By moving away from fossil fuels and scaling up renewables, Ukraine could transform its energy system, strengthen its economy and security, and offer the EU valuable carbon-free energy.

man-at-pipeline-construction-site
A man works at the construction site of the Nord Stream 2 gas pipeline in north-east Germany. (Photo by Tobias Schwarz/AFP via Getty Images)

The Ukrainian energy sector is generally associated with gas and trouble. Gas disputes with Russia led to a major disruption of supplies to Europe that left several countries without heating in the cold winter of early 2009. The Russian annexation of Crimea deeply scarred the country, complicated its international relations and triggered the EU’s Energy Union strategy, the main initial aim of which was to reduce Europe’s dependency on Russian gas.

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Russia is now pressing ahead with Nord Stream 2 and Turkish Stream, two projects that should allow its gas supplies to Europe to bypass Ukraine. The upshot is that Ukraine is likely to lose most of its gas transit revenues and the partial protection the transit route provides.

All is not lost, however. The country could decide to capitalise on its rich clean energy potential for the benefit of its own energy security and economy, and that of the neighbouring EU.

Huge potential

The renewables potential of Ukraine is vast – the International Renewables Energy Agency estimates onshore wind could reach 320GW and solar 70GW by 2030, almost all of it cost competitive. The World Bank estimates the country’s offshore wind potential at 183GW of fixed turbines and 68GW of floating turbines, although efforts to develop some of this will run into the problem of turbines needing to be situated in the waters of annexed Crimea. Adding biomass, biofuels, biogas and hydro resources, Ukraine’s technical renewables potential could be 415GW, excluding offshore wind.

Today, the total installed power generation capacity of Ukraine is around 60GW, of which only 6.5GW is renewable.

This huge potential is overlooked by its European and US partners. Since the height of the Russia-Ukraine gas disputes in 2008–09 and the annexation of Crimea, international political concerns have firmly focused on the role Ukraine plays in supplying Europe with gas.

The country could decide to capture its rich clean energy offerings for the benefit of its own energy security and economy, and that of the EU.

Ukraine has the largest transit gas flow in the world, and with 32 billion cubic metres of gas storage, it plays a critical role in ensuring the security of the EU’s gas supply. Ukraine typically earns $2bn to $3bn a year in transit fees, an important revenue stream for a country in a dire economic state. Once Nord Stream 2 and Turkish Stream operate at full capacity this amount might shrink significantly. At the same time, EU climate targets will lead to a further decline in gas demand and make a gas-dominated energy strategy for Ukraine less relevant.

Ukraine and its partners need to find an alternative strategy. The projected evolution of the EU energy mix points to an obvious solution. To reach its 2030 and 2050 climate goals, the EU needs to steeply increase its share of renewable energy. Ukraine has a lot of what the EU needs and could make a critical contribution.

This would require big changes in Ukraine – and the EU – but it is eminently doable if the political will is there.

Continued reform

First, Ukraine must complete its electricity market reform. The market “still remains largely distorted”, according to an assessment by the Energy Community, an organisation uniting the EU and its neighbours into a pan-European energy market. Progress is under way and the reform should be completed by 2025, but it is slow going.

Price caps and public service obligations harm competition and the safe operation of power plants, and household electricity prices are below cost level. The Ukrainian electricity system is still not synchronised with Europe and the transmission system operator Ukrenergo is not a member of the European Network of Transmission System Operators for Electricity.

On its side, the EU would first need to recognise the clean energy potential of Ukraine and adjust its electricity infrastructure plans accordingly. At least the Trans-European Networks for Energy policy, the Projects of Common Interest list and the EU offshore wind strategy would have to be updated to include Ukraine and related infrastructure.

DTEK, the largest Ukrainian private energy company, has committed to carbon neutrality by 2040. This is an ambitious goal given the company’s coal assets.

Ukraine’s renewables potential should also become a central theme for the Energy Community and the Central and South Eastern Europe Energy Connectivity (CESEC) group. The move to extend the EU Coal Regions in Transitions Platform to Ukraine is a welcome step, but far from enough. The development of the Ukrainian renewables agenda should be championed by its EU neighbours – Poland, Slovakia, Hungary and Romania – and also by Bulgaria, Greece and other countries in the region.

Capturing the renewables potential of Ukraine should also take its proper place in US-EU security policies. Energy security is traditionally – and misleadingly – seen as ‘hard stuff’ and tends to be disconnected from ‘soft’ climate policies. The fixation on gas security by the US administration means a major opportunity to address Ukraine’s national and energy security agenda, and that of the wider CESEC region, is being missed.

Carbon neutrality and renewables goals are not alien to the Ukrainian government and business. The country has already started expanding its renewables capacity, but policies remain muddled and need streamlining. DTEK, the largest Ukrainian private energy company, employing 70,000 people, has committed to carbon neutrality by 2040. This is an ambitious goal given the company’s significant coal assets. In 2017, it produced 25 million tonnes of coal. Streamlining clean energy policies and action by business can best happen through closer international cooperation and expertise.

A new EU-US carbon-neutral energy security strategy for Ukraine would be a good place to start. The country should also consider adopting the model of the Burshtyn Energy Island, a group of power stations in western Ukraine that are synchronised with the EU power system, for renewables development. While this group is the subject of debate about competition rules, the basic concept of developing power generation capacity specifically for export could be copied for wind and solar power.

In the meantime, the Ukrainian grid could be synchronised and the market integrated with those of its EU neighbours.

This is a very ambitious agenda. It will be difficult to move it forward unless the European Commission, the governments of at least Poland, Romania, Hungary and Slovakia, the Energy Community and CESEC work together with the government and private sector in Ukraine to develop a clean energy integration strategy. The expansion of renewable energy in Ukraine and its integration into the EU energy system should also become a key part of EU-US energy cooperation, not just to serve the climate, but regional security goals too.