War vs renewables: will Russia pay for investors’ losses

Renewables are the most up-to-date sector of the Ukrainian energy industry. Investors were pouring money into it, the government supported it. Russian invasion put the sector on the verge of bankruptcy, while invaders keep destroying power plants and even stealing equipment.

However, there is still hope that investors could get paid for damages and, moreover, boost the growth rate of the sector. Kosatka.Media asked the Ukrainian Association of Renewable Energy what losses the war caused and what has to be done to restore and develop renewable facilities after the victory of Ukraine.

  • How significant are the losses? What percentage of renewables is currently operating?

​According to the Association, as of March 10, 2022, estimated capital investments into the renewables that are at risk of collapse or those that have been partially damaged reached $5.6 billion. Talking about regions in proximity to the areas of constant hostilities, the amount reached $3.5 billion. Accurate information on the actual damage caused can only be got based on the results of a technical audit after the liberation of the territories.

Oleksandr Donchenko, the Association’s analyst, says: "Besides the risk of physical damage or demolition, the renewable sector may experience considerable losses due to the war. The Ministry of Energy has issued Order No.140 “On Conducting Settlements on the Electricity Market”, by which the level of tariffs on technologies is to be reduced to 15% for solar power plants, 16% for wind power plants, 35% for hydroelectric power plants, 40% for biogas, and 60% for biomass. Accordingly, the financial losses of the sector can put companies on the verge of bankruptcy. Thus, the weighted average feed-in tariff and, consequently, the total revenue will lower by 80%, based on our estimates. Financial losses of companies operating renewable facilities in 2022 amounted to €1.115 billion excluding VAT (only the tariff reduction is considered, excluding the facts of plants' shut down due to the war - ed.)".

Ожидаемый уровень средневзвешенных зеленых тарифов в евро/кВт час

The expected level of weighted average feed-in tariffs, €/kWh.  Photo: the UAVE

 

Ожидаемый уровень выручки ВИЭ в 2021 и 2022 годах

The expected level of revenues: 2021 vs 2022. Photo: the UAVE

  • What are owners of damaged or stolen equipment going to do?

They expect to get help and support in restoring/repairing the plants, damaged because of hostilities, at the expense of financing to assist post-war reconstruction and reparations. 

They expect to be included in the list of those who can get help through such programs as the Recovery Fund of Ukraine, the Energy Recovery Fund set up under the Energy Community, which is now compiling lists of affected energy infrastructure facilities. This kind of assistance is essential for those who have loan obligations, and their facilities are seriously damaged which makes them impossible to operate. 

Other possible ways to get compensation include:

–  a special commission under the UN Security Council that considered applications for compensation due to Iraq's invasion of Kuwait. Payments to the affected party were made from Iraq's oil revenues. A similar tool applies to Russia; 

– individual claims against Russia to  recover damages by a decision of a foreign court and its execution in a foreign jurisdiction; 

– claims to the ECHR, etc.

More to read: THEY DESTROY - WE REPAIR: HOW EMPLOYEES OF GAS DISTRIBUTION COMPANIES ‘HOLD THE FRONT LINE’

  • Can the investors really expect compensation from Russia?

Elaboration of appeals takes time. It starts with recording incidents and documenting the facts of destruction/damage to property. Then damages are assessed, including loss of profit.

Some of the facilities are located in occupied territories and there is no way to approach them, not to mention that it is impossible to find out whether they are damaged or destroyed. It is too early to talk about the elaboration of appeals, we can only talk about intentions.

For the owners who have access to their plants in the liberated territories, it is possible to estimate losses, and some of them can relaunch their facilities.

  • We assume that the post-war recovery can become a booster for the energy sector through the shift to more up-to-date technologies, the replacement of worn-out equipment and networks, etc. To what extent is this assumption true for the renewable sector? After all,  the renewable sector has been the most advanced in Ukraine. 

With the outbreak of a full-scale war in Ukraine, other countries began to declare plans to accelerate the transition from fossil fuels to renewable energy, and the demand for equipment is growing. We expect that the further development of the sector both in the world and in Ukraine will not lose momentum, but will accelerate.

Indeed. The ‘green’ sector is the most modern in Ukraine, but its stake in the energy balance remains little. Ukraine needs to lessen its dependence on fossil fuels, and increase the capacity for the production of green electricity and heat, green hydrogen, which can replace gas. Building energy storage systems is a must.

More to read: DESTROYED BY THE WAR AND ON THE VERGE OF BANKRUPTCY. WHAT’S THE FUTURE OF GREEN ENERGY IN UKRAINE?

Tags: renewables, investments

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