Power policy

Ukraine reached its 2020 target of an 11% share of renewables in power generation, according to the country’s updated NDC. A generous feed-in tariff, tax incentives for the import of renewables-related equipment and a break on corporate tax for sales of electricity from renewable sources spurred a surge in build since 2017.

Over 2011-2020 Ukraine awarded new renewable energy projects with a feed-in tariff. Projects awarded feed-in tariffs must commission by the end of 2021 for solar projects and by the end of 2022 for wind energy projects. In July 2020, feed-in tariffs for projects commissioned before this date were retroactively cut by 2.5-15%, depending on the project technology and size.

Ukraine’s Electricity Law, which came into full effect in July 2019, established a framework meant to support continued growth of renewables through a tender/auction program, but auctions have been delayed. An auction for 365MW renewables in 2021 was announced but had not taken place by early December 2021. Instead, auctions are expected over 2022-2025.

Power prices and costs

Power prices in Ukraine were regulated until the introduction of a wholesale market in 2019. New market rules have not brought full liberalization, however, as some state-owned power is price-capped to keep residential electricity tariffs low. The wholesale market is still heavily concentrated, and dominated by fossil fuel plants owned by DTEK. To avoid excessive volatility, the wholesale market is operated with price caps. Both thermal and nuclear plants need investment for renewal and life extension. It is unclear how this will be funded and how retail prices will change if and when price caps are lifted. Ukraine’s situation is further complicated by a shortfall in coal supplies from the east of the country, which has been destabilized by conflict with Russia. Coal imports have partially compensated for this, while some plants are retrofitting to run on gas instead.

Power market

The new electricity law liberalized the power market, clarified the offtaker’s role and established a framework for standardized power purchase agreements. This boosted investor confidence, which had been undermined by political instability over the past decade and territorial conflict with Russia.

The new power market structure will require further price liberalization to incentivize independent power producers to enter the market. Generation is only partially privatized, and DTEK is by far the largest single player.

Nuclear plants supplied more than half the electricity generated in Ukraine in 2020 – a proportion that has remained fairly stable since 2015. Non-hydro renewables accounted for around 7% of generation in 2020, and this share has doubled since 2019.

Doing business and barriers

Regulatory and legislative reforms spurred a boom in clean energy financing in Ukraine over 2018 and 2019, with more than $5 billion invested. The biggest single investment so far has been by Norwegian wind developer NBT, with a $210 million loan for the first phase of the Syvash wind project. Local developers, led by Ukraine’s largest non-state utility, DTEK, have played a large role in the development of the sector. European Bank for Reconstruction and Development has gone to great lengths to present Ukraine as lower risk than previously perceived. Cuts to the feed-in tariff, which is backed by a sovereign guarantee, are likely to undermine this confidence, though smaller levels of investment may still be possible for projects that have secured feed-in tariffs, albeit at lower levels than expected.

Power demand in Ukraine fell after the 2014 Russian annexation of Ukrainian Crimea. Ongoing militarization of eastern Ukraine has led to major economic volatility and a longer term slowdown. Demand has revived somewhat since 2016, as parts of the country have stabilized and returned to growth. The current generation fleet has been adequate to serve the national market, but Soviet-era nuclear assets must either be upgraded or replaced. The aim is to reduce Ukraine’s dependence on Russian gas for its power and heating needs. Wind and solar resources are attractive, but the distribution and transmission system will require major investment to integrate growing renewables capacity.

There are restrictions on the use of agricultural land for renewables projects and on the production of bioethanol by foreign companies. There also are untested rules around the ownership of strategically important energy assets by foreign companies. Probably of greater concern are risk perceptions. Political fears subsided after national elections in early 2019 took place with relative transparency and uncontested results. The retroactive cuts to feed-in tariffs, introduced in 2020, were based on a Memorandum of Understanding with local renewable energy associations but faced opposition from many power producers. The country still ranks poorly in international corruption assessments. Currency fluctuations have been a barrier to renewables deployment, though the feed-in tariff was linked to the euro to circumvent this issue. The administrative burden on foreign companies remains onerous.

EV market

Electric vehicles, including plug-in hybrids, made up 4% of passenger vehicle sales in 2020. The 2020 sales corresponded to around 7,200 battery electric vehicles and 11,500 plug-in hybrid vehicles. EV sales have remained at a similar level since 2017. In 2020 the total passenger EV fleet in Ukraine consisted of roughly 50,000 cars, of which half were plug-in hybrids.

EV policy

Ukraine has set a goal to increase the share of electric vehicles in domestic traffic to 75% by 2030 as part of the national transport strategy. A new draft electric vehicle law from September 2021 suggests that after 2030, electric buses will be mandatory on all public transport routes. The draft law also suggests banning import of diesel and gas vehicles from 2030.

The country does not yet offer grants or loans for EVs. Ukraine is planning to introduce a 0% interest loan for the purchase of electric vehicles, with the support of the European Bank for Reconstruction and Redevelopment confirmed in August 2021.

Ukraine has a VAT exemption for EVs imported to Ukraine, and the new EV draft law proposes that a customs duty exemption is introduced for electric cars from January 2022.

Ukraine has no national fuel-economy standards for vehicles but adheres to European Union standards with a few years delay. As of 2018, vehicles are required to adhere to the Euro 5 emissions standard. The EU implemented the Euro 5 standards for passenger vehicles in 2009.

Buildings market

Just over 50% of residential heat consumed is produced by natural gas in Ukraine. Natural gas prices in Ukraine are the cheapest in Europe. The second most popular heating technology is district heating, which delivered 21% of residential heat consumed in 2019. Natural gas is also the main fuel used in Ukraine’s heating plants as well as combined heat and power plants, which supply heat to Ukraine’s district heat networks.

Ukraine is very dependent on natural gas for heating, while gas produces less than 10% of electricity. In 2014, after Russia’s annexation of Crimea, the Ukrainian government decided to no longer buy gas directly from Russia. Instead, it relies on domestic production and imports from Slovakia, Poland and Hungary. However, these countries do still buy much of their natural gas from Russia.

Buildings policy

Ukraine National Energy Efficiency Action Plan (NEEAP) includes measures for increasing energy efficiency of buildings and reducing greenhouse gas emissions, but the plan is outdated as all targets are set for 2020. It included a target for 9% lower energy usage in 2020, than under a “business as usual scenario”, although the target was revised to 20% in 2019. Ukrainian residential energy use dropped by 22% over 2010 to 2018. The 2020 energy efficiency targets were achieved, partly due to economic recessions and loss of territory during the conflict with Russia.

An updated NEEAP is currently under development, which should provide a roadmap out to 2030. Energy efficiency improvements are of strategic importance, to reduce the reliance on imported natural gas.

There is some support for energy efficiency improvements in buildings. The government’s "warm loans" program supports homeowners making energy efficiency improvements to their homes, including for installations of heat pumps and small-scale renewable energy generation. Under the scheme, the borrower must apply for the loan through a bank and provide evidence of the intended use of the loan as well as relevant invoices. The State Energy Efficiency Association will then review these documents/evidence and then transfer the rebate amounts to the bank so that the borrowers can be reimbursed.

There are minimum energy performance standards for buildings, which are enforced through an auditing process. The standards align with the 2010 EU directive for the energy performance of buildings.