Ukraine Is Energy Independent in Some Sectors and Awaiting Change in Others

emerging europe ukraine

Read the Outlook on Ukraine special report

.

Ukraine, similar to Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Moldova, Montenegro, and Serbia, is a contracting party of the Energy Community, whose goal is to extend the EU internal energy market beyond the European Union, by attracting investment, creating an integrated energy market, securing supply and enhancing competition.

Janez Kopač, director at the Energy Community Secretariat, and Karolina Cegir, a gas expert in the organisation, spoke to Andrew Wrobel, about how Ukraine’s energy sector is integrating with the EU’s.

Is Ukraine coming closer to the EU’s energy market?

Karolina Cegir: Well, some people would say that the process is too slow, and others that it is very fast. If you look at what has been done in the last three years in Ukraine’s gas market, there is quite a lot of change. Supply has been diversified switching import dependence from Russia from 100 per cent to 0 per cent by handling reverse flows from Slovakia, Poland and Hungary, which enables a much greater flexibility in deliveries. What is needed now is to let new suppliers into the market. Naftogaz is still the main player, of course, but there are companies with big capacity and with transmission contacts in Ukrainian market.

Janez Kopač, director at the Energy Community Secretariat (courtesy of CEE Gas Conference)

What about market liberalisation?

Janez Kopač: Most of required secondary acts have been adopted, some have been partially implemented and some have been fully implemented – but nevertheless, regulators and transmission system operator (TSO) continuously work on improvements and amendments.

Right now, they are talking about how to switch from monthly to daily balancing with serious consultancies support and with comprehensive working groups to put this into the transmission code, and in parallel, to buy additional software to allow this in this particular sector.

So, what are the biggest challenges right now?

Karolina Cegir: As far as gas is concerned, the main pending issue is unbundling. This is going on right now, with some delays, and the unbundling of TSO is the main issue.

Janez Kopač: If we talk about energy in general, then we have the electricity market, which is still a single buyer model. This means everything is regulated and the Third Energy Package compliant electricity market law was approved in the first reading, but now the second reading keeps being postponed. Even if it is adopted relatively soon, it still has a transitional period, which means that the real transitional period will only start in the mid-2019. But of course, the whole fact of switching from the Pre-First Energy Package model into the Third Energy Package model in two years is quite brave, but this step has to be made.

If we talk about energy efficiency, you won’t believe this, but it is politically the most sensitive issue in Ukraine because of resistance, not because of support. The certification of existing apartments or buildings according to the energy performance of the buildings directive has not passed parliament already after three tries. So, despite the fact that macro-financial assistance has €600 million pending on this decision, there’s a no-go, funnily enough.

How about energy security?

Janez Kopač: There is no outstanding security of supply issues as far as gas is concerned, at all. Ukraine hasn’t needed any gas from Russia since November 2015. Ukraine decreased consumption tremendously and they have enough from their own production and import via Western borders.

In electricity, they are self-sufficient. They do not allow imports of electricity from Russia, neither from Slovakia, which would be possible. Even if you talk about EU member states or Energy Community Contracting Parties borders – Slovakia, Hungary, Romania, and Moldova – the import of electricity should be allowed because it is part of the Energy Community Treaty’s obligations; but it is still prohibited.

However, currently, they have another political issue with the supply of coal from the occupied territories in the east. Due to some recent political reasons, it is currently prohibited. This is why they could have some blackouts in the future.

When you look at the potential for renewables; the agricultural sector in Ukraine is massive. How do you see this part of the sector developing?

Janez Kopač: The Renewable Support Scheme is very generous, too generous and too expensive. I am not talking about the biomass element, but about the solar panels and the wind turbines. This type of electricity production is subsidised twice as much as in, for example Germany, so the tariff envisages that for electricity coming from solar panels you will receive approximately €150 per megawatt, while in Germany at this moment I think they have reached €75 through auction. So they will have to reform the support scheme because it is simply not sustainable.

Karolina Cegir: It seems that it has never been strategy-driven; they haven’t checked the potential and put a proper framework in place to develop this potential. For biomass, I would say this is even below the visible horizon as far as the potential for development of Ukraine is concerned.

We have recently discussed the regulations regarding alternative fuels amendments and I would say there are not enough resources or knowledge, or even expertise available, nor is there really this horizontal change that should be in place for things such as agriculture and energy together. But on the other hand, it is a pity for Ukraine, there is a huge agricultural production that is being exported for biofuel production in Germany.

Karolina Cegir, a gas expert at the Energy Community Secretariat (courtesy of CEE Gas Conference)

Do you see room for foreign investment, that is, international investors in the energy sector in Ukraine?

Janez Kopač: The basic condition for any investment is legal and political stability. We would say that political stability is already in place, but the legal stability is currently not yet there entirely. In the gas sector, it is much better. In electricity sector, nobody knows what will happen with the reform and when it will happen. Ukraine is a country of huge opportunities, but first the legal framework has to be settled. Potential investors have already understand the position and are just waiting.

