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Is Ukraine The Future Hydrogen Valley?

Is Ukraine The Future Hydrogen Valley?

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Over the past years, Ukraine expressed its intention to step on the energy transition pathway, develop energy efficiency measures, phase out fossil fuels, and switch to renewable energy sources (RES). The development of green hydrogen production (based on electrolysis of water using renewable electricity) is part of the chosen direction. Therefore, the Ministry of Energy of Ukraine and more than 20 Ukrainian companies have joined the European Clean Hydrogen Alliance to coordinate efforts to develop hydrogen energy.

According to estimates, Ukraine could establish at least 10 gigawatts of electrolyzed hydrogen capacity by 2030. There is no demand yet in Ukraine for such volumes of hydrogen, so production is mainly being considered for export to the EU. Hydrogen produced in Ukraine could cover one-eighth of the capacity required by the EU to reduce greenhouse gas emissions. Germany has been particularly interested in supporting hydrogen production in Ukraine. According to Germany’s Hydrogen Strategy, Berlin designated EUR 2 billion for hydrogen projects in Ukraine and North Africa, specifically Morocco. Moreover, developing a green hydrogen industry to replace gas could also be a good solution for Ukraine, mitigating the forecasted negative impact of the Nord Stream 2 export pipeline completion.

What Has to Be Done, and Where Do We Stand Now?

Firstly, Ukraine has to clearly outline its strategy in developing green hydrogen projects and establish the relevant regulatory framework.The Ministry of Energy and the National Energy and Utilities Regulation Commission are responsible for regulating the usage of hydrogen in the spheres of electricity and gas and establishing the relevant policy. The Ministry of Environmental Protection and Natural Resources is responsible for the state environmental protection policy, including the preservation of the ozone layer, ecological safety, waste treatment, hazardous chemicals, and carry out state ecological inspections.Ukraine is currently working on its National Hydrogen Strategy and expects to adopt it in the coming months. As of the date of this article, there is no unified statutory act regulating hydrogen in Ukraine. The State Standard of Ukraine DSTU 2655-94 Hydrogen establishes general requirements that apply to hydrogen as a “chemical substance.” Potentially, hydrogen production in Ukraine would require obtaining a generation license, environmental permits (for water usage, air pollution, or in the context of waste treatment), and construction permits – permits for hazardous works and usage of hazardous equipment – and the undertaking of an environmental impact assessment and compliance with its conditions.

Moreover, neither the Gas Transmission System Code nor the Code of Distribution Networks provides the possibility to connect hydrogen projects to the Ukrainian gas transmission or distribution networks and transport hydrogen through the existing gas pipelines. Therefore, certain amendments to the legislation and technical standards regulating production, transportation, storage, and use of hydrogen would be required.

Secondly, technical modernization of the existing gas pipelines could be required to transport hydrogen to the EU. Part of the existing gas pipelines can be used for the transport of blended-in hydrogen. Physical blending up to 2% is already achievable with minor adjustments, and with further adjustments, the percentage could gradually be increased to approximately 10-20%. Studies are still underway to determine the optimal hydrogen share in the mix that can be used in Ukraine’s Gas Transmission System.

Thirdly, rebooting renewables investments and resolving the current issues in this sector is essential for developing green hydrogen projects in Ukraine. RES projects still face some obstacles caused by liquidity issues within the Ukrainian electricity market, such as a retroactive feed-in tariffs reduction, new tax duties initiated, debts to RES producers for generated electricity, gaps in regulatory framework on curtailments, and delays with implementing the new support auctions mechanism.

As of the date of this article, there are several hydrogen pilot projects in Ukraine. The most significant one is the construction of a renewable hydrogen production plant as part of the international Danube Hydrogen Valley project. Ukraine’s largest energy group, DTEK, plans to launch the first pilot project to produce green hydrogen in Ukraine by the end of 2021.

Overall, developing Ukraine into an exporter of green hydrogen to the EU could bring new investments in Ukraine, fundamentally changing the nature of its strategic importance and help it reach the decarbonization goals.

By Glib Bondar, Senior Partner, and Anna Mykhalova, Associate, Avellum

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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