Wind energy is strategically more profitable than all other types of energy generation during the war, – Andriy Konechenkov
30 July 2024 19:41
ЕКСКЛЮЗИВ
Recently, the Cabinet of Ministers has recently approved the procedure for providing money from the state to individuals who install alternative energy generating units in their own households. In this way, the government has decided to partially address the issue of decentralisation of the energy system, including through the constant shelling of power plants by the Russians.
"Komersant Ukrainian" decided to look into the current situation in the field of alternative energy, in particular, how the feed-in tariff currently works and who can count on it.
As noted in an exclusive interview 
Andriy Konechenkov, Chairman of the Board of the Ukrainian Wind Energy Association, the state’s debt to alternative energy suppliers currently stands at UAH 17 billion .
What are the consequences of the full-scale invasion for renewable energy? What has changed for the wind energy sector in Ukraine after the full-scale invasion?
As for renewables, as of the end of 2023, the total installed capacity of green energy in Ukraine reached almost 9 GW (excluding solar systems for households). Approximately 20.3% of all electricity generated last year was produced by renewable energy sources. However, renewable energy facilities are no exception and are also feeling the effects of the war. 25% of the 8 GW of installed RES capacity remained under occupation as of the end of last year, of which 1.3 GW was wind generation (the total installed capacity of wind energy in Ukraine is 1.9 GW, including the occupied facilities – ed.) Although these figures are unfortunately still relevant, the situation can be improved by implementing existing RES projects. There are many of them.
In fact, today it is very difficult to predict what Ukraine’s energy system will look like and how the structure of energy consumption will change at the end of this year, let alone in the following years. The development of distributed generation, with priority given to gas-piston cogeneration units, is a quick but short-term solution.
Another issue is that not all of the received plants are quickly put into operation. Out of almost 100 generators received long ago, only 18 have been connected to the grid.
Increasing the capacity of nuclear generation, which is declared in the Energy Strategy and, at first glance, seems to be an effective solution for Ukrainian consumers, is unprofitable due to the high cost of the technology and long construction time (ed. 8 to 10 years or more). In addition, the type of origin of the nuclear reactor must be taken into account. Obviously, the installation of Soviet-origin equipment has political overtones, as the enemy considers everything Soviet to be “theirs”, such as the Zaporizhzhya NPP, for example.
I do not rule out the possibility that all existing strategies and plans will need to be revised to increase the target for the development of renewable energy sources, along with energy storage and accumulation systems. After all, renewables are a fast, efficient and long-term solution that does not require public funds, such as for the construction of nuclear power plants.
RES is distributed generation in the conventional sense of the word, which will not only improve the situation with energy supply but also improve the energy system itself, making it more modern, smart, digitalised and decarbonised, more resistant to Russian attacks, more attractive to European partners, and most importantly, independent of Russian fuel and influence. The first step towards this has been taken in the form of stimulating the construction of solar systems at the household level. It is also necessary to enable businesses to step up and scale up the construction of industrial renewable energy plants.
What is the real role of renewables today, when the power system is under constant shelling and Ukrainian consumers are experiencing long power outages?
On the one hand, 8 GW is not much, given the level of consumption in Ukraine, which ranges from 11,000 MW in the summer season to 18,000 MW in the winter. On the other hand, today, when sunny days are longer and solar radiation is more powerful, are there still fewer blackouts due to the operation of solar power plants?
After massive shelling and a related systemic failure at a number of transmission system substations in 2022, about 550,000 consumers in Odesa and Odesa region were cut off from electricity. While the repairs were underway, some 100,000 consumers were supplied through the distribution networks with power from two wind farms. This is one real-life example of the role that wind power is currently playing in the grid.
So, the greater the total capacity of renewable energy sources, the greater the number of consumers that can be supplied in this way at a time when all other types of generation are “dropping out” of the system.
That is, 8 GW, taking into account the occupied and destroyed share, is really small and not quite noticeable on a large scale. But such seemingly insignificant cases as the one in Odesa region show what can happen if there are more renewable energy plants.
