The renewable energy sector in Ukraine has been one of the most promising sectors of the economy over the last decade. Russia’s full-scale war against Ukraine has impacted the lives of every citizen and the country. Renewable energy projects have also been subject to adverse effects due to military actions.
Wind generation has suffered the most among renewable energy sources, losing about 90% of its generating capacity due to occupation or destruction. Simultaneously, in 2022 only 76.5 megawatts of new wind power capacity was installed – instead of the planned 1 gigawatt. That is because, primarily, most wind farms are located in the south of Ukraine, with part of this region still occupied and regularly shelled by the invader.
Solar generation has also suffered, losing roughly 40% of its generating capacity. There were cases when the equipment of solar power plants was damaged by missile attacks or stolen and transported to Russia as well.
Furthermore, the deadline for commissioning renewable energy facilities expired on December 31, 2022 (and for solar energy facilities even earlier). The construction of many power plants is unfinished due to the inability of distribution system operators to provide connection services due to force majeure circumstances. Subsequently, this made it impossible for renewable power producers (RPPs) to receive a feed-in tariff (FIT) under power purchase agreements concluded prior to December 31, 2019.
All of this, along with the regular shelling of energy infrastructure by the aggressor and restrictions on FIT payments, led the renewable energy industry to a simple slogan: “survive against all odds.”
However, in 2022, some positive changes in the sector also occurred. First, RPPs were granted the right to withdraw from the guaranteed buyer’s balancing group by suspending the power purchase agreement and selling electricity independently in different segments of the electricity market.
Second, the Cabinet of Ministers of Ukraine approved the Concept for the Introduction and Development of the Green Bond Market in Ukraine. The Concept defines the directions, tasks, and timelines for defining the state policy for the introduction of the green bond market. According to expert estimates, the potential of the green bond market is assessed at approximately USD 36 billion by 2030.
Third, the Parliament of Ukraine adopted legislative changes to develop energy storage technologies. Subsequently, the National Commission for State Regulation of Energy and Public Utilities approved the licensing terms for energy storage business activities. The physical surplus of electricity in the power system – when martial law was introduced – has since changed into a significant deficit. Energy storage facilities together with electricity generated from renewable sources are supporting the balancing efforts of the power system.
The list of key events in the renewable energy sector in 2022 was also marked by the synchronization of Ukraine’s power system with the Continental European Power System and Ukraine’s receipt of the European Union accession candidate status.
Given the European Green Deal aimed at a low-carbon economy, as well as the REPowerEU Plan where one of the main ideas is for the EU to achieve independence from Russian fuel, renewable energy is one of the crucial priorities for the development of the Ukrainian energy sector.
Still, to develop the renewable energy sector some steps need to be undertaken, the main ones being: (1) the full repayment of debts to sellers under PPAs. As of today, the level of payment by the guaranteed buyer (off-taker) to sellers under the feed-in tariff is 99% for 2021 and 54% for 2022; (2) holding auctions for the allocation of support quotas for RPPs; (3) the introduction of a mechanism for establishing and issuing Guarantees of the Origin of Electricity; and (4) the extension of the term for commissioning renewable energy facilities under PPAs concluded before the end of 2019 that were still not commissioned in 2022.
According to the Energy Strategy of Ukraine, the share of renewable energy sources in the energy balance should reach 25% in 2032 and double that by 2050. The Ministry of Energy of Ukraine aims to build 7.1 gigawatts of new renewable energy capacity. This again proves that the renewable energy sector is just beginning to develop and will be the priority of Ukraine’s post-war recovery.
By Iaroslav Cheker, Partner and Head of Energy and Natural Resources, and Svitlana Khadzhynova, Junior Associate, Arzinger