RELATED ARTICLES

Ukrainian Agribusiness — a Jewel in a Crown

Wheat ukraine agriculture ebrd

The Stalled Conflict in Ukraine Will be Formalised

Ukraine Continues to Make Waves as an IT Outsourcing Destination

Ukraine’s NIX Solutions Expands to Israel and Beyond

Naftogaz: A Good Start Has Slowed But Optimism Remains High

Closeup of pressure meter on natural gas pipeline with people on the background

‘Viking’ is Yet Another Way to Annoy Ukraine

Ukraine’s Economy in 2017 — When Dreams of Growth Meet Geopolitical Reality

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

Protecting Intellectual Property to Encourage Business Confidence

Poland’s LNG Terminal Opens the Door to the CEE Gas Market

The Ukrainian Banking Sector Looks Set to Regenerate New Growth

Office Space Remains Available in Kyiv

Western Ukraine Could Be an Entry Point into the Country

Denmark in Ukraine: Fostering a Better Business Climate for Both Sides

The Innovation District IT Park Will Help Lviv Become CEE’s IT Hub

IT park lviv ukraine

Steps to Stability Marred by a Failure to Attract FDI

The Political Economy of Independent Ukraine: Late Starts, False Starts, and Last Chance?

Ukraine’s Government Declares Ambitious Privatisation Targets

Anti-corruption Efforts Are the Starting Point for Further Reforms

Albania’s Gas Master Plan Sets out an Exciting Future

Military Operations in Ukraine Have Had Some Surprisingly Positive Side Effects for Modern Businesses

Night city reflection on the river in Donetsk. Ukraine

Ukraine and Canada: A History of Settlement and a Future for Investment

Danish companies Support and Assist Ukraine’s Economic Transition

President of Ukraine Petro Poroshenko and Prime Minister of the Kingdom of Denmark Lars Lokke Rasmussen during a meeting in Kiev Ukraine

Europe at Odds over OPAL and Nord Stream 2

Ukraine Outsourcing’s Value is Now in its Technological Expertise and Reliability

Ukraine’s Banking Sector Reconstruction Brings Asset Sales and Opportunities in Equal Measure

Gavel and Ukrainian hryvnias on a wooden table

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

The Human Factor is Boosting Ukraine’s Promising IT Export Sector

Ukraine’s Pro-change Atmosphere Says “Welcome!”

lviv emerging europe

Ukraine Is Offering Europe Unique Combat and Technological Experience

The Dilemmas of Ukraine’s Economic Policy

From a Small Family Firm to a Top 100 Global Outsourcing Company

Kyiv’s Mayor Is Used to Fighting to Attract Attention and Interest

KIEV UKRAINE - SEPTEMBER 8 2016: The facade of Kievrada the City Council located in Khreshchatyk Avenue on September 8 in Kiev.

Sirin Software — A Ukrainian Firm Conquering Global Markets

Ukrainian Start-up Projects Recognised in the International Market but Still More Investors Needed

Startup Diversity Teamwork Brainstorming Meeting Concept

Energy Tariff Reform in Ukraine: Estimated Effects and Policy Options

History as Destiny? Institutional Erosion in Ukraine and Poland

Changes Are Needed in Ukraine’s Economy and Business to Catch up with CEE Growth

Longstanding Early Investors Say Ukraine Offers Foreign Manufacturers Great Prospects

ukraine manufacturing

Thinking Big; Working Hard; Delivering Value to Clients and Building Relationships

quartsoft emerging europe outsourcing

Europe’s Breadbasket Offers Opportunities for Investment and Diversification

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

See the New Ukraine and Benefit From the Best by Partnering or Investing in IT

Engineer proceeding to data recovery from computer

Croatian Gas Market Facing Challenges after some Liberalisation

FocusEconomics: Predicting an Increase for the Ukrainian Economy

Legal Reforms are Improving the Existing Problematic Situation in the Ukrainian Agro Market

ukraine agriculture

Poland’s Business Experience Makes it a Good Neighbour to Ukraine

Ukraine’s Tech Sector Is Booming but Needs Awareness and Confidence

ukraine tech emerging europe

European Volatility Makes Economic Development Slower for Ukraine

A Roadmap for Reform in Ukraine and a Promise of EU Support

Ukraine’s Gas Industry Risks Stagnation Without Investment

Maidan Three Years On—What Has Changed for Ukraine?

Ukrainian Venture Investment Market Is Immature and Needs Growth

Past Troubles Belie the Opportunities for Investment

There Is a Move Towards Change in Ukraine

Lviv Is the Pearl and the Soul of Ukraine

Ukraine’s Talented Students Are Well Served by Its Diversified Business Relevant Education

ukraine IT

The Eurovision Song Contest Is a Perfect Showcase for Ukraine’s Talent and Warmth

Changes Are Making Ukrainian Banking More Aligned with International Standards

Leszek Balcerowicz: Ukraine Can Learn from Poland’s Economic History

SMEs Should Play an Important Role in the Economy and Export Development

Governmental Support is Vital to Fight Corruption

Between the East and West, Geographically and Politically

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

A Very Good Prospect for Future Biogas Development

Start Making Connections for the Opportunities Ukraine is Currently Offering

Kharkiv region Ukraine - July 29 2016: Combine harvests wheat on a field in Kharkiv region Ukraine on July 29 2016

Leave a Reply

Your email address will not be published. Required fields are marked *