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Renewable energy in Ukraine. Expert opinions!

The "green" tariff is actively debated in Ukraine last year. There is an opinion, that this tariff is the artificially created financial instrument for super profits making at the expense of state budget for few solar energy projects, owned by certain companies and persons. Activ Solar and Klyuyev brothers appear mostly among such companies and names. At the moment of its introduction in 2009 value of green tariff in Ukraine really was one of the highest in Europe (0,47€) and recoupment of projects was truly ultrafast. But the idea of "green" tariff was not something new, in the world practice developed countries use "green" energy for a long time already and a state supports "green" tariff. Why nowadays European countries apply "green" energy and "green" tariff so actively? - People realized the necessity to use renewable energy sources (RES) and to decrease consumption of coal and oil sources for providing energetic state independence and environmental preservation.

Now Ukraine as never needs to realize that "green" tariff is not some great evil, but a way to energy supply independence. It’s a way, that must be correctly and carefully analyzed, it will allow effective development of energy market, and at the same time will be secured from insinuations. Real domestic market players know how to make the market of RES effective, to attract investments and to obtain energetic independence of the country, so we asked some of them to share their visions and opinions on this debated question. Chief managers of companies, successfully engaged in implementation of projects with renewable energy sources during many years, became our conversants. There is a great number of implemented projects behind their backs, starting from the small systems of power supply for private households, and finishing with large solar power-stations of industrial scope. We present their opinion about the future of alternative energy market and its perspectives in Ukraine (interview was made before 2010-d bill was adopted):


- What is your opinion about development of world RES market? Experience of what countries is  the most attractive for Ukraine and why?

Dmytro Lukomskyi, Rentechno Chief Executive (DL) : “During last decades a tendency towards intensive increase of RES share in national power balances became obvious in developed countries. Rates of growth of this industry during many years are one of most considerable, that takes place, among other factors, due to well-balanced approach to development of energy sector at a state level. There are several reasons for such approach, but generally it is possible to talk about the global approach, focused on diversification of energy sources and providing of maximal power independence for each country, where RES stake is gradually growing. In any case, following from world trends to the realities of Ukraine, it is necessary to make primary definitions of our own energetic and economic strategies, and already after that we may analyse and implement  best practices of those countries, where energy industry is more developed”.

Alexander Sokyrzhynskyi, Avante Chief Officer (AS) : Experience of many countries is interesting, but is not universal, in Ukraine we should use every experience, taking exactly that is applicable in Ukrainian realities.

Aleksei Badyka, Atmosphere Director (AB) : Germany, actually, Ukrainian "green" tariff" was developed on the base of their standard.


- How can you describe current status of RES market in Ukraine, particularly market of solar power-stations (SPSs)?

Evgen Ladnych, Rentechno Director General (EL) : "It depends on how we define the “market” term itself. Nowadays there are already constructed objects, which are paid for "green" tariff. There are no objects in process of ongoing construction, as far as I know. A wide range of projects is frozen. There are companies, that show interest towards investing in projects, related renewable energy sources. Moreover, if earlier (2012-2013) there were many foreign companies at the market, then now interest is considerably increased among domestic businessmen in the industry".

AS : The market is open and ready to work, there are specialists and money, but there is also an enormous mistrust to decisions of the state. Now government in the person of NERC must abolish unmarked tariffs, accepted during Yanukovych times (and its no need to say about investors protection, because they paid for themselves with those tariffs and without VAT during 2 years.

DL: Today market of RES in Ukraine is in its regeneration state. There is a tendency of transition from building large industrial power-stations on RES to more shallow projects. Such miniaturization process takes place because of reforms in the area of government control of RES industry, and also due to such market-only factors, as incessant technologies improvement, which entails price-cutting and, as the result, expansion of financial viability scopes for introduction of different projects. I am sure, that in 10-15 years we will completely leave off to talk about state support of the industry with future evolutionary transition to practical realization of concept of RES-based distributed power generation".

Alexander Kovpak, Technical Director at Atmosphere company (АК) : At large the market grows poorly, but still grows, different factors have influence on speed and size of its growth at different times. The current growth is more related to "negative" power trend, described by desire of private individuals  to have their power independence and increased warranties. But this growth is far less than pre-crisis forecasted values.


- Some opinions were spoken out about abolition of "green" tariff. How do you think, is "green" tariff really necessary and for what purposes?

EL : Certainly, such abolishment is quite possible, but at that case Ukraine very soon will appear on the backyards of civilization in power terms. And the problem here is even not about purchase of Russian electric power, and coal for central heating and power plants (CHPPs) in South Africa. There are many indirect (non-obvious) positive moments from development of green energy in the country. Actually, "green" tariff is a form of subsidizing for all renewable energy industry. And this, in turn, makes vacancies through the country, innovations, integration into global economy etc. For example, it also facilitates professional development of young specialists, and we mean not just some development, but practical experience in real projects with modern equipment operations. These people, gaining experience in such projects, can bring much benefit to the country, both in energy industry and in other economy sectors. And at this very point there is nothing bad in state subsidizing , there are whole bunch of subsidized industries in China, and this is normal.

