Re­new­able en­ergy in­vestors re­turn to Ukraine with cau­tious op­ti­mism

Kyiv Post - - Business Focus - BY DENYS KRASNIKOV KRASNIKOV@KYIVPOST.COM

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.

Cri­sis

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.”

At­trac­tive in­cen­tives

By 2016, how­ever, the eco­nomic sit­u­a­tion had sta­bi­lized, and the eu­ropegged 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.”

So­lar power

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.”

Re­strained growth

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.

The Kyiv Post’s IT cov­er­age is spon­sored by Cik­lum. The con­tent is in­de­pen­dent of the donors.

Mul­ti­mil­lion­aire Va­syl Kh­mel­nyt­sky (L) walks to­wards his pri­vate he­li­copter, pass­ing so­lar pan­els of the UDP Re­new­ables power plant in Kyiv Oblast on Sept. 26. Kh­mel­nyt­sky plans to in­vest up to $200 mil­lion in the Ukrainian re­new­able in­dus­try. (Kostyan­tyn Ch­er­nichkin)

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