Ukraine Passes New Energy Reform Legislation That Needs Implementation

Ukraine Passes New Energy Reform Legislation That Needs Implementation

In the past 5 years, Ukraine has adopted a slew of laws in keeping with its commitments to European integration and becoming closer to the EU energy market. At the same time, the country has had some considerable difficulties in the implementation of this new legislation.

Energy efficiency

Laws “On the Energy Efficiency of Buildings”, “On the Energy Efficiency Fund” and “On Commercial Accounting” were adopted in this period. Since 2015, housing cooperatives and individuals have been able to receive government assistance by obtaining a loan for energy-efficient measures (the “Warm Loans” program).

Specifically, the dedicated Energy Efficiency Fund began functioning only at the end of 2019 and will need time to become popular with the general public and amalgamated communities, newly created due to the decentralization reform. 

Continued subsidies and subventions

The state coal sector is completely dependent on state budget subsidies and the crisis has only deepened in the past 5 years. Subsidies to the population for paying for utilities continue to amount to hundreds of millions of dollars. At the same time, the scaling of energy efficiency measures is slow and the “Warm Loans” program is consistently underfunded. The monetization of subsidies to the population is also not completed, and the benefits are almost non-monetized.

Energy markets and independent energy regulator

Laws “On Natural Gas Market” and “On the Electricity Market” were adopted in 2015 and 2017, respectively. The reforms to the gas market amounted to an exponential increase of all energy prices for households. The burden on consumers has gotten bigger and this allowed for a change of subsidies model to a targeted support

The electricity market reform is still ongoing and additional legislation is still being prepared. In 2017, there was also a signed-agreement on accession to the ENTSO-E (European Network of Transmission System Operators). Ukraine has begun to publish open data on the ENTSO-E Transparency Platform, but with considerable delays and not in full. 

The Law “On the National Commission for State Regulation of Energy and Public Utilities” (NCSRE) was adopted in 2016. At the end of 2019, the Ukrainian parliament approved a bill that threatened the independence of the NCSRE. Its status was changed from an independent state collegial body to a central executive body with a special status subordinate to the government.

Green tariffs vs. auctions

Due to a change in the renewable energy support model and the transition from green to auction tariffs, investors have stepped up the construction of new RES projects in the years leading up to 2020. As a result, more new RES capacities were built in 2019 than in all previous years, so much so that there is a shortage of funds necessary to pay for green tariffs. As of March 2020, this issue remains unresolved and is critical to the investment attractiveness of Ukraine. Meanwhile, the first “green” auctions are scheduled to begin in April 2020.

By 2020, a “green tariff” system was in operation in Ukraine, which provides for the redemption of all “green” electricity by the state enterprise, which partially allows getting a positive systemic effect from the increase in the share of renewable energy.   The new system includes a new system of auctions, which focuses more on supporting RES for large projects, where small plants will have difficulty competing.

Energy independence from Russia

Ukraine has phased-out Russia as its main gas importer. Since 2016, the country has abandoned supplies from Russia and in 2018 Ukraine bought gas from 18 European suppliers, none of which accounted for more than 30% of the supply. The country is also trying to find ways to increase its own production.

In late 2019, Ukraine and Russia agreed on a new five-year deal for the transit of gas to the EU.


Activity Rating: *** Right Direction

Overall, the reforms made were expansive, including nagging issues of the Ukrainian energy sector – transparency, accountability, competition, security. Some of them got sidetracked and slowed down due to a number of issues, chief of which is an apparent lack of political will. On the other hand, the creation of new energy markets, the potential for energy efficiency measures and new rules for RES mark a watershed moment in the country’s development.

In early 2020, the Ukrainian Ministry of Energy and Environmental Protection presented a Concept of Green Energy Transition until 2050 (Ukraine Green Deal). According to it, the country will increase energy efficiency; phase-out coal generation by 2050; secure at least 70% RES in electricity generation by 2050;  and will reach net-zero emissions by 2070.

The aim declared in the concept is less ambitious than what scientists demand: becoming carbon neutral by 2050 to effectively tackle climate change. But it’s a starting point for further deliberations. If this concept becomes a national policy it will demand a complete reshaping of the energy sector and will call for new and drastic reforms.


Take Action

Message:

Dear Shubin Vitaliy,

Over the past five years, laws have been adopted which should improve the energy sector, and it is time to implement them. It is also necessary to reconsider the national priority towards renewable resources, and the phase-out of coal by 2031 and nuclear power at the end of its lifetime. 

Sincerely,

Contact:

Ministry of Energy and Environment Protection of Ukraine

Shubin Vitaliy, Acting Minister of Energy and Environment of Ukraine


This post was submitted by Climate Scorecard Ukraine Country Manager Yevheniia Zasiadko

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