With the European Green Deal and the growing global response to climate change, decarbonization of the economy is the challenge Ukraine will have to face in the nearest decades. How Ukraine can leverage the accumulated renewables capacities and make transition towards decarbonization smooth?
The global energy and climate-related agenda has been dramatically changing. In 2019, the European Commission presented the European Green Deal – policy initiatives related to the climate change and aimed to make the EU’s economy fully sustainable by 2050. This year the new President of the United States Joe Biden returned the climate emergency into his administration’s top priorities, pledged to cut carbon emissions in the next ten years and called for the world community to join. The international trend towards greener economies has been prevailing. These factors determine the politics and economies worldwide. Like many other emerging economies, Ukraine will be impacted by it as well.
The country has actually made a serious step a decade ago towards decarbonization, I mean introduction of the feed-in-tariff for renewables. Over the last 10 years Ukraine’s renewables sector has become a real industry, diversified by international investors entering the market. Only in 2020, the year of vague forecasts and economic turbulence, to attract EUR 1,3 billion investments and to commission 1,7 GW of green power capacities. As in many countries, the boom of green energy projects in Ukraine ended up with a need to balance the power system and find a financial compromise between investors and the Government. In 2020 the country succeeded to find that compromise and gave a way to projects it has committed to earlier. Whether the renewables sector will become the basis for further decarbonization will primarily depend on whether the Government will manage to implement the deal reached with the industry.
Obviously, all the further discussions around the industry should not be narrowed down to the feed-in tariff only. We should look at the sector and its potential impact on the national economy at a wider angle. Renewables can and should be the basis for Ukraine’s decarbonization action plan. Auctions and corporate power purchase agreements (PPAs) are to follow. The demand for corporate PPAs is already there because the decarbonization trend around the globe urges companies to look for ways to make production greener and comply with the CO² emission requirements. This becomes the factor of competition and reality for steel producers, for example, already today. Along with that, phasing out the coal generation and extending the life of the existing nuclear power plants in the next decade is a reality.
The next crucial step implies new technologies – energy storage and fast-start generation installments that will ensure balanced power supply and healthy market development. Along with the renewables industry with its sufficient legal framework enabling project development and construction, energy storage issue must have its own class of regulations. The same relates to hydrogen generation, especially green hydrogen, and to demand response programs that should ensure reliable functioning of the power generation capacities. These steps need adequate incentives from the state and framework laws rather sooner than later.
Regulatory framework is also needed for climate change related innovation which has been critically relied upon in Ukraine. A challenging mission to accomplish, because experiments and testing are most likely to take years, and since pilot projects can pose risks to the environment and local communities, the pilots can face penalties – unless the legislative branch, the government and the regulators create “sandboxes” for the engineers to enable creativity without any legal challenges as well as test-to-production strategy platforms where promising innovations can be legally enabled without delay.
Another driving factor of decarbonization is the border adjustment carbon tax to be introduced by the EU no later than 2023. Essentially, it means holding importers of goods to the EU responsible for their CO² emissions. The rule will apply for the non-EU countries like Ukraine and is likely to serve as a powerful stimulus to the Ukrainian Government. Currently, the goods exported by Ukraine to the EU are equivalent to roughly 8 million metric tons of CO². The border adjustment carbon tax will also stimulate introduction of green certificates trading. It is a shame that until today there is no origin confirmation system for green certificates. Green electricity sold by the Guaranteed Buyer has no additional value to the consumers despite the fact that it reduces CO² emissions.
Not the least, the reform of the district heating should accelerate the pace of Ukraine towards its carbon-free future. Supported by the liberal political forces, the unbundling of the heat supply market will allow to inject private investment into modernization of the power generation facilities. Private money oftentimes drives the innovation which is an additional benefit. Ultimately, the more up-to-date the equipment in the district heating system there is, the closer is independence from fossil fuel and the quicker is the transition to its alternatives.
Full decarbonization of the economy is not a fancy story for the rich countries anymore. It is the new reality that both private and public sectors all over the world will have to deal with quite soon, and Ukraine is no exception.
As a long-term regional leader in supporting international investors into renewables, INTEGRITES understands the challenges which climate change is posing before our clients. We are focusing therefore on climate change driven projects as a first priority. We already are counseling NGOs, businesses and governmental institutions on the legal framework and policy development regarding energy storage, in particular, chemical accumulators and alternative fuels, including hydrogen. We have initiated and led a series of public discussion events regarding hydrogen strategy goals and relevant legal instruments. We are ready to facilitate the discussion with the key market stakeholders and work on the action plan, as legal framework is a must that will speed up Ukraine’s movement towards decarbonization goals.