Aus­trian firm gives boost to Ukraine’s hy­dropower

Kyiv Post - - Business - BY RAHIM RAHEMTULLA [email protected]

Aus­tria be­came a big in­vestor in Ukraine’s en­ergy sec­tor last month when An­dritz Hy­dro, a sub­sidiary of Aus­trian tech­nol­ogy group An­dritz, an­nounced a ma­jor hy­dro­elec­tric power sta­tion mod­ern­iza­tion pro­gram on the Dnipro River.

The 60-mil­lion euro project con­cerns the Dnipro 1 hy­dro­elec­tric plant in the city of Za­por­izhzhya — some 520 kilo­me­ters south­east of the Ukrainian cap­i­tal Kyiv.

An­dritz Hy­dro, head­quar­tered in Vi­enna, has 50 of­fices spread across 25 coun­tries. The com­pany said in a press re­lease that its in­volve­ment in the Dnipro 1 ven­ture would “strengthen its po­si­tion” in Ukraine’s “grow­ing hy­dropower mar­ket.”

Dnipro 1, which was built be­tween 1927 and 1932, was Ukraine’s first hy­dro­elec­tric power sta­tion. Today it is just one of nine hy­dro­elec­tric plants op­er­ated by state-run en­ter­prise Ukrhy­droen­ergo.

The hy­dro­elec­tric plant’s mod­ern­iza­tion forms part of a larger pro­gram fi­nanced by the Euro­pean Bank for Re­con­struc­tion and Devel­op­ment which was first an­nounced in 2011. The bank, which re­mains the largest fi­nan­cial in­vestor in Ukraine, said at the time that hy­dro would play a key role in Ukraine’s power sec­tor and that the coun­try needs to “de­velop and main­tain re­li­able sources of re­new­able en­ergy.”

It is hoped that the mod­ern­iza­tion of the Dnipro 1 plant will ad­vance that agenda, with An­dritz Hy­dro sug­gest­ing that upon com­ple­tion of the work — sched­uled for the end of 2021 — the to­tal con­tri­bu­tion to the coun­try’s elec­tric­ity sup­ply made by Ukrhy­droen­ergo will ex­ceed 15 per­cent.

That would rep­re­sent a sig­nif­i­cant jump from the 6.2 per­cent the com­pany cur­rently pro­vides, ac­cord­ing to fig­ures from con­sul­tancy Ernst and Young.

But those num­bers don’t tell the whole story. As Ernst and Young’s clean­tech and sus­tain­abil­ity ser­vices ex­pert An­drii Ki­tura points out, large hy­dro­elec­tric power plants such as those run by Ukrhy­droen­ergo “aren’t nor­mally con­sid­ered as re­new­ables.”

True “green” sources of en­ergy — in the form of so­lar power, wind, biomass and small hy­dro — cur­rently ac­count for just 1.2 per­cent of elec­tric­ity gen­er­a­tion in Ukraine.

Mar­ket devel­op­ment

How­ever, that fig­ure may be set for a boost in the com­ing years, ac­cord­ing to Daniel Bi­lak, the di­rec­tor of Ukraine’s In­vest­ment Pro­mo­tion Of­fice. He says that there is con­sid­er­able in­ter­est in Ukraine’s re­new­able en­ergy sec­tor, both in terms of en­tirely new projects and in moves to up­grade Soviet-era fa­cil­i­ties.

The most high-pro­file of such ven­tures is in the Chornobyl ex­clu­sion zone, where Chi­nese in­vestors are seek­ing to re­pur­pose in­fra­struc­ture left over af­ter the site’s in­fa­mous nu­clear melt­down in the con­struc­tion of so­lar power sta­tions.

“The at­trac­tive part of that is that they have all the grid hookups from the nu­clear power plant,” Bi­lak told the Kyiv Post. “There’s been con­sid­er­able in­ter­na­tional in­ter­est, which we’ve been help­ing to fa­cil­i­tate.”

