Ukraine’s path to clean energy is inevitable. But what is the price?

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Our CEO Maksym Babaiev has shared his vision of Ukraine’s paths to sustainable energy system in his column for Green Deal.

It is hard to look into the future, especially in times of radical changes. But it is becoming clear that the future energy systems will be based on renewable generation (solar, wind, bio) and the technologies providing system flexibility and compensating unstable renewable generation. These are energy storage, green hydrogen, bioenergy, demand-side management and smart grids. Development of these technologies will define the speed of shifting to sustainable energy systems.

In addition to global challenges, Ukraine also has several specific issues which have an effect on the country’s development dynamic. They are energy dependence on aggressive neighbours and critical state of the infrastructure. Our steps to tackle these challenges will define Ukraine’s path to the energy system of the future.

“Easy” path

I am using “easy” in quotes for a reason. This path does not mean that the energy transition will feel like a walk on a beach. But hard and unpopular decisions taken in a short time will lay the foundation for a full integration of renewables and new technologies in the energy system.

Ukraine updates its Energy Strategy. New version goes in line with all our international obligations and the global forecasts of energy systems development.

State pays all outstanding debts to the green energy producers in accordance with a memorandum and respective laws of 2020. Trust of international and domestic investors starts to come back to the country. The “peculiarities” of the energy market functioning are removed, which mostly are the reason for these debts.

Renewable projects will be able to sell energy directly on the market, complemented with additional stimuli providing stable business models for investors. These are auctions, feed-in premiums, corporate PPAs, net metering. We don’t have to reinvent the wheel, because these schemes are adopted in many countries in various forms. New clean capacities will replace outdated nuclear and coal power plants.

A bill regulating operation of energy storage and flexible generation is adopted and implemented. This allows for a faster and cheaper integration of intermittent renewables in the grid. This new law is based on a market model rather than centralized state owned.

The energy infrastructure is upgraded through the system of fair and transparent RAB tariffs and other relevant mechanisms. The country systematically prepares the basis for a full-on shift to a sustainable energy system.

Hard path

Ukrainian authorities declare their commitment to the green transformation. But the Green Deal, decarbonisation, etc. remain just the slogans. In reality, the state is still under heavy lobby of the groups not interested in the status quo change.

The country continues following an inadequate energy strategy and lags behind the world in transformation of its economy. We extend the operation period of old nuclear reactors. Coal power plants also continue to work. The infrastructure is maintained in operational state, but the grid modernisation is absent.

Monopolists heavily and negatively affect the energy market’s operations and the regulations. They create distortions which bring excess profits to certain companies while discriminating against independent players. At the same time, the deficits of the state owned players continue to grow. The only way to keep them afloat is through the budget.

The European Union, the main trade partner of Ukraine, introduces the carbon border adjustment mechanism. Ukrainian products become less competitive, which leads to lower export revenues. Because Ukraine couldn’t manage to launch a new support system based on direct sales, corporate PPAs, the companies have much fewer opportunities to make their products greener. Except for self-consumption of clean energy, which is not available for many enterprises. 

Due to frequent breakdowns, forced repair stops and grid deterioration, electricity prices continue to grow. Electricity in Ukraine becomes the most expensive in Europe. It affects the prices for virtually all other products and services. Add frequent blackouts and overall unstable grid performance to the mix, and you get a good basis for social and political instability. The state no longer can manage the energy sector and the whole national economy.

After this crisis period, finally the necessary decisions are taken to rebuild the energy sector. Ukraine starts to catch up with the world.

What’s the difference?

The difference lies in how quickly we can shift the Ukrainian energy industry to efficiency and sustainability. The “easy” path is our chance to join current leaders of the ongoing industrial revolution and get all the benefits. The hard path is a path of stagnation, lost opportunities and suffering for us and our children. Please, choose.