While the current Ukrainian government didn’t promise guaranteed high prices to attract investors in the renewable sector through 2029, it’s still responsible for an orderly solution to the problem that caused.
The generous “green tariff” that enticed investors had its genesis among the corrupt cronies surrounding ex-President Viktor Yanukovych, never shy about missing an opportunity to get rich from the Ukrainian people.
The plan worked: Solar and wind providers moved into Ukraine and, today, generate 8.6% of the nation’s electricity. Moreover, some estimate that the sector accounts for a quarter of the nearly $60 billion invested in Ukraine since independence in 1991. And, the sector is not monopolized by oligarchs, unlike other sectors of the economy. It also has the best chance of being decentralized while providing Ukraine with cheaper energy in the long run.
But the state couldn’t afford the sweet deal, so it imposed a cut of 15% on solar and 7.5% on wind energy and tried to get reluctant industry players to accept the bitter compromise. Many of them did — but the state has even been reneging on that deal.
The state owes an estimated $780 million to renewable energy providers and has offered no clear plan for eliminating the debt in 2021, as required by law. Existing and new investments are imperiled, but not only in the renewables sector.
What the government fails to appreciate is that potential investors in other sectors are watching and drawing the conclusion that the state cannot be trusted. This is particularly damaging if the investment involves a public-private partnership. How much investment Ukraine has already lost because of the renewable energy fiasco is impossible to count.
The most sensible solution promoted is for the state to borrow the money to pay off investors. This would put an end to the scandal and eliminate the threat that some investors may win big arbitration awards down the road.
It would not solve the problems in the energy sector. Ukraine remains too addicted to nuclear and coal, too wedded to cheap power today regardless of tomorrow’s consequences.
Experts complain that there is no properly functioning electricity market. Consumer prices are kept artificially low by populist politicians, with competition lacking. The current set-up is a maze of subsidies and unpaid debts among the various actors. There is a conflict between oligarchs whose companies sell electricity, like Rinat Akhmetov, and those who want the cheapest possible electricity.
The Kyiv Post held a webinar on Nov. 4, in partnership with the European Business Association, that explored some of these issues with investors, think tank experts and government representatives.
Ukraine is running out of time to change. Europe is moving ahead with its Green Deal, a central feature of which is to reduce greenhouse gas emissions by 2050, slowing climate change and prioritizing the environment along with economic prosperity.
International financial institutions such as the European Investment Bank will be completely phasing out of fossil-fuel investments soon. Ukraine, reliant on old and polluting power plants, could be penalized with taxes and in trade deals, unless it speeds up the transition to green energy.
That requires at least two changes right away: A competitive, price-based electricity market and a government that keeps its promises. “Investors are looking for stability,” said Alex McWhorter, Citibank Ukraine CEO.
