As part of the special project of the Kyiv International Economic Forum #KIEFinsights, an online discussion on the development of world and Ukrainian energy in a crisis was held. The participants in the discussion were Ivan Gelyukh, CEO of DTEK Grids, Serhii Yevtushenko, co-founder and managing partner of UDP Renewables, Oleksii Tymofeev, co-founder of Trident Acquisitions Corp. The panel was moderated by Mykola Tymoshchuk, General Director of the holding company UFuture.
Oleksii Tymofeev, co-founder of Trident Acquisitions Corp.
About the impact of the crisis on the oil and gas industry.
Together with the “coronacrisis”, the oil and gas industry was hit by a price war, which multiplied the problems. Staying in “double turbulence”, the industry experiences an external shock associated with a drop in consumption, and an internal one, which consists in the redistribution of roles in the world market.
But such large systems as the oil and gas sector cannot remain in a state of chaos for a long time, the situation stabilizes over time. Many players will leave the market, there will be a redistribution of shares in production and services. According to cautious estimates, oil prices could return to $50-60 per barrel in 4 years. We will see many more price cycles, but the peaks will decrease each time.
For Ukraine, the situation is complicated by the politicization of the gas issue. Due to a decrease in the profitability of the oil and gas industry, new investment projects to increase reserves and drill risky wells will be blocked.
About the end of the era of fossil energy resources.
Today, the need to abandon the consumption of fossil energy resources is dictated not by limited reserves, but by the ongoing climate changes.
We understand that 60-80% of resources should remain in the bowels, they should not be mined. If they are removed and burned, an apocalyptic scenario will come for the whole world.
But Ukraine still lives on the priorities of the past day. We strive for energy independence by maximizing mining. This is industrial logic in the post-industrial era. We need to think one step further – not about maximizing production, but about the maximum replacement of fossil fuels with other resources.
The idea of energy independence for gas is an interesting one, I want to believe in it. But this requires a 50% increase in production – neither Naftogaz nor private companies have such volumes for development.
Serhii Yevtushenko, co-founder and managing partner of UDP Renewables
About the prospects for renewable energy
Long-term forecasts for the development of the industry are clearly positive for 30 years to come. Many countries adopt appropriate long-term enabling legislation. Today, electricity accounts for 20% of the total energy consumed. But by 2030 this share will increase to 30%, by 2050 – up to 50%. 25% of electricity is produced from renewable sourcesin the EU, this figure will be 90% by 2050.
We clearly see the industry's development guidelines for decades to come. Even a temporary reduction in prices for traditional energy resources cannot shake this trend. Technological progress is even faster than we expected. The development of the electric vehicle industry is currently transforming an industry that has not changed much in 120 years. There are 10 million electric vehicles in the world, in 30 years there will be 745 million, and in 40 years – 1.5 billion.
The development of renewable energy sources began only 20 years ago, and today it is an industry in which $300 billion is invested annually. Betting on renewable energy is a win-win option. Today, investing in renewable energy is as promising as in oil production at the beginning of the last century.
About Ukrainian FIT and negotiations with the government
The discussion on reducing FIT Ukraine has been going on for more than 7 months. If we changed the support system for renewable energy 2-3 years ago and switched to the auction model, today these problems would have not existed at all. But time is lost, the previous government did not do it. And now we are facing a situation where it is necessary to review existing contracts. This is a reasonable desire of the government, but it will lead to a worsening of investment conditions and the threat of arbitration in international jurisdictions.
Investors were invited to Ukraine at all possible conferences, and they came under conditions that should not have changed until 2030. Renewable energy provided every fifth dollar of investments for all the years of independence of Ukraine, in total $10 billion, of which 30% is foreign investment. This is an open and transparent industry that provides taxes as much as Energoatom and coal generation combined.
A compromise must be reached. Common sense must win and we must come to an agreement. The new Minister of Energy for the month was able to do more than the previous Ministry for six months.
Ivan Gelyukh, CEO of DTEK Grids
About the importance of electric grids and development trends in the industry
Grids are a facilitator that provides reliability and favorable working conditions for all market players.
We and our European colleagues see the future of grids quite positively. The implementation of the Green Deal and the future development of the energy industry depend on how the grids will develop, how much will be invested in infrastructure.
Automation and digitalization used to be a kind of challenge, a kind of trend. But now this is an objective necessity. Modern grids are digital, smart and automated, which can cope with the growing number of participants in the electricity market.
The role of grids companies has changed from simple electricity transmission to dispatching relatively small generation and meeting demand. Today, there are hundreds of market participants, the structure of consumption has changed. Now our customers want not only to consume, but also to produce electricity. Home solar power is developing, and after some time, electric vehicles will be able to act as storages and help in balancing. All of this must be learned to manage.
In Europe, such transformations began 10-15 years ago, and here in Ukraine we also want to follow all these trends. But the future development of the industry depends on how much the state is ready to introduce new formats for stimulating investments and change tariff setting systems.
About investments in grids and opportunities for the economy
The structure of the electricity market in Ukraine is very similar to the European one. But at the same time, we invest in grids only $200 per kilometer, while in the nearest Poland and Lithuania this figure is $1,500 per kilometer. France invests $3,700, and the UK – $5,000+. This is our level of development today. The wear level of the gridsin the country is about 70%, despite the fact that their length is 5 times greater than the length of roads – 170 thousand kilometers of roads compared to 850 thousand kilometers of grids.
Ukraine has an old tariff setting system that seriously limits investment opportunities. The incentive tariff setting project proposed by the regulator does not suit any of the market participants, no investor will come under such conditions.
The state needs to add an item on the development of grids to the agenda. And this may become one of the key areas of economic development, since the development of grids will ensure the growth of engineering, create jobs and additional business opportunities.
Moreover, the development of networks in the medium term will reduce the cost of electricity transmission. Grids maintenance costs will be reduced by automating many processes.
Special project #KIEF grids will continue to inform about the most relevant events from the world of business, economics, and finance. Watch the full video of the online discussion via the link.