In 2016 state-owned Ukrgasbank fundamentally changed its development vector, focusing on green finance as a strategic growth driver. Over this period, the bank became a leading expert in environmental and energy efficiency projects. The bank created an entirely new market into which other players gradually emerged. Kyrylo Shevchenko, CEO of Ukrgasbank, explains the cost of this transformation – going from traditional Ukrainian financial institution to leading eco-bank.
Ukrgasbank is the first bank to introduce Green Banking system in Ukraine. How difficult was it to implement the changes and what challenges did you face?
Change is always a rather complex and labor-intensive process. However, in our case the result fully justified all the difficulties, as we were transforming into the new ‘us’.
When faced with the decision about which markets to develop, the bank was at the crossroads. We could follow the well-trodden path into the sector of agricultural business financing, but there were many players there and, accordingly, very stiff competition. That is why we decided to look for our own niche and we were proven right.
We began by providing financing to homeowners’ associations (HOA), and launched a corresponding product that clients welcomed. Although new players have emerged in this segment since, we have over 2,000 HOAs among our clients, and HOA financing is associated with Ukrgasbank.
Green finance is an entirely new and innovative model in the banking sector. Moreover, this vector is in high demand, both due to global trends and the Ukrainian context. The transition from traditional to green banking is vital for us, as Ukrainians have in recent years strongly felt the drawbacks of energy dependence.
So we began promoting the idea that energy sustainability is a story of expense minimization, cost reduction and, accordingly, improving competitiveness that really works. To spread the idea to all our clients, even future ones, we set up a department with environmental professionals and technical experts. Their task is to offer the client not only financing, but also technical solutions. That is why, they visit clients, study their production processes, and issue recommendations on what can be fixed or improved.
The bank’s results in the green finance segment are, without exaggeration, very impressive: our green finance portfolio includes 441 projects for a total amount of UAH 21.7 billion! In turn, the reduction of annual gas consumption is 795 million cubic meters, while CO2 emission reductions are over 1.2 million tons. In simpler terms, this is equivalent to removing over half a million cars from Ukrainian roads.
How do green banks operate outside Ukraine?
Green banks exist all over the world. For example, in the USA, the first green bank was established back in 2011 – the Connecticut Green Bank. This financial institution’s green banking model is currently the most advanced in the USA.
The list of known American green banks also includes the NY Green Bank, which is the largest in the U.S., and the California Lending for Energy and Environmental Needs (CLEEN) Center, which functions as a green bank within the California Infrastructure and Economic Development Bank. One of the major initiatives of the latter – the Statewide Energy Efficiency Program (SWEEP) – finances energy efficiency projects and upgrades for municipalities, universities, schools, and hospitals.
As for Europe, the largest green finance institution is in the UK. In 2012, the government established the UK Green Investment Bank (GIB). The bank works with different technologies, such as energy efficiency, waste and bio energy, as well as sea, wind and marine renewable sources.
What is the most popular area?
That is certainly renewable energy. Unfortunately, Ukraine has one of the highest levels of energy consumption in the world. Furthermore, old enterprises, which we inherited from Soviet times, are inflicting a huge damage on the Ukrainian environment. That is why promoting green loans is not simply our mission; we want to communicate the message that alternative energy has no alternative in our modern reality!
We have partnered with the International Finance Corporation in 2016, and since then implemented 157 large-scale renewable energy projects together.
One of the most remarkable projects in our arsenal is financing the construction of the solar power plant ‘Solar Chernobyl’ in Prypiat. It is already generating clean electricity under feed-in tariff and will reduce CO2 emissions by 467 tons a year.
We also recently worked on a project that is unique for Ukraine and Europe, setting up a solar power plant in Vilnohirsk, Dnipropetrovsk Oblast. This is a new generation solar power plant that will use innovative technology combining two-phase solar panels with a high-end solar tracking system. This technology allows to generate 40% more electricity compared to traditional solar energy installations of the same size. Moreover, this station is the most efficient one in Ukraine. It will not reduce electricity generation even in winter, turning sun beams that reflect from the snow into pure energy, while classical SPP reduces its generation during this period practically to zero. The solar power station in Vilnohirsk is an exceptional solar energy project in general.
This is the first plant in Ukraine where an innovative technology went from being a business idea to becoming a real, operational facility. As Ukraine’s No. 1 eco-bank, we feel particularly proud that our dream about high-end technologies being used for green solar energy became a reality in Ukraine with our financial support.
This project is extremely important from the point of view of social significance, as this industrial region has a great industry-related load. Implementation of such environmental projects sends a positive signal to the residents of the region – environmental issues can be solved effectively and benefitting everyone.
According to the calculations of Ukrgasbank experts, this green electricity will be enough to provide for the needs of over 23,000 households. CO2 emission reductions will be around 2,500 tons per year.
