the State Agency for Energy Efficiency 

It should be noted that the National Renewable Energy Action Plan for the period up to 2020, approved by the order of the Cabinet of Ministers of Ukraine dated October 1, 2014 № 902-r, provided that the total capacity of bioenergy plants would be 950 MW and bioenergy capacity generating heat would reach 11,875 GW. As we can see, the difference between planned and implemented capacities is disproportionate.

What prevented the achievement of the goals and why is this difference especially felt in the production of electricity from biomass? What steps are needed to accelerate the development of bioenergy? In this article, the author expresses his own vision of the main obstacles and ways to eliminate them.

Green tariff and bioenergy auctions

First of all, the level of the green tariff for biomass remains insufficiently interesting for the implementation of biomass and biogas projects, especially in cases of the absence of own biomass resource or a reliable supplier of this resource.

It no longer makes much sense to start developing new bioenergy projects for a green tariff or focusing solely on it, as the green tariff will be valid only until the end of 2029 (while the project development, financing and construction may take up to 3 years). And if the bioenergy station is commissioned starting from January 1, 2023, the green tariff will not be set at all due to the odious provision of the Law № 810-IX.

If the state wants to provide an adequate level of support for such projects, it is necessary to hold auctions on the distribution of quotas for biomass and biogas as soon as possible, which would determine the market tariff for such facilities. A prerequisite for the auctions is establishment of quotas for bioenergy at a sufficient level by the government, which at the date of this article have not been approved.

Incentives for biomass heat and a competitive heat market

The situation with support for biomass heat production is somewhat better, as the tariff for consumers in the public and municipal sectors is set at 90% of the tariff for gas heat production for the relevant category of consumers, and in the absence of such a tariff to the weighted average tariff in the relevant administrative-territorial unit.

In many cases, such tariffs are interesting to investors, but not in all regions due to differences in gas heat tariffs. Therefore, it should be possible for producers to choose either the above-mentioned incentive tariff or a tariff calculated according to the formula "cost +".   

The best solution for accelerating the growth of heat production capacities is to create a competitive heat market, in particular to eliminate any discrimination in connection to heating grids, as well as to remove subsidies for heat production from gas (in particular, through the PSO).  

Lack of a biofuels market

The main economic problem of bioenergy projects is the lack of access to a sustainable supply of raw material. There is virtually no such market in Ukraine. For its development it is necessary to adopt the appropriate legal framework.

The basic bill, which would create an e-commerce system for solid biofuels, has been developed by the State Agency for Energy Efficiency and the Ministry of Energy, and is expected to be submitted to the Verkhovna Rada of Ukraine soon.

Old debts to renewable energy and uncertainty about further payments

A negative factor for the entire renewable energy industry is the government's non-compliance with the terms of the Memorandum of Understanding on the settlement of problems with renewable energy producers in terms of repaying debts created in 2020.

Billions of current debt for already produced electricity, a large number of lawsuits to recover debts from the State Enterprise "Guaranteed Buyer", uncertainty about their repayment as well as about the payments in the future scare away potential investors in bioenergy projects.

"Contracts for difference"

Despite the declared possibility of direct sales by producers of renewable energy sources in organized markets with compensation for the difference between the market price and the size of the green tariff via so-called "contracts for difference", the bill has not yet been finalized and adopted by the parliament.

This option could be of interest to biomass electricity producers, as organized markets (day-ahead market, intraday market, balancing market and ancillary services market) are more liquid than payments from SE “Guaranteed Buyer”, which depends on the payment of the TSO transmission fee, and which are often not enough to cover the green tariff payments. So, there is hope that producers would always receive on time at least part of the payments.

No permissible deviation from the forecast for imbalances

For bioenergy projects it is also necessary to set the permissible hourly deviation from the actual volumes of electricity supply at a level that would allow not to be responsible for minor imbalances before SE "Guaranteed Buyer" for technical reasons, such as 5%. Although bioenergy projects are not weather dependent, certain technical factors, such as different calorific values ​​in different batches of biomass, plant failures, etc., can affect the accuracy of the generation forecast.

Absurd CO2 tax for bioenergy

Despite the positive environmental impact of bioenergy facilities, TPPs and CHPs on biomass, the producers continue to pay a tax on carbon emissions.

In order to relieve the industry of the inexpedient burden, the State Agency for Energy Efficiency and the Ministry of Energy, in agreement with the Ministry of Finance, have developed a bill that would eliminate it. We hope that this bill will be adopted as soon as possible.

Biomethane production and stimulation of biofuel use in transport

New promising areas for the development of bioenergy in Ukraine are biomethane production and stimulation of liquid biofuels and biomethane consumption in transport. The Ministry of Energy and the State Agency for Energy Efficiency recently published a bill aimed at creating a Ukrainian register of production and consumption, which will provide an opportunity for its export to the European Union. After its adoption, we can expect that there will be appropriate producers of biomethane, as the potential for biomethane production in Ukraine is significant - up to 8 billion cubic meters of gas per year.

Regarding the promotion of the use of liquid biofuels, it is necessary to adopt the bill № 3356-d of 05.11.2020 "On Amendments to Certain Legislative Acts of Ukraine on the Mandatory Use of Liquid Biofuels (Biocomponents) in Transport"), which establishes a mandatory share of liquid biofuels content (biocomponents) in the volume of motor gasoline from May 1, 2022 - not less than 5%.

Regarding the use of biomethane in transport, a respective law still has to be developed

Unreasonable requirement for digestate registration

An unexpected problem for market players was the requirement of mandatory state registration for digestate of biogas plants by regulatory bodies in accordance with the Law of Ukraine "On Pesticides and Agrochemicals". Moreover, if such a digestate was of purely animal origin without plant impurities, registration would not be required in accordance with the Law of Ukraine "On animal by-products not intended for human consumption." Therefore, it is necessary to remove this requirement from the law on digestate in order to develop the use of this product of bio-plants as an organic fertilizer or soil improver.