For example, with regard to wind energy, we can actually add 4 GW of new wind power capacity to the system in 2025-2027, when there are about 7 GW of wind projects at various stages of development on the market. This could compensate for some of the lost capacity and reduce the number of outages. New projects are also being developed in solar and bioenergy.
Another advantage of renewables over other types of generation, as well as over quick fixes such as gas piston plants, is their resistance to hostilities. Take a wind farm, for example. It consists of a certain number of wind turbines that are dispersed throughout the station with a distance of 500-700 metres between the turbines. That is, it is physically impossible to destroy such a station, and the larger the capacity of such a station, i.e. the more wind turbines it has and the larger the territory it occupies, the more difficult it is.
And this makes wind energy strategically more favourable than all other types of energy generation that have a centralised structure. Yes, there are precedents of individual wind turbines being destroyed or damaged. We know of 11 such cases in more than two years. At the same time, even if one wind turbine is destroyed, all the others continue to operate as usual. In addition, wind turbines or solar PV systems can be repaired or replaced much faster than equipment of thermal power plants, CHP plants, hydroelectric power plants, nuclear power plants, etc.
Regarding your question about generation, it is true that renewables are weather-dependent sources. Although wind and sun are almost always available, the highest installed capacity factor for wind power plants is usually achieved in autumn and winter, and for solar power plants – in spring and summer, which is why SPPs (solar power plants – ed.) are now actively operating.
That is, while a nuclear power plant, for example, generates the same amount of electricity all the time, and the output of thermal power plants can be controlled depending on demand, it is more difficult to predict the generation from wind or solar, so the generation from renewable energy sources must be balanced with something.
The solution to this is energy storage systems or the development of RES capacities in the format of hybrid power plants (wind solar power plant energy storage or wind solar power plant biomass/biogas, where the latter is as manoeuvrable as a TPP/CHP – ed.
There are plenty of precedents in the world where renewables account for a large, if not the entire share of the electricity balance: Denmark, Luxembourg, Germany, France, Spain, and Tasmania (100% of generation from renewables – ed.). What makes Ukraine worse or less attractive? Nothing. On the contrary, we have even more opportunities than these countries due to the possibility and need to replace the destroyed generation, the large amount of available land and the attention of international partners and investors due to the war.
In addition to its “seasonal” nature, many argue that it is expensive to build renewables and that “green” electricity is also expensive. So, what is the current cost per kilowatt of renewable electricity and what about the feed-in tariff?
It is cheaper to build and operate renewables than nuclear and thermal generation. Equipment and grid connection account for the largest share of the total RES project budget. Due to the full-scale invasion and disruptions in the supply chain, logistics, i.e. the delivery of equipment to the site, has also risen slightly. At the same time, further costs associated with the operation and maintenance of the plant are minimal compared to all other types of generation, where fuel needs to be purchased on a regular basis or long scheduled maintenance of equipment is required.
Regarding the cost of electricity, I would like to remind you that, according to national legislation, the feed-in tariff will not apply to new industrial-scale solar and wind projects from 2023, but remains relevant, for example, for households.
In addition, for those plants that were commissioned before 2023, the feed-in tariff varies depending on the year in which a particular plant was built, as well as on the type of generation (wind, solar, or bioenergy have different tariffs – ed.)
For example, for wind projects built before 2023, the feed-in tariff is 8.8 euro cents per kilowatt-hour of electricity (approximately UAH 3.5 per kilowatt-hour – ed.). And I want to emphasise that for the entire period of the feed-in tariff’s existence, the lowest level among all renewable energy sources was set for wind energy.
Since 2023, namely after the adoption of the Law of Ukraine No. 3220-IX on Reconstruction and Green Transformation, RES electricity producers have been able to conduct independent trading activities in the free market. This progressive and European model has effectively replaced the feed-in tariff, but producers still have the option to return to trading electricity at the feed-in tariff.
