Opportunities and Challenges for Renewable Energy Generation in Ukraine
While the war in Ukraine continues with no clear end in sight, policymakers have begun to address the need for a reconstruction strategy for the country. Ukraine has estimated a cost of $750 billion to rebuild devastated cities and achieve 2032 economic targets. Recent estimates from the World Bank and European Commission place the cost of reconstruction at around $349 billion. A critical and strategically vital component of this rebuild concerns Ukraine’s energy sector and infrastructure. Russia has used energy as a weapon in its war, both through cutting gas supplies to Europe and through direct attacks on Ukraine's energy infrastructure, underscoring the need for secure energy supply and resilient energy infrastructure—in both Europe and Ukraine. Expanding and developing renewable energy generation in the country offers a pathway to secure Ukraine’s energy independence and enable greater integration with the European Union.
Prior to the war, renewables had been taking a larger role in Ukraine’s power generation sector. Following the introduction of policy supports in 2009, the share of renewable generation from wind, solar, hydropower, and biomass increased from under 2 percent to around 11 percent in 2020. In 2021, Ukraine set a goal to source 25 percent of its total energy mix from renewables by 2035—an ambitious target that would depend on sizable investments in wind and solar. The war has and will continue to motivate further action in renewable deployment as energy independence from Russia and Ukraine’s grid integration with the European Union has become critical to national security. In the Ukraine Recovery Conference, the country released targets to add an additional 5–10 gigawatts (GW) of renewable energy capacity over the next 10 years. To achieve short- and long-term growth in renewable generation, several challenges need to be considered and addressed.
First, most areas of high potential for wind and solar generation are in occupied or contested regions of Ukraine. Data published and compiled by the World Bank Group shows the highest photovoltaic potential in occupied southern regions including Crimea and the Donbas region. With Crimea and much of the southern coast of Ukraine under Russian control, the opportunity for offshore wind development is severely limited. Additionally, most of the operational and planned renewable energy generation projects are currently occupied or in contested regions. Around 66 percent of operating wind and solar plants are in five southern regions of the country (Odesa, Zaporizhzhia, Mykolaiv, Kherson, and Dnipro) that are currently occupied by Russia or under heightened threat—90 percent of operating wind farms in Ukraine are in occupied regions. Significant capacity additions were planned in the southern and coastal regions of the country. DTEK Renewables, the largest operator of renewable generation assets in Ukraine, has indefinitely delayed a planned 700 MW of additional wind capacity in the south of Ukraine. Retaking occupied territories remains Ukraine’s priority, but the ongoing war and the scale of destruction in these regions will delay renewable deployment.
Second, establishing a policy and financial framework that will support continued private investment in the renewable energy sector will be necessary for government and industry partners to accomplish shared goals. Even without considering the costs of reconstruction of the renewable sector, the estimated capital expenditure required to add 5–10 GW of renewable energy is around $11.5 billion. The primary support mechanism for the renewable energy sector is the feed-in tariff (the so-called green tariff), introduced in 2009. The legislation sets a preferential price for electricity produced from renewable energy sources. Even prior to the war, there was growing disagreement between renewable power producers and the government over the market structures and operation of the green tariff. The rapid expansion of renewable generation capacity strained the Ukrainian government’s ability to sustain the green tariff support scheme. In several instances, the Guaranteed Buyer failed to compensate producers due to liquidity challenges. A Memorandum of Understanding between parties sought to quell some of the disagreements by lowering the green tariff and ensuring the repayment of outstanding debts owed to renewable power producers. While this would push out payback periods for investors, improving payments from the Guaranteed Buyer to power producers is an important step in fostering private-public partnerships and investment in the sector.
The war has increased budgetary and financial tensions for the government and renewable energy producers alike. At the beginning of the war, the Ukrainian Ministry of Energy issued order No.140, freezing a sizable number of payments to producers of renewable electricity. DTEK Renewables has highlighted the challenges facing companies in maintaining operations and repaying loans under the freeze, and uncertainty over the government’s approach to the power sector will add additional strain for private investors assessing the space. More fundamentally, attracting investment and expanding the renewable energy sector can only begin once the security of development regions and the safety of workers is ensured. Ensuring the safety of workers and assets will, to some extent, determine the pace of reconstruction. While the war continues, developing a strong dialogue with private investors and operators will help to set the groundwork for successful renewable energy deployment. Additionally, international financial institutions like the European Bank for Reconstruction and Development (EBRD) will play a significant role in enabling investment and risk management arrangements during the reconstruction process. The EBRD has been active in providing emergency liquidity across key sectors in Ukraine and will take a prominent role in establishing the necessary financial and risk environment for reconstruction.
Finally, increasing renewable capacity and generation will require significant investment in grid repairs, upgrades, and interconnection. Increasing the balancing capabilities of the grid was a priority for the country before the war as it was estimated that around 2 GW of additional peak-covering capacity and 500 megawatts (MW) would be required by 2025. The Ukraine Recovery Conference estimated that an additional 3.5 GW of hydro capacity, 1.5–2 GW peaker, and 0.7–1 GW of storage would be required over the next 10 years for balancing to enable the targeted growth in renewable generation. Furthering interconnection with the European grid and expanding Ukraine’s electricity export capacity will be priorities in the rebuilding effort. In July, Ukraine began exporting electricity to the European Union using a 100 MW interconnection with Romania. Because electricity demand has dropped so drastically in Ukraine, the country has excess generation capacity that could bolster exports. As Europe struggles through its own energy crisis, increasing exports from Ukraine would further both parties’ strategic and security interests. However, Ukraine still must satisfy several technical requirements to prove it can provide stable power supplies to Europe.
Increasing the deployment of renewable power generation in Ukraine will be a strategically important step in the reconstruction of the country. While Ukraine has a high level of energy independence due to its nuclear generation capacity, expanding renewable energy will enable the country to reduce exposure to imports from Russia and Belarus. For instance, in 2019, Ukraine imported 33 percent of natural gas and 50 percent of its coal. Additionally, increasing renewable and export capacity will further Ukraine’s economic and security integration with the European Union and constrain Russia’s ability to use energy as a weapon in war. Reconstruction during and after the conflict will be challenging for Ukraine, international partners, and private investors. Establishing a solid policy basis for renewable deployment and investment should be a key focus for Ukraine’s reconstruction and energy future.
Allegra Dawes is a research associate with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Joseph Majkut is director of the Energy Security and Climate Change Program at CSIS.
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