Experts: Ukraine’s energy efficiency reforms to target consumers, suppliers and government

When asked what the most promising sectors for investment in Ukraine are, business says energy efficiency.

Ukraine’s energy market, which heavily relies on worn-out plants and outdated technologies, has little changed since Ukraine’s independence.

With share of renewables in energy supply very low, below 2 percent, Ukraine remains one of the most energy-intensive countries in the world.

This, in turn, hits the wallet of consumers and government.

Because of a strong lobby of suppliers and low interest of society, legal reforms in energy sector lag behind expectations of investors despite Ukraine’s membership in the European Energy Community since 2011.

“It is illusory to say there were no legislative initiatives on energy efficiency before now… Most of the bills on energy efficiency were drafted in 2010-2011. However, they did not gain support because any initiatives aimed at decrease of consumption contradicted interests of major fuel and energy suppliers,” Alexander Burtovoy, partner at Antika law firm told the Kyiv Post.

Moderate consumption at the consumer level, modernization at the supplier level, implementation of saving programs and development of alternative energy market at the state level is the only way to achieve energy efficiency.

Price regulation is one of the aims of landmark April 5 law on gas market.

Vitaliy Radchenko, partner at CMS Cameron McKenna, believes “the increase of prices for utilities is the only way to make Ukrainians consume less…and shift to energy saving technologies or other types of energy.”

Similarly, the bill on energy industry strives to introduce transparent pricing schemes and eventually bring energy prices to market ones. “The regulator must not dictate prices to market players, except for natural monopolies,” Radchenko believes.

The so-called energy modernization laws in effect since May 9 allow energy service companies to invest into reconstruction of municipal plants under energy service contracts and obtain 80 percent profit from savings in 10 years, while the rest goes to state budget.

With the implementation of this law, experts expect more projects and private companies willing to invest into energy efficiency measures.

Radchenko believes it frees municipalities’ hands. In absence of any legal procedure, Economic Bank of Reconstruction and Development had no choice but to give loans to municipal objects to implement energy efficiency projects, expert said.

It is important such companies will not obtain any profit unless the improvements they make prove their worth, Yaroslav Petrov,counsel at Asters law firm said. “It will stimulate energy service companies to introduce the most cost-effective technologies,” Petrov said.

On the other hand, the law is silent on sources of financing: whether they will attract own funds or rely on borrowed capital.

Similarly, there is no guarantee, private companies will reimburse their costs, says Antika’s Burtovoy. In Czech Republic, parties often attract banks as intermediaries. If a bank finds energy service companies reliable, it purchases company’s right to compensation as whole or in part.

In addition, secondary legislation is still to be adopted, including model energy service contracts, methodology of calculation of savings, and budget nomenclature for reimbursements.

If adopted the bill on energy efficiency of buildings will advance Ukraine’s energy market even further. Following the practice of European countries, it sets down minimum energy efficiency requirements for a new-built. However, now it has no mention of specific incentives for real estate developers except for vague provision about financing of such projects based on the private-public partnership, says Radchenko. If such incentives are introduced, both the residents and real estate developers will benefit from it.

Although June 5 amendments significantly reduce the green tariff for production of energy from renewable sources, Asters’ Petrov says market players welcomed this bill as a consensus between industry, Ministry and regulator.

First,it creates more or less sustainable conditions for investment by linking the tariff to euro with quarterly indexation.

Second,it finally gets control over the tariffs aligning excessive tariffs for solar energy, used to obtain extra profit, with European rates.

Third, it eliminates so-called “local component,” mandatory part of domestic row materials, components, services and works in the project, which was previously misused to kickback competitors. Instead, it introduces the system of bonuses for use of local component.

Accordingto National Renewable Energy Action Plan, Ukraine must reach 11 percent renewable sources share in the final energy consumption by 2020. To fulfil this ambitious goal, government has to do more, Radchenko says. “We see this index in National Plan and Energy strategy, but we know this task is unreal under the recent legislation,” he said.

In addition to slow progress of reforms, it is difficult to find financing for such programs, says Petrov.

“Today, such projects are largely funded by international financial institutions instead of private investors. However, there are many companies willing to invest. Thus, I hope the situation will soon change for the better.”

Kyiv Post legal affairs reporter Mariana Antonovych can be reached [email protected]

Capacity
and quantity of produced energy by renewable energy plants in 2015

Source:
State Agency on Energy Efficiency and Energy Saving of Ukraine