Baseload, Bioenergy, Solar, Wind Power

US Companies Invest Millions in Ukraine Bioenergy Despite Turbulent Policy

Massachusetts-based Briggs Capital plans to invest US$250 million in the Ukraine bioenergy sector within the next several years, according to its CEO Rhode Robertson. The announcement was made amid significant problems in Ukraine’s renewable energy industry, namely the sharp decrease in the “green tariff,” which occurred in early 2015.

“Our President Barack Obama and Secretary of State John Kerry do not want the globe to rely on the coal sector,” said Robertson. “Therefore, U.S. government agencies are ready to provide up to US$250 million in loans with a low interest rate for the development of bioenergy sector in Ukraine.”

The project will consist of 20 biomass plants in Kiev and Kharkov Oblasts, which will process agricultural waste into pellets. Experts estimate the potential capacity of the project will reach 500 MW, which will double the overall capacity of the renewable energy in Ukraine.

Ukrainian Agro Valley Association, a joint endeavor between Ukrainians, Ukrainian/Americans and Americans to propel commerce and education between the countries, expressed interest to participate in the project, while the First Deputy Head of Presidential Administration Vitaliy Kovalchuk promised full state support.

“We were pleasantly surprised on how Ukrainian side is interested in our project, as they are even willing to change the legislative framework to facilitate its implementation,” said Robertson. “Terms and conditions of loans are such that we need to create jobs both in Ukraine and in the U.S., so we plan to bring five Ukrainian companies and five [U.S.] companies [to the project].”

The projects are expected to create 20,000-30,000 jobs, while the operation of the project will be left to the hands of Ukrainian managers. Construction is expected to begin at the end of 2015, while the first plant may be launched already in 2017.

Lack of Transparency

While this development is promising, investors say that the prospects of Ukraine’s renewable energy sector remain quite unpredictable. Chairman of the State Agency for Energy Efficiency and Energy Sergei Savchuk recently stated that the government plans to increase the share of renewables from the current 1 percent to 11 percent by 2020, which would mean about 6,500 MW capacity.

“Based on the regulations of the European Union, Ukraine authorities have developed and adopted the draft plan for the development of the renewable energy sector of Ukraine until 2020,” said Savchuk. “The required amount of investment for implementation of this plan is about EUR16 billion.”

At the same time, U.S. businesses that have already invested in Ukraine’s renewable sector state that the industry has a very low level of transparency due to leaders in the Energy and Coal Ministry, which have made no effort to support the industry.

For example, the American Chamber of Commerce, which invested in biogas projects, was disappointed in the business and political environment.

“I visited [Volodymyr Demchishin, Minister of Energy and Coal of Ukraine] representing the American Chamber of Commerce, which has invested in Ukraine’s project for the production of bioenergy from households wastes,” said representative of U.S. business in Ukraine, Stanislav Kruglyakov.  “I represented the foreign investors who have put money in the Ukrainian economy, and come to know what to expect in the issue of alternative energy development. I was told that in fact our industry has no right to exist, as it has been promoted by corrupt forces of the ex-President Victor Yanukovych.”

At the same time, the press-service of Energy and Coal Ministry denies these claims, starting that Volodymyr Demchishin supports all potential renewable energy projects.

New Green Tariffs

Kruglyakov pointed to another “extremely unhealthy situation” for the Ukraine renewable industry since the National Commission for Regulation in the Energy and Utilities (NKREKU) recently sharply reduced its feed-in tariff.

NKREKU’s reduced the size of the green tariff by 10-20 percent, depending on the type of energy, in January 2015, and then by 50-55 percent in February 2015.

“They just picked up and cut [the green tariff] by 50 percent without any explanation, referring to the resolution of the Cabinet of Ministers, which introduced the emergency situation in the energy industry. Yes, there is such a decision, but this did not stipulate that it is necessary to trim this rate by 50 percent,” said Stanislav Kruglyakov.

However, by March 25 the size of green tariff had been raised twice. Market participants say that this only partly compensated losses that occurred due to the devaluation of the Ukraine hrvynia against hard currencies. For instance, the tariff is now at UAH11.6-15.8 (US$0.55-0.75) per kWh for solar power plants and UAH2.2-3.9 (US$0.10-0.28) per kWh for wind power plants. This is about 2 to 2.5 times lower than 2014 rates, since the exchange rate of the hryvnia dropped.

“[The reduction of the] green tariff gave a very bad signal to foreign investors that have already put their money in Ukrainian renewable energy,” said Alexander Liviko, the head of the subcommittee on alternative and renewable energy of Verhovny Rada (Parliament). “We need as quickly as possible to pass [new] legislation [for alternative energy] to signal that we keep our commitments and that we are still reliable partners.”

Lead image: Ukraine flag. Credit: Shutterstock.