Why the market is badly unsettled, while renewable energy projects will continue its growth in Ukraine. Oleksii Badyka, CEO at Atmosphere, an international group of companies, distributors of equipment and technologies for renewables, told how renewable energy could change business and economic models.
Renewable energy in Ukraine has never received as much media attention as over the past year. Some say there is no such thing as bad publicity. Well, this is not the case. Dozens of politicians were intimidating viewers of hundreds of big and small shows by significant increases in tariffs affected by the growth of renewables. Many journalists also hastened to depict renewable energy as nothing more than an "oligarchic scheme" and demonized it in every possible way. Even the problems arose due to the poor-quality launch of the new electricity market were imputed to renewables. All these theses quickly got wind – fortunately, "zrada" (betrayal) is one of the most popular things in Ukraine.
The Ukrainian renewable energy sector, with thousands of investors, who had paid more than €10 billion since 2010, at first did not pay enough attention to this political campaign. After all, power engineers prefer to do their job rather than politics. But soon, many developers suspended their projects due to the statements of politicians, and more often, investors said: "We will think about it." And when the Government started talking about FIT cutting, it became clear that the situation was serious.
We must pay tribute to the investors – they were ready to negotiate with the Government. Moreover, the mediator in the dialogue was the EU Energy Community, and Ukraine is also its member. However, the Government, starting in February, decided to “speed up” the process of negotiations with investors. The level of payments at FIT “suddenly” dropped to 5-7% in March. The owners of most power plants could not pay current expenses as well as receive profit at such a level of payments. Little wonder that businesses panic in such conditions, especially if they use loans.
“The feed-in tariff is always a tool for launching the renewable energy market, giving a kind of initial impetus, a boom. And it gave the result –we have built a brand new energy industry from scratch for the first time. It was used by many countries, including such renewable energy champions as Germany. However it needs to be properly regulated, and more mature support tools have to be promptly launched. The Ukrainian authorities did not do it on time and decided to deal with the crisis management very roughly,” Oleksii Badika, owner of Atmosfera, described the situation.
After 5 months with basically no receipts and tough negotiations with the Government, a part of the business signed a Memorandum. The others did not really resist – it was necessary to resume payments as soon as possible. Soon, the Verkhovna Rada adopted a law on cutting the FIT based on the Memorandum. However, the debt to renewable energy generation already amounted to 11 billion hryvnias. The Government and the Parliament are trying to find a way to cover this debt. This behavior of state bodies scared investors – both Ukrainian and foreign. And many hastened to call it a market crash.
But not all market players are pessimistic. “Now a regrouping is taking place on the Ukrainian renewable energy market, we can observe big changes. Of course, changes lead to crises in business models. However, we see how new thinking of our client, he is becoming interested in new models of work. More and more businesses are interested in producing electricity for themselves, they begin to think about renewable energy in terms of their own resilience to environmental changes, increasing competitiveness," Oleksii Badyka notes.
Indeed, Ukrainian changes in the renewable energy market are not unique. Many countries have experienced renewable energy market reformatting; some of them had violent conflicts between the state and private investors. Retrospective changes in the FIT by the governments of Spain, Italy, and the Czech Republic have already led to dozens of lawsuits from investors. And many have returned their money through European arbitrations. Still, renewable energy markets of these countries continued to develop.
Of course, everyone wants the Ukrainian government to act like the Portuguese, which promptly reached an agreement with investors on mutually beneficial terms. And the changes in the policy to support the renewable energy sector to be predictable, like in Germany. There have been 6 significant changes in legislation regarding renewable energy sources since 2000. However, all of them were predictable and were the result of a dialogue between the industry and politicians. And although only stations with a capacity of up to 750 kW can now receive the FIT in this country, the renewable energy market is expanding and moving forward.
The most interesting thing is that renewable energy markets develop not only after countries reduce and cut financial support through the FIT. A striking example is the United States, where all renewable energy producers compete directly with coal, nuclear and gas generation. And at the same time, 12.4% of all electricity in the United States in the first half of 2020 was produced by renewables.
The secret of such indicators in countries where there is no FIT is quite simple – the production of energy from renewable energy sources has long competed with the aging fossil generation. And support from governments only accelerates this process, but it is not the reason for this process.
“As early as 2030, a third of new solar power plants will be built on the roofs and lands of customers. In other words, consumers will produce every third solar kilowatt-hour. This is the forecast of the largest analytical center Bloomberg New Energy. Our company sees this forecast on the market and implements it. Many of our clients come with projects for their own needs, not thinking about the FIT. The opportunity to reduce businesses’ operating costs durably is aт irrefutable argument, especially in a highly competitive market,” Oleksii Badyka believes.
In this regard, the example of Australia is quite interesting. It is the very country, where Elon Musk deployed his famous storage system in 100 days. Every 5th house in this country is equipped with its own solar power plant, and 21% of all electricity in the country was produced by renewables in 2018. But the most outstanding feature is that the capacity of roof-top solar power plants is almost 3 times higher than the capacity of ground-based ones. The future where the consumer is an important part of renewable energy production has already begun in Australia. And soon this will be the future of Ukraine too.
... Even in Ukraine
The Business Center in Odesa is a vivid example of the use of solar power plants for their own consumption. The power plant installed on the roof with a peak power of 100 kW operates exclusively for its own consumption.
“The peak loads of our business center are daylight hours: the activity of tenants, elevators, and other equipment. This is just the time when our solar power plant is working. The installation of the station allowed us to offset 15% of the building's energy consumption. And the net annual savings are about UAH 300 thousand,” says Dmytro Drozd, co-owner of a business center in Odesa.
If we compare the electricity costs of this business center with other consumers in the center of Odesa, we will get tangible savings of 5-6% per kWh of electricity compared to standard tariffs. Another nuance is the price of electricity produced by a rooftop solar power plant does not depend on government policy and depends not only on the literacy of the contractor.
It is designed in such a way to avoid using batteries and this significantly reduces the cost of the project. Therefore, all energy is immediately consumed in the building. And since there are no overflows to the public grid, the need to fight for the FIT or coordinate technical details with monopolists for a long time has disappeared.
According to Dmytro, the return on investment from the installation of the SPP was initially expected within seven years. But based on operating experience and predicted price increases, he assumed that the plant would pay off in a year or two faster.
The Odesa business center is not the only Ukrainian enterprise investing in SPP for its own consumption. Many hotels, gas stations, factories across the country have already taken advantage of renewable energy sources without the FIT. Their owners understand the importance of reducing operating costs and creating points of stability for the sustainability of their business.
And the growth drivers of such projects are set not by the Ukrainian economic reality, but by global trends. There are a huge number of examples when enterprises install rooftop SPPs without government incentives in the EU, the USA, and in many Asian countries. Renewable decentralized energy has long been an affordable and practical solution that enhances competitiveness and sustainable business and makes our planet cleaner with every new solar roof. And the Ukrainian market is quite confidently going in the same direction.