Growth in the face of war: Building solar in Ukraine

Although the precise installed capacity of solar and other technologies in Ukraine is now considered restricted information, the country’s renewables sector is growing, as memorably illustrated by The Guardian last May, which revealed that Ukraine had built more onshore wind turbines since Russia invaded Ukraine in February 2022 than the UK.

Addressing the Energy Security Forum 2024 in February, Andrii Gerus, the chairman of the committee on energy, housing and utilities, revealed that Ukraine commissioned roughly 500MW of solar power plants over the year, noting that renewable generation “significantly helps to ensure the stable operation of the power system”.

“I also believe that 2024 will be a year of investment and launch of energy storage facilities. I think we will not see isolated cases, as it was before, but a number of interesting and useful projects for the energy system,” added Gerus.

Facilitating this “year of investment” will require demonstrations of security and stability to entice investors, a tough demand for a country amid conflict. But Ukraine refuses to be held back, amending and creating green policies to incentivise international investors to fund Ukrainian renewables, not only for energy security in Ukraine but for the possibility of export.

As Sysoiev’s fellow panellist, Kyryll Kostyria, head of legal department at UDP Renewables, noted, “60% of [Ukraine’s] renewables are solar, so the possibility to build large-scale solar for export is great.”

‘Green tariff’ vs merchant market

Most solar projects currently operating in Ukraine are under the country’s feed-in tariff (FiT) scheme, says Narek Harutyunyan, CEO and founder of independent power producer (IPP), Rengy Development, a fellow Ukraine panellist at LSS CEE who later spoke to PV Tech Power.

Known as ‘the green tariff’ this policy was introduced in 2009, providing a guaranteed tariff and off-take price (set by the regulator National Energy and Utilities Commission (NEURC)) for energy generated by renewable assets until 2030.

In short, energy produced by renewable assets under the green tariff will be sold to the state enterprise Guaranteed Buyer who will then sell electricity on the market via electricity auctions.

According to Ukrainian law firm DLF, however, the arrears from the green tariff, caused by an accumulation of debts between market participants, threaten the Ukrainian renewable energy sector.

As the last performance report for the Guaranteed Buyer dates back to 2019 (and the last financial statements to 2021), DLF says it’s difficult to estimate the precise amount of debt currently owed to producers under the tariff but the organisation estimates that it accumulates to roughly UAH30 billion (US$79 million).

Alongside market and regulatory factors, Harutyunyan attributes this debt to a “significant decrease” in electricity consumption in eastern regions, causing supply and demand economics to become “skewed”.

“This is one of the reasons many solar power plant investors (old or new) are planning to switch to either merchant-based schemes or even find options for corporate power purchase agreements (CPPAs),” continues Harutyunyan. “Both routes are very new for Ukraine, so it may take some time for them to be bankable.”

However, Harutyunyan notes that Rengy is currently in the process of launching a CPPA-based project to “tick the boxes from both regulatory as well as bankability points of view and be able to offer and expand this direction going forward”.

July 2023 saw Ukraine sign into law a groundbreaking piece of green legislation: ‘On Amendments to Some Laws of Ukraine Regarding the Restoration and Green Transformation of the Energy System of Ukraine (Law No. 3220).’

This law implements a number of beneficial instruments for renewable energy bankability, including confirming the preservation of the green tariff to provide stability for assets already under the scheme, as well as introducing a contracts for difference (CfD)-like scheme that allows producers to minimise their susceptibility to price volatility in the electricity market.

Harutyunyan says the law will have a “significant impact”, allowing “many issues to be resolved and new opportunities to be introduced”.

For example, Harutyunyan points out that the law allows power plants to exit the FiT scheme and sell electricity to the market, either independently or via other traders, simply by needing to invoice the difference between the market price and initial FiT to the Guaranteed Buyer.

The law also proposes the introduction of guarantees of origin for electricity which Harutyunyan hopes will be a catalyst to building a market to trade these certificates either domestically or in Europe.

During the LSS CEE panel Kostyria pointed out that although this market may not make a significant impact domestically, it will be helpful for energy trading internationally.

“What we see now when we talk to international companies is that they ask us to provide certificates of origin, as they need to provide this for their internal audit to show that they are carbon neutral,” said Kostyria, adding: “Of course, for exporting electricity, those certificates of origin are very important because, as far as I understand, the EU is expecting [Ukraine] to only export renewable energy and to confirm this, these certificates are very important.”