А.С.: Yes, "green" tariff is necessary for stimulation and attraction of investors into power industry, but it must be pegged to unified tariff on electric power and nominated only in hryvnia currency.

DL: Do we need "green" tariff? It is not the main question. We can find the answer to it with prior determination of aims, defined by Ukraine as state. If we want to diversify the portfolio of generating power capacities, to diversify power balance, to promote our own power independence, to bring down losses in centralized networks due to transition to the model of distributed generation, to bring up plenty of professionals in the country, and also to get a great number of other obvious advantages, then "green" tariff is rather needed. But if we want simply to create another instrument for redistribution of money flows into "correct" pockets and wallets, then in nearest future perspective it will be better without "green" tariff. It seems to me, that Ukraine needs this mechanism of RES industry support. But first I suggest to determine with tasks to be achieved, that we want to stimulate due to use of this mechanism.

AB: "Green" tariff is necessary. Globally, to make energy industry of the country more effective. In the USA, where "green" tariff was initially applied, nowadays cost of the energy, produced from RES, is already lower, than traditional energy sources. It proves that along with reduction of inexhaustible energy sources consumption, with reduction of environmental contaminations, the cost of 1 kWh of energy diminishes for an end user. In other words, with more "green" energy share in the balance of energy consumption customers and the country will have cheaper prime price per 1 kW*h of energy in a long-term prospect. Taking into account permanent price growth on energy resources, it is already possible to talk about forming of global power trends towards RES.


- What will happen, if "green" tariff is revoked?

Е.L.: "I rather would not put the question this way. It is the same as to "revoke" external debt of the whole country. There are obligations that were taken by the state on constructed objects , there is a wide range of investors and banks (including international financial institutions), that financed these projects and reasonably expect to return their investments. But on the other side, it does not mean that there is no place for negotiation process and no place for compromises. It would be strange to suppose that the state in current situation will pay by current rate, for example, 46,5 euro cents per 1 kW*hour of electric power, produced by a solar power-station, which was built before 2013. From my point of view, such compromise can be attained, for example, by altering of current legislation acts towards imposing term-based restriction, during which the state buys back all electric power, produced with use of RES. Today this term is set legislatively till January, 1 2030, and, in my opinion, this term could be 5-6 years, whereupon an object of alternative energy sells electric power on direct agreements. Such changes I would implement both for new objects and for already working ones. For 5-6 years object is recompensed, investor pays his credit to a bank, after that this investor continues to receive profit. But exactly profit, not super profit.

AS.: The sun will give its light. The country will live. And solar stations will be installed only by those investors, who have free money. Mass involvement will go down. It is relevant here to bring Germany as an example, where 80% of solar energy capacities is installed on roofs of private houses. Private traders do not need recoupment in 5-7 years strictly, even 10 years will be enough, because it is the investment into your own future and your children, that naturally differs from a business-investment".

АК: In a short-term prospect nothing will change. In a long-term prospect we will make 2 steps towards stone age. The park of thermal stations, that makes skeleton of Ukrainian power grid, already became morally antiquated long time ago. 70% of those stations need to be modernizes or excluded from active exploitation. Nuclear power plants (NPP) work in base mode only, absence of local power capacities can be catastrophic in future times. Knowing about how many energy is spent on its transportation (about 15%), any local production must be encouraged. We should not forget that more than 50 countries have laws about "green" tariff, and it is not because they think about ecology issues only, they consider their money foremost. Yes, capital costs on RES implementation are high enough, however, in the future we will get "free" energy. You set a RES station and get completely free electric energy, spending nothing. While a thermal power plant needs to be built, and then every day it burns tons of coal or gas, and all this during dozens of years.


- How much, in your opinion, should be the "green" tariff rates? Should these rates be identical for all photovoltaic stations or variable for different types and why?

AS: It should be unified for everyone, at the level of 150-180% of standard electricity tariffs.

DL: "As we mentioned above, let’s consider our aims. If we want simply to stimulate increase of RES power capacities, then the tariff can be unified. But if aims are different, for example, proportional distribution of power capacities on territory of the country, then value of "green" tariff must be calculated with due account for many factors, such as, for example, level of solar radiation in different regions of the country or local additional power needs. But in any case, final decision about "green" tariff rates must be based on financial arrangements, that will provide achievement of necessary project parameters to an investor.

AB: That’s not a simple question. In fact, from the point of view of any investments, terms of their return is important. As a variant of "green" tariff rate formation there can be that at the beginning of every year adjustment of "green" tariff is made, based on costs of model project and preferable return of investments terms (for example, 8-10 years). All stations, launched this year, receive this tariff (it does not change furthermore), pegged to euro or dollar currency.

According to ''Levelized cost of electricity renewable energy technologies study November 2013'' research of Fraunhofer ISE, from the beginning of 2012 wholesale prices on photo-electric modules from Europe went down on 32%: in January of 2012 they costed 1,07 euros/W, and by the end of 2013 price was 0,73 euros/W. Prices on crystalline modules from China diminished  from 0,79 euros/W to current 0,58 euros/W, or by 27% for the same period. Average cost of photo-electric stations goes down by 20% annually. In Germany, for example, prices for electricity, produced on solar power-stations, diminished on 80% in 15 years: from 0,50 euro/kW*h in 2000 to 0,10 euros/kW*h in 2015.