As of the end of 2023, 78% of wind power producers had entered the free market and are not currently considering returning to the feed-in tariff. Solar power producers still mostly continue to operate under the feed-in tariff. Those operating on the free market sell renewable electricity at the price that is formed on the day-ahead market. For example, according to the State Enterprise Market Operator, the weighted average price of electricity on the day-ahead market in June 2024 was UAH 5.40 per kilowatt-hour.
“The feed-in tariff is an attractive tool to stimulate the development of renewable energy generation only if the producer receives payments under this tariff in a timely manner and in full. In Ukraine, the imperfect market conditions and regulatory framework have led to the accumulation of debts among all market participants along the entire electricity supply chain since 2019. As a result, the state, represented by the State Enterprise Guaranteed Buyer, which buys renewable electricity from producers at a feed-in tariff, owes renewable energy producers a total of about UAH 17 billion in debt. This means that renewable energy producers are forced to receive payment for the electricity they generate a year or two after it has been consumed.
At the same time, in a free market, even despite fluctuations in the cost of electricity, RES producers are able to receive payments for the electricity they generate on time and thus maintain their business. Despite this, the market still faces certain regulatory barriers and imperfections that hinder the large-scale development of renewable energy generation and offset the benefits of a free market.
By 2030, the share of renewable energy sources (RES) in total final energy consumption should reach 27%. What is their current share and is the target sufficient to improve the current state of the energy system?
Indeed, according to the recently approved National Energy and Climate Plan, the share of renewable energy sources (RES) in total final energy consumption should reach 27% by 2030. I emphasise that this means both electricity and heat.
We also have the Energy Strategy until 2050. Although market players do not have access to its text, according to the Ministry of Energy, it is known that it envisages reaching a 50% share of renewables in electricity production by 2050 and, in particular, bringing the total installed wind power capacity to 10 GW by 2032.
Currently, the Ministry of Energy is also actively working on finalising the National Renewable Energy Action Plan until 2030, which will also set indicative targets for the development of green generation for the next 6 years. All of these documents pave the way for our strategic direction, and therefore the Ukrainian Wind Energy Association (UWEA) supports the adoption of such documents. At the same time, it is worth remembering that setting a goal is one thing, achieving it, especially in the context of constant and repeated destruction of energy infrastructure, including green infrastructure, is quite another.
Both the 27% and 50% targets were discussed before the large-scale war. As of the beginning of 2022, when the share of RES in the installed capacity of the entire energy sector was 14.3% and in electricity generation was 8.1% (excluding large hydropower plants), the target to increase RES generation first to 25% and then to 27% (including large hydropower plants) in total electricity supply seemed quite ambitious and balanced in terms of the current state and needs of the Ukrainian energy system.
At the same time, we should not forget that as of today, we know about the loss of 10 GW of thermal and hydropower (the pre-war installed capacity of the Ukrainian power system was over 54,000 MW – ed.) The 6,000 MW Zaporizhzhia NPP, which is the largest in Europe and the ninth largest in the world and which, before the war, generated almost a quarter of the country’s electricity, is still occupied and is now serving as a Russian lever of influence and blackmail.
Kakhovka HPP is destroyed. Kanivska and Dnistrovska HPPs are under constant shelling and have been repeatedly damaged. Substations and power lines continue to be subject to devastating attacks (on the day of the interview, namely 8 July 2024, when Ukraine was experiencing another massive attack from Russia, 3 more DTEK substations were destroyed – ed.)
Is it likely that the cost of electricity for Ukrainian consumers will become lower if we reach 27% or 50% of the share of renewable energy in the energy balance?
The interdependence of the cost of “green” electricity and the installed capacity of RES is a complex question that has no direct answer, as several factors should be taken into account. For example, there is such an English concept as “economies of scale” or “economies of scope”, when an increase in production volumes leads to a change in production costs per unit of output. In other words, a unit of any product, including electricity, becomes cheaper due to scale. At the same time, this fact should not be perceived as a “rule”, as competition in the market and the matching of supply with demand play a very important role in the cost of electricity.