Moreover, Harutyunyan notes that the law allows active consumers to develop renewable power plants for their own use with the option to sell surplus electricity to the market or grid.

Sysoiev also praised the introduction of the “active consumer in Ukraine” during the panel last November. Although this mechanism would require secondary legislation before it can be used, it would allow 50% of purchased electricity to be sold to the grid whilst the remaining amount is consumed. “I can confirm that my clients are considering this mechanism,” Sysoiev revealed.

Other benefits include an exemption from the requirement for a licence to supply electricity for assets under 5MW capacity and no distribution or transmission charges related to internal consumption. “We see the interest is there and active consumers will develop in Ukraine,” added Sysoiev.

Occupation and destruction

The promise of growth in solar does not diminish Ukraine’s status as a country at war.

A stark reminder of this came during LSS CEE when Dr Stanislav Ignatiev, head of the council at the Ukrainian Association of Renewable Energy, was forced to exit the Ukraine panel early, (which he was joining remotely from Kyiv) due to an air raid siren.

The conflict has inevitably affected Ukraine’s current and planned solar capacity as developers face the threat of having their assets occupied or destroyed.

Speaking at LSS CEE, Kostyria revealed that roughly half of UDP Renewables’ operational PV plants are currently occupied, whilst fellow panellist Harutyunyan estimated that Ukraine currently has 6GW of nuclear and 2GW of renewables occupied, making up roughly 25% of the country’s total capacity.

Elaborating on this, Harutyunyan tells PV Tech Power that Rengy is currently re-building its 13MW solar plant located close to a war zone that was previously occupied and “practically destroyed” by the Russian army.

“It has been reoccupied since, and we decided to restore it not only to recover some of our income flow (it is under the FiT scheme until 2030) but also to help deal with the lack of electricity in the country, especially in remote regions,” adds Harutyunyan.

Destruction is not an exclusive threat to renewable and low-carbon assets however, as the central generating capacity in Ukraine has also become a target. This makes the ability for industrial customers to set up individual generating capacities – set out in the green tariff – even more critical for the country’s energy security.

Why build in Ukraine?

With the threat of destruction looming over renewable assets and network infrastructure, it’s worth considering the reasoning behind building new solar capacity in Ukraine.

“I believe there are different reasons for building new plants,” Harutyunyan says before proceeding to give PV Tech Power four split into two categories: energy security and export opportunities.

Harutyunyan’s first three reasons for building solar in Ukraine relate to energy security:

• Helping the country cope with electricity deficits caused by asset destruction.
• Decentralise generation by building multiple smaller/medium-scale projects that are safer to operate and harder to attack.
• Supplying specific large industrial consumers with a stable supply of electricity at predictable prices.

Meeting future demand is also a consideration; as mentioned during the Ukraine panel, demand in Ukraine has decreased by 20% as citizens leave the country.

However, this demand will return and need to be met, requiring the “significant” amount of destroyed or incapacitated fossil fuel-based electricity capacity to be replaced, Harutyunyan told LSS CEE.

“The country plans to build new nuclear and predominantly renewable capacity, and within the renewable segment, the fastest and easiest to deploy capacity would be solar,” continued Harutyunyan.

Another incentive to build solar in Ukraine comes in the form of export opportunities. This was realised in December 2023 when the European Network of Transmission System Operators for Electricity (ENTSO-E) agreed that as of 1 January 2024 the Ukrainian power system operator will become its 40th member.

Harutyunyan tells PV Tech Power that neighbouring countries may be inclined to “bet” on this recent integration as “grid infrastructure and land are more available in Ukraine than in bordering EU countries, [so] investors may want to invest in solar-export oriented projects”.

Kostyria echoed the benefits of the opportunity to export energy from Ukraine during the LSS CEE panel: “We see the need for Ukrainian energy to be exported to enable international investors to come into Ukraine and provide more stability,” said Kostyria, adding that cross-border PPAs would be a fantastic way of enabling this.

Solar is an attractive candidate for exporting energy, continued Kostyria; aside from 60% of the country’s renewable capacity being solar, Ukraine, as a large country geographically, has plenty of land on which to build large solar plants.

The introduction of the EU Carbon Border Adjustment Mechanism could also stimulate solar growth in Ukraine, as more Ukrainian goods producers will be looking at developing a cleaner, consumed electricity mix to avoid higher carbon taxes.

As Kostyria concludes: “The possibility to build solar for export [in Ukraine] is a really great opportunity.”