- Taking into account such global tendency, what period of SPS recoupment will be in Ukraine?

AS: 10 - 12 years is normal period of recoupment. If you know where is a possibility to invest money more effectively, then you should invest, in this very case we can say about completely risk free recoupment (there is a strong hope, that during nearest 4 billion of years the Sun will give light).

DL: To talk about terms of recoupment up to 5 years is the most effective method to create unhealthy agitation around the industry, to stimulate corruption issues and to provoke rates of growth so high, that Ukraine may not manage it. On the other hand, more than 10 years of recoupment is too much already. Similar long-term projects can have the right on existence only with a large number of reservations. In my opinion, the optimal term of recoupment for projects, stimulated through "green" tariff, would be 7-9 years period. For projects without "green" tariff it is 10-12 years.

AK: 10 years.


- Should a local component be present? If the answer is “yes”, then what percent should it be?

AS: No. It is a cause for another corruption component.

DL: Local component is needed first of all for stimulation of domestic producers. But the same aim can be achieved by other methods, for example, through tax deductions, government projects etc. I consider that the optimal decision will be either complete abandonment of any "local component" or implementation of bonuses/awards system in addition to "green" tariff, when component parts are produced in Ukraine. But in second case necessity for carefully thought out formulations and determinations upon this local component calculations will be very important factor.

AB: No! Any limitations slow down increase of RES share in power capacities balance, but exactly this progress is the primary purpose of "green" tariff. In addition here we can see the point, where it is possible to profiteer and to lobby somebody's interests. The market must be transparent, clean and clear. In general, it is possible to enter some encouragements, if this component is present, but as mandatory requirement it must be taken away with 100% chance. This "raise" must not be main and decisive, it should be no more than 5% from tariff base.

According to Forbes data, losses of companies in RES sector because of non-revised "green" tariff in on grounds of exchange rate shift for euro currency for September 2014 - January 2015, and also by groundless tariff lowering in February and March 2015 on 50% and 55% correspondingly, amount as follows: SPS losses made 402,5 million hryvnias, wind electric stations losses made 333 million hryvnias, hydroelectric power plants lost 85,66 million, and 38 million hryvnias falls into biomass.


- How much existent situation influences on investment climate? What are your predictions on further periods?

AS: "It does not in any way. A Ukrainian investor knows our terms, and we don’t have any warranty obligations towards european investors. They do not follow Budapest memorandum terms. What claims can be made to us? There are enough our own investors in Ukraine.

DL: "While situation in legislative sector is not stabilized, it is quite prematurely to expect investments growth. But on the other hand, future rules of game may not render positive influence on investment climate. So prospects of our industry, unfortunately, still remain hard to forecast.

AB: What investment climate we are talking about? There are tariffs, on the basis of which business plans were made, credit lines were opened and charts of redemption were built, and then these tariffs are changed in manual mode. Proper redemptions and implementations of credit obligations were made impossible with one stroke of a pen not because of technical reasons or some other miscalculations, but because someone decided to change the law. In nearest time I do not see pre-conditions to climate improvement and to real investments from large "system" investors. On the other hand, interest from private households grows continuously on the wave of power crisis and situation in the country. So market growth will be only due to this segment.

Europe already actively develops RES segment a long time ago, especially solar energy with essential state support. So-called "green" tariff works in Germany from 2004 and, despite of the fact that solar radiation in Germany is much lower, than in Ukraine, today Germany is the European leader on solar power station installations and by generation amounts of ecologically clean electric power.


- What steps must be undertaken by Ukraine for active development of the industry and for gaining national energetic independence?

AS: To peg "green" tariff to ordinary price on electric power in hryvnia.

DL: We need to determine our global aims in energy segment and tasks on their achievement as quick as possible. One of such aims is achievement of maximal energetic independence and protection from any unfriendly actions of other states. Development of own RES-based power capacities is one of mechanisms, that can help Ukraine to achieve this aim. The state must first of all stay out of the way, and to provide considerable help to develop internal market of alternative energy.

AS: The main current problem nowadays is lack of competence and desire among state officials and managers of oblenergo/local electrical networks. Implementation of "green" tariff in most cases collides with open sabotaging of processes. The decision needs to be made, how to motivate local employees, making them to be helpful or even to perform their direct duties. Clear and  comprehensible terms of authorisation, absence of unclear formulations and legislation paragraphs, where it is possible to make opposite interpretations. There must be guarantees of the unchangeable “green” tariff.


While the article was in process, 2010-d bill was approved, that brought changes both on terms of construction (for example, cancellation of local component) and rate of "green" tariff (tariff rate was decreased). Thus market of RES and solar energy segment in particular needs support of the state, needs stable investment climate to be provided. With correct RES policy it will allow to provide considerable amounts of electric power and energetic independence of the country.


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