Based on my analysis of the development of renewables in the world, I still come to the conclusion that the cost of green electricity no longer depends only on the total capacity or share of renewables in the energy balance, but on the cost of the technology itself: equipment, complexity of project implementation and the structure of the market in which it is implemented, infrastructure development and the possibility of connecting to the grid, balancing issues, etc.
For example, manufacturers of wind energy equipment are constantly working to improve the technical characteristics and production technologies of wind turbines.
This, in particular, is a significant factor that contributes to the fact that the cost of wind energy technology, as well as LCOE (the average estimated cost of electricity generation from wind – ed.), is decreasing every year. According to such leading international industry analytical organisations as the International Energy Agency, IRENA, BloombergNEF, Lazard and others, renewables are already competing with fossil fuel generation both in terms of project implementation costs and the cost of the final product, electricity. The cost of electricity is also affected by the availability of government support: tax breaks, subsidies, etc.
Why is electricity from traditional energy sources considered cheaper in Ukraine?
Because it is subsidised by the state, while private RES generation has to look for other market mechanisms that would ensure the financial attractiveness and profitability of such a business.
The development of RES is inevitable due to the global desire to: change the energy paradigm; decarbonise the energy system and achieve neutral carbon emissions from human activity; ensure energy security and self-sufficiency of each country; and meet modern investment and banking requirements that prioritise financing of green projects.
As a result, green technologies and green electricity will become more accessible and affordable for consumers.
In your answers, you emphasise that a number of other problematic issues in the market and legislation need to be resolved for the large-scale development of renewable energy. What are you talking about?
There are two dimensions of renewables: large industrial generation and small generation for households. If we talk about the development of large industrial generation, in particular wind power, there is a critical need to make the market attractive to international investors and financing, as there are projects on the market and international partners have financing. At the same time, a number of imperfections related to regulatory and political risks and martial law make obtaining this funding problematic. Today, it is not enough to have a green project; it must be of high quality and implemented under attractive market conditions.
To do this, a number of key issues that have existed on the market for a long time need to be resolved in the short term:
- To pay off debts to renewable energy producers under the feed-in tariff and to ensure the solvency and liquidity of key state-owned market players: NPC Ukrenergo, SE Guaranteed Buyer and NNEGC Energoatom.
- Introduce “green” auctions, which the market has been waiting for for about 5 years. Recently, Andriy Gerus, Chairman of the Verkhovna Rada Committee on Energy, Housing and Utilities, said that the first auctions for 100 MW of renewable energy projects are expected to be held by the end of 2024, in autumn. If these government plans come true, it will be a positive signal not only for the market but also for partners.
- Launch a mechanism for guaranteeing the origin of electricity, which we are already very close to.
- Introduce an effective mechanism for corporate and international power purchase agreements (cPPAs).
- Ensure that large RES capacities can be integrated into the grid, i.e., stimulate the development of balancing capacities, including energy storage and accumulation systems.
- Simplify some stages of the development of green projects, which are mostly time-consuming due to excessive bureaucracy. This applies, in particular, to land allocation, approval of urban planning documentation, grid connection, environmental and other studies, etc.
- To retain staff during martial law for the implementation and construction of relevant projects.
As for low-capacity renewable energy generation and encouraging Ukrainians to develop it, the first steps have already been successfully taken in terms of solar generation. It’s nice to see the state encouraging Ukrainians to install solar panels, simplifying regulatory and tax procedures for the import of relevant equipment into Ukraine.
Our association is also implementing such projects on various public buildings, including kindergartens, medical centres, etc. as part of the Renewables4Ukraine volunteer initiative, which was founded by the World Wind Energy Association. In general, incentives have an economic basis. The more incentives, privileges and advantages there are for the development of a particular technology, the more actively it will develop.
Educational activities are also important. It is necessary to raise public awareness of “green” energy sources, their necessity and benefits for consumers, their place in Europe and the world, as well as to debunk myths and prevent the spread of false information about RES. The issue of RES should not be politicised at the state level.
Author – Alyona Kaplina
