The alternative revolution

14 March 2016, 12:00

The American consultancy Deloitte published the results of its research recently, announcing, “Alternative energy has finally become mainstream.” The energy center of the giant consultancy presented the main trends that suggest the irreversible changes in the power industry landscape. Operating with terminology that hasn’t even reached Ukraine yet, such as “microgrid” and “green bonds,” they are being lavished with astronomical quantities of investment capital. According to Bloomberg, in 2015 alone, nearly three times Ukraine’s GDP—US $329 billion—was invested in clean energy in the US.

The stock markets have been fairly active, and utilities are on the prowl for such assets as solar power stations and wind farms. There are even entire “solar communities,” bringing together the owners of roofs, power companies and financial institutions. By 2020, this mechanism is expected to be providing 11 GW of new capacities.

Numberless studies and practical experience have shown that buildings using renewable sources of energy increase the reliability of the power grid and in the national СleanPowerPlan, 400 GW of renewable energy generation is expected to reach by 2040. Meanwhile, some of the US’s biggest and more reputable corporations—Apple, Intel, Kohl’s, Amazon, General Motors, Facebook, and Google—plan to completely switch to renewable energy sources by 2035.

I spent more than eight years involved in clean technologies, especially the renewable energy sector in Ukraine. From working with other countries in the region as well, I saw the considerable advantages of our sector. For one thing, we got off to a good start: we were the first to institute “green” rates, in 2009; our natural potential is excellent and our businesses determined, and many individuals among Ukrainians who had serious knowledge about this new industry. Eventually, Ukraine committed itself before the Energy Community to increase the share of renewable energy in its balance to 11%. At that point, it was less than 1%, which offered the potential for rapid growth.

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In the end, although Ukraine cannot boast about its R&D in power use, slowly modest manufacturers began to operate that were worth notice, such as trackers or systems for tracking the sun, and mounting systems from Ukrainian Solar Systems, small-scale wind generators, and heating plants equipped to use hard biofuels. Cells that are the components of solar panels are also manufactured in Ukraine, solar panels are assembled here, and thermal collectors are being manufactured. Wind turbines are also being assembled, and people are working to set up competitive production of polysilicon.

But things looked really good only at first glance. As with other post-soviet countries, the direction in which the sector developed was controlled by huge financial-industrial groups (FIGs). Legislation was written to suit them and the entire chain of command worked for them. Mid-level businesses also took note. But anyone too bold and upstarts were immediately put in their place. Endless hurdles were devised with documents required to be connected to the grid and their “green” rates were not approved.

Meanwhile, Ukraine’s renewable energy had some of the highest “green” rates in all of Europe while official declarations of intention to expand turned out to be the flame that drew developers, equipment makers and investors from around the world. Many showed up in Ukraine, peaking in 2011-2012. This was a time when just about every major corporation on the planet that was working with renewables had to decide whether or not to operate in Ukraine, and how.

However, the optimism of these foreigners swiftly turned to disenchantment: the high “green” rates only worked for the select few, and to really make sure that no alternative players appeared on the market, the Verkhovna Rada wasted no time amending legislation to include a mandatory “local component” for facilities providing renewable energy.

In October 2013, the negative mood in the renewables sector bottomed out: wind power and small hydroelectric stations no longer interested anyone and the entire industry had narrowed its focus to solar bioenergy, where the few and the unreliable remained. Still, the most determined developers found a way to carry out their projects.

So far, 2016 has begun on a more optimistic note. For the first time in the last two years, new plants came on line in Ukraine. For instance, in mid-February, the first phase of a wind farm with a capacity of 6.6 MW began to operate in the Carpathians, owned and developed by Eco-Optima. Just before the New Year, this same company launched the second phase of its solar station, increasing its capacity from 1 MW to 5 MW. Another player on Ukraine’s green energy market, Energoinvest, recently added another 1.2 MW of capacity to its solar station in southern Vinnytsia Oblast while Rengy Development launched the second phase of a station in Trostianets rated for 3.88 MW. A series of other facilities is in the construction phase, most of them solar farms and biomass heating plants that represent the alternative cogeneration segment.

Today, with all the revolutionary changes, the state of war and new geopolitical and macroeconomic conditions, the ones who believe in Ukraine’s renewable energy sector are mainly those who began their business in this industry and this country “before everything happened.” All these new capacities are the coming to fruition of projects that were begun 4-5 years and more ago.

In the summer of 2015, restrictions on the development of this sector in the form of “local components” were removed and the “green” rates were lowered. With legislation somewhat tidied up—although state policy in renewable energy remains just as mutable and vague as ever—, it became possible for smaller players to bring the facilities that they had started building some time ago on line at last.

This same law now provides conditions for the development of private solar power plants in Ukraine on roofs and in yards. Finally, every owner of a farmstead can now take advantage of the “green” rates and launch their own micro solar business, selling surplus power to the grid. In 2015, the number of such small enterprises began to noticeably grow. And this truly revolutionary legislative decision could launch a boom and radically change the electricity system in Ukraine. This happened in Germany at one point, where 75% of the renewable energy capacity belongs to ordinary individuals, directly or through cooperatives today. Of course, in order for the engine of change to work full-force in this sector, as in the rest, there are not enough financing and investment programs.

There aren’t any major projects, let alone major new projects, especially in the wind power business. And so wind farms continue to produce 432.8 MW in mainland Ukraine, as they have without much change for over two years now. This includes the recently launched 9.9 MW Carpathian project. The aggregate power generation of solar stations in Ukraine is nearly 500 MW. Meanwhile, projects involving biomass are having a hard time getting off the ground, probably because a concept that depends on burning forests to generate power is unlikely to be promising, especially as solar technology rapidly becomes less expensive.

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Instead, cogeneration is noticeably expanding. New domestic brands of boilers have appeared. For example, the production of Breiter boiler equipment designed for hard biofuels for the low-end market began just a few months ago, and today its dealer network is expanding at a fast pace. As electricity, heating and natural gas rates continue to rise, replacing traditional energy resources with alternative forms of fuel has long ceased to be merely a tribute to the European fashion for renewable energy in Ukraine and become an economic necessity.

For instance, 1,000 cu m of gas can be replaced by 2 t of wood pellets made of compacted sawdust and other industrial waste from milling wood.  The cost of gas for the utility sector is over UAH 7,000 per 1,000 cu m, whereas 1 t of wood pellets costs only UAH 2,300. Similarly, to produce the same amount of heat using alternative fuels costs UAH 4,600, which is over UAH 2,000 cheaper than using gas. The cost of gas is even higher for the commercial sector and is expected to rise again in April. This mathematical hypothesis is the main incentive for the market for alternative fuels and technological choices based on it to expand.

In the last five years, more than 2,000 biofuel-based boilers were produced in Ukraine, with a total capacity of nearly 720 MW. In the next five years, the rising cost of gas means that this market will grow actively, offering opportunities for boiler manufacturers to expand, along with engineering firms, and the manufacturers and providers of fuels.

At the same time, certain oligarchic circles are attempting to turn some renewable resources into a panacea. For instance, in 2015, when the law on “green” rates was being amended, there were attempts in some quarters to institute high rates—over €0.40 or around UAH 11—for geothermal power. Today, the geothermal lobby led by Viktor Baloha continues to exert pressure. The lobbying for widespread use of small hydroelectric stations in Western Ukraine, which could lead to irreversible damage to the environment, is equally controversial.

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