External and internal threats offer Ukraine just one possible option for energy sector development: energy efficiency and generation in every yard



Last weeks clearly showed the agony of government control over the energy sector.

Unfortunately, the consideration of a key sector document – the draft energy strategy – was pushed into the background.

This document should define the development of the Ukrainian energy sector in accordance with the requirements of the national economy and become a main directive for any Minister of Energy and any government.

It turned out that it was not interesting to determine the sector development options at a time when there were hot discussions on the NKREKP’s decision to establish rates for non-standard connection to electricity grids and on the failed Rotterdam+ formula.

The decision on non-standard connection was to be an element of investment predictability and to prevent the possibility of corruption abuses by using a formula method of determining the cost of this service.

Instead, this decision increased and formalized the monopoly rent for regional power distribution companies, which control the centralized Ukrainian energy system through “avatars” in the government.

The work on secondary legislation and NKREKP’s regulatory acts doesn’t reach its ultimate goal, and current actions of the regulator distort the good ideas.

Due to a lack of trust to government institutions, the deputies have to establish the method of cost determination in the law that should be determined at the level of secondary legislation in rule-making reason in order to remedy the situation. It is more difficult to change the law, since there should be 226 votes.

The method that included market instruments to determine the coal price as the electricity cost and was designed to ensure the storage stability at thermal power stations and combined heat and power plants became a “fool’s bargain”: the price increased, but there is no coal.

The Ukrainian economy and consumers have become the hostages of poverty due to inefficient decisions, corruption and populism. This is the way the oligarchic economy operates.

Are current decisions effective?

I support the decision of people’s deputies to immediately renew the discredited team of the energy regulator, but I have little hope that it will change anything. Can anyone guarantee that new “perfect people” will change the situation? These “perfect” people will have difficulties in resisting the political pressure and pressure of oligarchs.

While there is an objective necessity to increase the price of electricity and thermal energy for consumers, the politicians-populists, who are afraid of the possibility to lose their ranking, and oligarchs, who seek for maximizing profits through the monopoly position by blackmailing with disruption of the energy system.

It is difficult to overcome the “system” of oligarchic economy, so it should be fooled. For example, one sentence to support the development of solar energy at the household level established in the law during Klyuev’s days in solar generation area caused dynamic development of this area.

This provision allows to create jobs, pay taxes and provide the partial energy independence of Ukrainian houses.

Are there any options?

Previously, the Soviet legacy could be used to stimulate the domestic economy and provide easy and affordable access to infrastructure, and to ensure low-cost energy resources on the market due to a lack of investment costs in the tariff structure.

This would increase the competitiveness of Ukrainian goods on the world market and allow to receive its share in the international division of labor. However, the time has been lost.  The exhausted and inefficient energy infrastructure is controlled by well-known people interested only in using it to the fullest.

As there is a threat of rolling power cuts and a failure of the centralized system to ensure the energy supply sustainability, the Ukrainians must rely only on themselves providing the energy through local means: starting from stoves in village houses and ending with solar heating systems on the roof and solid fuel combustion appliances with automated bio-fuel supply in today’s economy.

Providing own production cycle by own energy sources – the distributed generation on the basis of possible local renewable fuel. As for multi-unit apartment building s – people living there form associations of co-owners of apartments of one building (TN – cooperatives) and finding alternative energy supply options. This approach is not perfect, but a no-win situation makes us to use it.

Is it bad to start using the “wood” again?

The EU policy is aimed at decentralization of energy systems and their transition towards the distributed generation, which allows everyone to become a market participant by using own generation from renewable sources: consumption, accumulation and sale of produced electricity.

This vector of development will increase the proportion of “smart” grids in the energy system and raise funds to develop new efficient technologies to accumulate the energy and control microsystems.

It is paradoxical that the situation in the energy sector pushes us to the principles of functioning of the system and the energy market that meet the requirements of the fourth European energy package, although we have not yet completed the third package.

We are catching up with the countries with developed renewable energy in the period of competitive prices of “green” generation.

It is a funny thing, but while using exhausted infrastructure controlled by oligarchs and not developing new types of conventional generation, we waited through the period of formation of renewable energy, and now we can get “green” kWh per year for adequate prices for the economy provided that the rules are stable and a maximum number of investments and participants are involved into this sector.

At the level of the strategy, we have to determine the share of renewable energy in the overall balance and its share considering maneuvering  capacities and form prices realizing that the traditional energy sector was brought to the emergency state.

To the global economy?

This means that a fuel, carbon component is decreased in the Ukrainian GDP’s structure and our goods will be more competitive in the world.

After returning investment costs, the price of energy from renewable energy sources will be determined only operating costs, but this component for renewable energy much less compared with coal-steam plants and combined heat and power plants or with nuclear power plants, taking into account operating costs for security and withdrawal of units from operation.

As a result, we can get a stable, affordable and clean energy for the economy and for all of us. All developed economies are taking this way.

Ukrainian energy sector was brought into critical state. There is much to be done to improve the energy efficiency of Ukrainian consumers and Ukrainian GDP, and renewable energy resources still have a very small proportion in the energy market.

Each traditional oligarchic ineffective kilowatt is very expensive for Ukrainians, and its cost is increasing with every wrong action of the Ukrainian government.

It was clear before, but external and internal threats create the situation with no alternatives for Ukraine, remaining one possible development option: energy efficiency and distributed renewable energy.

Ironically, Ukrainian farm-yard system in the historical process of state formation may be positive for the development of the Ukrainian energy sector.