Ukraine, with its vast and windy steppes, meandering Dnipro River, year-round sunny weather and experience with nuclear power disaster, should be fertile ground for renewable energy projects.
But while 98 percent of the power produced in Norway already comes from renewable sources (mainly hydroelectric), Ukraine still lags far behind other countries in the region. Only 7.5 percent of the electricity generated in Ukraine comes from “green” sources and, like in Norway, it’s mainly from hydropower.
The corollary from that is, of course, that there’s still plenty of room for growth in the renewables sector in Ukraine. Why is it not happening? Industry players say it’s not for want of opportunities, but the effect of political instability combined with poor government.
The renewable power sector started to take off in Ukraine in 2009, when the country introduced differentiated green tariffs on various types of power generation. The legislation on green tariffs pegs them to the euro, setting the price per kilowatt-hour in euro cents.
But the modest development of the sector came to a halt with the 100-day EuroMaidan Revolution that drove President Viktor Yanukovych from power on Feb. 22, 2014.
Before a two-year economic recession in 2014 and 2015, the renewable energy industry was increasing generating capacity by about 800 megawatts per year. However, in 2014, the increase was only 26 megawatts.
Turbulence following the revolution, including Russia’s annexation of Crimea and the launch of its war in the Donbas, rattled most investors, according to Oleksiy Orzhel, the head of the Ukrainian Association of Renewable Energy.
“This was the period of maximum instability,” Orzhel said. “The EuroMaidan Revolution, the change in the authorities, and the prosecution of corrupt capital. At that time ‘white’ capital also understood it could be caught up in a general sweep, so a lot of developments came to halt.”
By 2016, however, the economic situation had stabilized, and the euro-pegged tariffs started to attract new capital, Orzhel said.
Pricing in euros “reduces devaluation risks for investors considering coming to Ukraine and developing green power generation here,” Orzhel told the Kyiv Post. “Moreover, this allows investors to raise credit resources in foreign currency at comparatively favorable rates. That’s a nice incentive.”
Since 2015, the sector returned to stable growth. In 2016, another 100 megawatts of generating capacity was added. And in 2017, Orzhel expects another 350–400 megawatts to come online from solar power stations alone.
“People tend to invest in solar panels because they are simpler, in terms of infrastructure, than other ways of generating green power. As a result, a lot of companies now have experience in starting such projects in Ukraine, and they’re intensifying their activities here.”
One of them is UDP Renewables, which has built the biggest solar power plant in Kyiv Oblast. It plans to operate the plant at 50 megawatts annual capacity by 2018; and at 300 megawatts by 2020.
The power plant’s main investor, Vasyl Khmelnytsky, told the Kyiv Post that now is the perfect time to develop renewables in Ukraine.
“Power plants that run on coal, gas, heavy oil, nuclear — they’re things of the past,” the investor said. “Of course, they aren’t going to disappear today or tomorrow, but Ukraine, the country that survived the (1986) Chornobyl (nuclear power plant) disaster, should be especially interested in renewables.”
Khmelnytsky’s UDP Renewables is also going to build another two plants, in Odesa and Kherson with 10 megawatts and 17 megawatts of generating capacity respectively.
The oligarch says he expects to invest up to $200 million in the industry, and he’s not as concerned as other investors are about instability in Ukraine.
“I’m confident in Ukraine’s economic growth,” he said. “This country is much more stable than it seems from the outside.”
Khmelnytsky is not the only one with big plans for the future in Ukraine: Canadian renewable energy company TIU-Canada recently invested 10 million euros in building a 10-megawatt solar power plant in Dnipropetrovsk Oblast.
The company is the first Canadian investor to set up shop in Ukraine since the Canada-Ukraine Free Trade Agreement came in effect on Aug. 1. According to Valentyna Beliakova, TIU-Canada’s country director in Ukraine, the company plans to invest another 100 million euros in 2018.
TIU-Canada decided to invest in Ukraine because of its green tariffs, which are “the most attractive in Europe,” Beliakova told the Kyiv Post.
“Ukraine has potential, while the appealing green electricity tariffs promise quick returns,” she said. “Why solar power? TIU-Canada has an expertise in this field and, moreover, solar power stations are easy to build.”
Andrii Hetman, the CEO of Unasolar, a tech company that engineers and installs solar panels in the country, has seen an uptick in sector development in the last two years.
“The market’s growing, yes, but the problems of doing business in Ukraine remain very real — buying power is still low,” Hetman told the Kyiv Post. “All the same, more people now understand that renewables might be profitable.”
Hetman’s counterpart Elena Skrypnyk also feels that the industry’s changing for the better.
Skrypnyk is a managing partner at Helios Strategia, a company that provides services for setting up solar plants in several countries, including Poland, Senegal, Belgium and Ukraine. According to her the Ukrainian market has better conditions than many others.
“Here in Ukraine, the pay-back time for projects is a lot shorter, so a lot of new investors are appearing, foreign ones included,” she told the Kyiv Post. “It’s easy to work here, so it’s getting competitive.”
Orzhel from the Ukrainian Association of Renewable Energy says solar power’s expansion could have been much substantial if the government had managed it better.
“Our system remains unpredictable,” Orzhel said. “This holds back a lot of foreign investors from bringing their money into Ukraine.”
For a start, Orzhel says Ukraine’s renewable market needs more timely decisions from the government. In particular he’d like to see a cut in bureaucracy, more rapid revision of laws, and more powers for the industry’s regulator.
The activist and businessman is particularly concerned about the regulator, which he says is unable to make decisions on future tariffs as not enough members of its board have been appointed for it to form a quorum.
“This meant the industry remains unregulated, and hence unpredictable,” Orzhel said. As a result, a lot of projects currently under construction are at risk of cancelation.
“The general political instability and other problems have a very negative effect on the industry,” Orzhel said. “I wish we could foresee at least something.”
Helios’s Skrypnyk, however, sees the situation differently. She believes the Ukrainian regulatory system performs better than many others.
One way or another, after weighing the pros and cons of operating on Ukraine’s renewable market, its players still express optimism.
“It is cautious optimism,” summed up Orzhel.