This is the 116th solar power plant in Ukraine built and commissioned with financing from Ukrgasbank. The total capacity of the stations financed by our Eco-bank is 765 megawatts; while their operation helps reduce CO2 emissions by approximately 450,000 tons.
Why do you think that business must become energy sufficient?
This is a global trend that has long grown from just being ‘trendy,’ and instead become ‘vital.’ Business is finally becoming responsible, as we all see the consequences of our activities on a global scale.
By chasing a convenient existence, we are gradually turning our planet into a place unfit for life. That is why some of our actions – that may seem benign at first and help make our lives easier – have a negative impact on our health and quality of life.
That’s a paradoxical dependence of our health and the price for our dreams of a better life. Is there a way out, a solution? After all, we cannot stop technological progress. But I think there is one. The more we aspire to make our lives better, the more effort we should put into helping our planet manage the disastrous results of our economic activities. We must find the balance between what is better for us and what is better for the environment.
Ukrainian business already knows well that you benefit from saving. In other words, implementation of modern energy efficient solutions in business helps achieve substantial cost reductions. Certainly, for those who have chosen an environmentally friendly and responsible approach to doing business, Ukrgasbank offers special conditions – lower interest rates on loans and higher rates on deposits. This is how we motivate business to become environmentally friendly and responsible.
Is alternative energy in demand among Ukrainians?
We were surprised to get a response among our clients for our ‘green’ vector. In particular, we were the first bank in Ukraine to introduce credit program for installation of solar power stations ‘turnkey’ in private yards, and today, already 7,500 Ukrainian families have installed private SPPs. Most importantly, it is rather pleasant to realize that it is not just the desire of Ukrainian to become energy independent that serves as the stimulus for transition to green energy. Now, our clients consciously understand the value of their own contribution into the healthy future of the country.
Does the government provide any support for green initiatives?
Naturally. Probably the most popular one is the energy efficiency program, under which an individual or HOA receives 20-70% compensation of the loan amount from the state. The demand for participation in this program testifies that the issue of saving energy resources is an urgent one both on the state level and on the level of each particular household.
We are certainly proud that we are being chosen for implementation of the largest energy efficiency projects in Ukraine, partially because we already have successful experience in this area – full energy modernization of housing in Kyiv for the amount of UAH 10 million and in Lutsk for UAH 3.5 million.
Quite recently, we became the only partner of Energodim, the new subsidy program of the Energy Efficiency Fund and IFC. Ukrgasbank is for far the only front office, so to say a ‘window,’ where HOAs can apply and obtain grants for the comprehensive upgrade of residential buildings. In Ukraine, 200,000 high-rise apartment blocks and 33,000 houses have been merged into HOAs, which means there is a huge potential for work in the energy modernization of the housing sector.
Do companies still apply to you for traditional loans?
Sure. Our managers, however, can analyze a client’s business and offer more interesting options, as it is often difficult for a client to understand which program they need right away. The client simply doesn’t know about all the possibilities to obtain the required bank financing. Meanwhile, we do have something to offer. We have developed a line of products for small and medium enterprises, where we offer financing at lower interest rates that the market.
For this, we have launched a new unique program ‘ECO BOOM,’ which helps understand the needs of business and develop a customized development plan. We thus provide the client with access to new modern banking products, programs and financial solutions that will take the client’s business to an entirely new level.
What is your forecast – how quickly will “eco” initiatives become commonplace among Ukrainians?
Ecological trends are only now emerging in Ukraine. This relates to the third vector of our operations – financing of environment protection projects. We can see the significance of this initiative by looking at statistics. In particular, Ukraine is now among the top 10 countries by quantity of waste per capita at over 10.6 tons! We are literally drowning in waste with 96% of it deposited in landfills, where it stays for years.
Our contribution to fighting this problem is providing financing for the acquisition of modern equipment for biogas power stations at solid consumer waste landfills in several regions of Ukraine.
At the same time, we are strongly convinced that you cannot bring harmony to the world if you don’t have it in your own home. We make sure our offices are also green, with waste management containers, recycling of batteries, energy saving lighting, abandoning paper document circulation and introduction of digital signatures – we are confidently moving towards creation of a truly eco-responsible office that uses the resources effectively in its operation.
Our small victory is stopping the use of plastic in the work with our clients. It seems like such a little thing on your desk, but we’ve calculated that the bank annually used 420,000 sheet protectors for documents. For comparison, that’s an equivalent of 3,060 square meters, which is 428 football fields!
In developing the ‘eco’ culture, we don’t waste our talents on trifles – we thoroughly think through every detail. Our strategy of development of a fundamentally new, clean and safe model has been justified and our persistent following of the green vector allowed, in the end, to realize our potential.
