The blue ocean of electricity: How to strengthen your own energy independence and profit from it
Interview
Who should save the Ukrainian energy sector and why.
All Ukrainians know what needs to be done to reduce the electricity shortage, and all energy market players and stakeholders know it. It is necessary to strengthen protection at generation and distribution facilities, restore everything that can be restored, and build new capacities. The main efforts are focused on building distributed generation, self-sufficiency of businesses and households with electricity and heat. However, if we count on private investment, we should focus not only on short-term goals (replacing the deficit), but also on long-term goals and the profitability of such investments.
Prior to the full-scale invasion, Ukraine's energy mix was as follows: nuclear power - 55.1%, thermal power - 29.3%, hydropower - 6.7%, and alternative sources - 8%. The share of state-owned generation reached 70% of the total electricity produced.
The war made significant adjustments: part of the nuclear capacity was unavailable, thermal generation was destroyed, and hydroelectric generation suffered significant losses. The maximum centralization of the power system proved to be an advantage when synchronizing with ENTSO-E at the beginning of the invasion, but proved to be vulnerable in a prolonged full-scale war. The development of distributed generation, in addition to reducing vulnerability to missile attacks, will also help reduce the share of state ownership in generation, which will significantly accelerate the liberalization of the energy market. It will also facilitate the balancing of the energy system, smoothing out peaks in consumption through own production for enterprises, communities, and households.
So who should make the effort?
Private business
Private capital should play a key role in the development of decentralized generation. After all, there is currently no alternative to ensuring a stable energy supply other than to build your own generation. To make such a decision, businesses must see the long-term economic feasibility of such projects.
The first benefit is the stability of energy supply. There is no need to explain anything here, as all the costs have already been calculated by each business for themselves.
The second benefit is a reduction in the cost of energy resources consumed by a company. Currently, the electricity tariff for business, including distribution and transmission, is already at UAH 8-10 per kW. At the same time, any electric power plant that can be installed at the enterprise will produce electricity at a price not exceeding UAH 5. A resource that is twice as cheap becomes a profitable investment for the company.
The third benefit is investment projects for selling electricity to the grid. Subject to attracting bank financing in foreign currency, such projects have a payback period of 4–5 years for solar power plants and 6–8 years for wind power plants. The profitability here will vary depending on the amount of own funds invested when raising a loan. Thanks to the government program, such a loan in hryvnia can be obtained at 13.5% for the first year. In foreign currency, the interest rate is 6-7%.
The fourth benefit is the prospect of expanding the electricity market. When the current deficit of the power system is covered, other windows of opportunity will open: expanding exports to the EU, increasing domestic consumption through the restoration of industrial enterprises (their share in total consumption before the start of the full-scale war exceeded 40%), further abandonment of fossil fuels, complete transition of the automotive industry to electric motors, etc.
Population
Solar panels on houses and even apartment balconies have long been a common practice in many European countries. And not only because of the environmental friendliness of such energy, but also because of its economic feasibility. The legislation adopted this year, which gives individuals the opportunity to sell their surplus electricity to the grid, has opened up such opportunities for Ukrainians. Thus, when determining how to provide independent energy supply, consider both the possibility of additional income in this way and the prospect of introducing market tariffs over time. After Ukraine's association with the EU, this is definitely going to happen, so today's investments in, for example, solar panels will definitely pay off. Moreover, thanks to the government program, such a loan is issued at 0% for private houses up to 250 square meters with a project cost of up to UAH 480 thousand.
Municipalities
Unfortunately, not all local authorities understand the extent of the problem with the energy system. Some cities, failing to meet their own needs for backup power supply, risk being left without heating in winter, and not for just one or two days. It is hard to imagine how hot water and heating in high-rise buildings can be replaced.
That is why, despite the fact that the vast majority of communal enterprises in communities are not bankable, bank financing is absolutely appropriate for them. Such enterprises can receive loans for alternative energy supply facilities under the guarantee of city councils. Financial leasing is also a very attractive tool for such projects, as it mitigates the risks of collateral for the loan. Similarly, cities can attract bank financing on their own and transfer the purchased equipment to the balance sheet of utility companies. This will be a blank unsecured loan for which the city budget will be responsible.
Another possible way to strengthen the energy capacity of utilities is to partner with private businesses. When a utility company offers a private investor the opportunity to place a cogeneration unit on its territory, which will be connected to the city's network and will transfer heat directly to the Teplocomunenergo communal enterprise. This is the easiest and fastest way today. Most of the projects with communities that we are currently considering at Oschadbank are based on this concept.
State-owned energy enterprises
The key task here is to restore and rebuild. For this purpose, state-owned energy companies have historically used extremely cheap funds provided to Ukraine by our foreign partners under the guarantees of international banks as part of special programs. But Ukrainian banks are also ready to finance these projects to stabilize energy supply in the country.
State-owned energy companies also have additional potential for development. For example, for Ukrhydroenergo, it seems reasonable not only to repair damaged facilities but also to invest in the development of solar and wind generation on their land plots. The company has large areas available for this purpose, which can accommodate at least 1 GW of installed capacity. And expanding the list of types of green generation to be managed by the company seems absolutely natural for its strategic development.
Another similar example of expanding the specifics of the company's activities is Ukrnafta. The company, which produces about 1 billion cubic meters of gas per year, can afford to install gas-piston generation that would run on gas of its own production. And such gas generation can be used not only to meet the company's own needs, but also to sell to the grid: both as a base and for balancing.
Instead of conclusions
The electricity market, like any other business, is heavily influenced by external conditions. After 2008, there was a period of massive development of solar and wind power plants. Now we see a focus on gas generation. In the corporate business segment, Oschadbank has projects for more than 650 MW of distributed generation under consideration. About 70% of these projects are gas piston and gas turbine plants. And this trend is not only in Ukraine. However, the energy market is very sensitive to balancing: it is impossible to allow a bias in any of the generations, as the deficit in the power system will arise due to other, non-military factors. This is what is happening in European countries, for example.
However, for Ukraine, the development of distributed generation, regardless of its source, is primarily a matter of security. All other issues will be addressed as they arise.
Interview
Oschadbank Press Center