Game changer

The at­trac­tive­ness of Ukraine’s en­ergy sec­tor as an in­vest­ment pros pect grew fur­ther when on April 13 par­lia­ment adopted a draft law to lib­er­al­ize the elec­tric­ity mar­ket. The new leg­is­la­tion fore­sees the elim­i­na­tion of the sin­gle state-con­trolled op­er­a­tor which cur­rently buys all the elec­tric­ity pro­duced in the coun­try.

In­stead, power pro­duc­ers will be able to sign di­rect con­tracts with con­sumers or busi­nesses, at a price that won’t be reg­u­lated. Bi­lak de­scribed the new law as a “game changer.”

But for pro­duc­ers of elec­tric­ity from re­new­able sources the new leg­is­la­tion, at least in one key as­pect, will not change very much. Many of them al­ready ben­e­fit from the so-called “green tar­iffs” in­tro­duced in 2008, which guar­an­tee un­til 2030 higher re­turns on power pro­duced from re­new­able en­ergy sources. The tar­iffs are set to stay in place un­der the new elec­tric­ity mar­ket model.

“Today the buyer of green elec­tric­ity is the state-owned com­pany En­er­go­rynok,” said Olek­siy Orzhel, the head of the Ukrainian As­so­ci­a­tion for Re­new­able En­ergy.

“In the new mar­ket, af­ter the pas­sage of this new law, there will still be a spe­cific entity that will be called ‘the guar­an­teed buyer,’ that will have to buy elec­tric­ity gen­er­ated from re­new­able sources. There is no dif­fer­ence; it will be the same rules and the same tar­iffs. There is no risk.”

New en­ergy, old is­sues

Ac­cord­ing to the na­tional ac­tion plan Ukraine set for it­self in 2014, a to­tal of 11 per­cent of the coun­try’s elec­tric­ity should come from re­new­able sources by 2020. In this cal­cu­la­tion, big hy­dro sta­tions such as Dnipro 1 are taken into ac­count. But even with the in­creased ca­pac­ity they will pro­vide af­ter mod­ern­iza­tion, Ukraine is set to miss its tar­get by about 3 per­cent if there is no new in­vest­ment.

Orzhel says he be­lieves there is an ap­petite for fresh projects which could boost the share of elec­tric­ity com­ing from re­new­able sources by a third as soon as this year. But a lack of clar­ity from Ukraine’s en­ergy reg­u­la­tor over new con­nec­tions to the elec­tric­ity grid is sow­ing un­cer­tainty.

“The prob­lem is that right now a lot of in­vestors are wait­ing for the new rules,” he said. “Th­ese planned changes re­gard­ing the reg­u­la­tions are very harm­ful to devel­op­ment.”

Whilst such reg­u­la­tory details could be worked out in a rel­a­tively short time frame, in the long term the bar­ri­ers to at­tract­ing more in­vest­ment in green en­ergy are the same as the ones which ham­per growth else­where in the econ­omy. The war in the Don­bas with Rus­sia is just one — there is a host of other fac­tors, in­clud­ing “im­per­fect leg­is­la­tion and courts,” ac­cord­ing to con­sul­tant Ki­tura.

Nev­er­the­less, “re­new­ables have great po­ten­tial for growth the world over, and also in Ukraine,” he said.

“How­ever, this busi­ness is ac­com­pa­nied by risks and a long pay­back pe­riod. I would say that the key prob­lem for the devel­op­ment of re­new­able en­ergy in Ukraine is the low in­vest­ment at­trac­tive­ness of the coun­try.”

But at least for now, that hasn’t put off Aus­tria’s An­dritz Hy­dro.

A view of the Dnipro hy­dro­elec­tric power plant in Za­por­izhzhya, 520 kilo­me­ters south­east of Kyiv. The plant is to un­dergo a 60 mil­lion euro mod­ern­iza­tion, car­ried out by Aus­trian com­pany An­dritz Hy­dro. (Ukrafoto)

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