Ukrainian renewable projects market. Summer update
Ukrainian energy industry continues to work in crisis mode. Frequent changes in the Ministry of Energy, struggling to get rid of imbalances and limitations of the new market don’t allow it to become as intended – transparent and competitive.
Among all technologies, renewable energy is suffering the most. Points of the Memorandum of understanding with the Government, signed almost one year ago, is fulfilled partially. Tens of billions of debt to RES producers remain unpaid. Meantime, it’s becoming harder to balance still growing renewable energy share in the grid. Renewable energy associations threaten to sue TSO over unfounded (in their view) curtailments of renewable capacities. Recently the first (and definitely not the last) claim to the international arbitration court against the state of Ukraine from an investor in RES was filed.
Undoubtedly, all these factors impact Ukrainian sale and purchase market of renewable energy projects. Since the crisis began last year, this market has changed drastically and shrinked in size. However, it has shrinked unevenly. Let’s expand on the situation on various segments of this market.
Medium and large solar PV projects
The Law 810-IX adopted last year lowered overall attractiveness of the segment. Up until the end of 2020 we saw demand for solar projects over 1 MW, but today there is almost no activity. The main reason being a new 4.5 euro cents / kWh feed-in tariff, which has thrown many projects out of the “attractive for investment” category. Announcement of the first auctions could renew interest of investors to this segment. But for some reason the Government is not in a hurry to do it, despite multiple calls from the Ukrainian energy community and international partners.
Small solar PV projects
Solar projects below 1 MW are becoming more popular among investors. Such projects maintain an attractive feed-in tariff until 2030, so requests from buyers are growing. At the moment there are several interesting types of projects:
1. Standalone projects below 1 MW or portfolios of multiple projects in different locations
2. Clusters of projects below 1 MW in one location with joint grid connection point
3. Clusters of projects below 1 MW in one location with separate grid connection points
Project developers are actively reacting to changes in demand and creating new offers for various types of clients. Our platform is also receiving more project offers and requests from potential investors.
Solar PV in operation
We see this segment as the most active at the moment. From the demand side, many investors who had planned to develop solar PV from scratch, lost an incentive to do it. So they turn their attention to PV projects in operation in Ukraine. From the supply side, there are active movements also. Incomplete feed-in payments, tariffs cuts, curtailments by the TSO, imbalance fees force part of the project owners to think about exiting the business.
Solar PV for self-consumption
Lower costs of technology and constantly growing energy prices for consumers make such projects more economically attractive. In some cases solar for self-consumption demonstrates paybacks on the level with feed-in tariff projects.
Banks also start to show interest in this type of projects. In contrast to lately unstable feed-in tariff payments, lower energy bills can be a stable source of debt repayment.
We expect to develop new innovative schemes of investment attraction, financing and partnerships in this segment.
New wind projects in Ukraine have received the end of 2022 as a limit for COD if they want to receive a guaranteed feed-in tariff. Considering peculiarities of development of such projects, we saw a predictable sharp decrease in demand in early spring. The fact is that even having a quality ready-to-build project, without a guaranteed contract for wind generators, there is high risk of not commissioning the project within the set limit. With no auctions or other support mechanisms in sight, a number of searches has predictably fallen (but not to zero).
Bioenergy is a more complex segment than solar or wind. Biomass and biogas projects can be harder technologically and in terms of stakeholder engagement. There are several other obstacles, such as the absence of the biofuels market, CO2 taxes, and no allowed level of deviation from the forecasted energy generation.
Meanwhile, bioenergy projects have great advantages: for the power grid – maneuvering capabilities, for the environment – lowering the level of pollution by agricultural and industrial waste, for climate – decreasing the GHGs emissions. Also, bioenergy projects still can apply for attractive feed-in tariff active until 2030.
So while solar and wind segments are losing interest, bioenergy is getting more attention from investors and developers.
Energy storage and flexible generation
Ukrainian grid needs more balancing capabilities. This fact has been discussed among experts, business, and the state for several years. Bills developed to regulate this market have been on the tables also for several years. The TSO and Ukrhidroenergo are in negotiations with international partners to install energy storage systems. But still there are no rules which could attract private capital and create a dynamic and open market. As of today, market rules and limitations don’t encourage companies to invest in this segment.
Undoubtedly, hype around the future of hydrogen will go down eventually. But it will not go away completely. Big promises will crystallize into something smaller, yet ready for investments. Experts expect this moment to come in several years.
Although there is no regulatory base, big players are already in search of prospective spots for hydrogen projects. Logistic opportunities are being analyzed, whether by sea, railway, or the natural gas network. Ukrainian developers are reacting by creating concepts and feasibility studies for their wind and solar projects, focusing not on feed-in tariff, but on hydrogen production. Our platform already has several such offers from developers.
The world has agreed that green energy is our future. Solar and wind technologies already are competitive in many markets. This future will come to Ukraine no matter what.
In order to make it happen faster, we should work to turn our problems into new opportunities for growth. Grid balancing – into an open and attractive market for flexible generation technologies. High feed-in tariffs – into transparent auctions, contracts for difference and corporate PPAs. The issue of unstable generation impact on the grid – into incentives for small distributed generation, such as net metering and self-consumption by businesses and citizens.