Energy Strategy of Ukraine until 2035: Evaluation and Prospects for Qualitative Changes

On 18 August 2017, the Cabinet of Ministers of Ukraine adopted Resolution No.605-r “On the Approval of the Energy Strategy of Ukraine for the period until 2035″ Safety, Energy Efficiency, Competitiveness”. This updated document was much needed and expected and, therefore, was widely discussed in the respective circles of political, legal, and business communities. The document defining the state’s main strategic goals in the energy sector is one of the cornerstones of the clear setting of state priorities in energy policy in general. Intensive reform of the energy sector is long overdue and, if compared with previous energy strategies of Ukraine, is rather progressive and outlines a number of positive changes.

The Energy Strategy of Ukraine for the period until 2035 itself (hereinafter – the ESU) involves three stages of its implementation:

  1. Reform of the energy sector (by 2020);
  2. Optimization and innovative development of infrastructure (by 2025);
  3. Ensuring sustainable development (by 2035).

The main goals declared in the ESU were: liberalization of markets, establishing effective regulation and, as a result, attracting investors to the economy’s energy sector.

What did we get in reality? A number of inconsistencies in the strategic planning itself. For example, it simultaneously states “the aspiration to remain one of Europe’s largest hydrocarbon producers,” “increasing hydrocarbon production,” and “reducing the share of fossil fuels in the energy balance of the country.”

Also, the ESU puts emphasis on the development of decentralized renewable energy (e.g. photovoltaic systems and solar collectors on roofs of residential buildings, etc.). However, in order to achieve energy independence and development of the industry, developing small energy facilities is not enough, as they will not ensure sufficient power and satisfaction of energy needs, or energy stability, especially in the short term. It is worth relying on this type of decentralization at the third stage of the ESU’s implementation, when fundamental and basic needs are already generally met and satisfied.

It is not entirely logical to set preparation of the Ukrainian energy system for large-scale renewal of capacities as a strategic task until after 2025. The need for and a task to attract investments, the development in the area of renewable energy sources (RES) and other areas require significant modernization immediately: attraction of investors, increasing the share of RES, provision of incentives for the sector simultaneously with its modernization, and not after modernization.

In addition, after 2025, the ESU provides for a significant increase in RES (up to 25%) of the total primary energy supply, but how these changes are supposed to happen, “remains behind the scenes”. In fact, after 2025, the potential investors’ interest in alternative energy may, on the contrary, decrease. Such changes are possible also due to the gradual reduction of the “green” tariff, unpredictability of the economy and legislative prospects, the long payback period of the RES facilities (especially with regard to wind energy), taking into account termination of the “green” tariff after 2030, the existence of active discussion on the abolition of the “green” tariff and transition to the auction system in the near future. In fact, there is such a thing as a peak in interest, and the prospect of its increase after 2025 is questionable.

If we consider plans and areas of activity described in the Energy Strategy of Ukraine until 2035, it demonstrates the existing lack of systematicity when making medium-term and long-term planning. The document provides for a very generalized and short-sighted vision of the government activities in the energy sector after 2020, although its main sections should deal with the very understanding and definition of how to develop infrastructure and then ensure its stable operation after modernization and development.

On the other hand, the ESU includes a number of positive areas of government activities aimed at changes in the energy sector. Despite all the announced increases and expansions of the respective capacities of the sector, the Energy Strategy of Ukraine provides for important measures aimed at protecting the natural environment.

At the national level, these measures include laying the foundation for the development of the waste recycling system for the fuel and energy complex, as well as encouraging owners and potential consumers to increase volumes of recycled waste. A lot of attention is devoted to the measures for the implementation of strategic goals in the field of environmental protection, reduction of emissions from large combustion plants, greenhouse gases, and ways of achieving them.

Another important achievement of the energy strategy is that it acknowledges the importance of, and emphasizes the need, to increase energy efficiency. The preference is given to the implementation of energy efficiency programs, the introduction of new standards, encouragement of energy saving, etc., that is, the actual reduction of resource consumption and transition to the saving economy management with respect to the environment.

The above-mentioned changes and areas of activity are mainly declarative. Hopefully, the appropriate detailed plans, measures and regulatory acts detailing vectors that have been declared will be adopted in the future.

There are also positive results from the ESU. For example, the adoption of regulatory documents declared in the energy strategy. Thus, the National Commission Carrying Out State Regulation in the Fields of Energy and Utilities, in pursuance of the Law of Ukraine “On the Electricity Market”, has already approved part of secondary legislation:

  • Code of Transmission System;
  • Code of Distribution Systems;
  • Code of Commercial Recording of Electricity;
  • Market Rules;
  • Market Rules for “Day-Ahead” and Diurnal Market;
  • Rules for the Retail Electricity Market.

Also, amendments to the model Power Purchase Agreement (so-called “PPA”) were adopted, which was a necessary document for attracting potential investments into the industry. At the same time, there is a general revival of the energy sector and its development taking place.

Only time will tell whether the Energy Strategy of Ukraine for the period until 2035 will be effective in the long run, but the very fact of changes and development is already a positive step forward.