Ukraine’s energy sector: badly in need of repair

25 September 2014, Energy Post

Ukraine’s energy sector faces unprecedented challenges, from a reliance on expensive fossil-fuel imports to inefficient infrastructure and markets. But rather than viewing this as a vulnerability, Ukraine’s energy sector is potentially a low-hanging fruit for reform, notes a new report from the NGO CEE Bankwatch Network.

According to Bankwatch, the current diplomatic crisis with Russia and the removal of politicians engaged in corrupting the sector may finally induce the political will to implement long-overdue reforms. Much of the country’s electricity is wasted, with energy efficiency levels far below European standards. The amount of energy spent in Ukraine to produce one dollar of gross domestic product (GDP) is three times higher than the EU-average, while carbon dioxide emissions per unit of GDP are the highest in Europe. Despite these losses, coal power plants are still able to sell electricity at very low prices due to the country’s state aid regime.

The report is based on a three-day field visit to Ukraine in July 2014 by CEE Bankwatch Network and the National Ecological Centre of Ukraine (NECU). Backed by desk research, the report finds that:

While Ukraine must reform its energy sector, change is not likely to happen fast. Ukraine generates electricity from nuclear power plants (most of which now operate beyond their designed lifetime and represent a threat for the entire continent) and coal power plants (with limited pollution control, most if not all of which should have stopped operating as well), with a small share of hydropower. Ukraine faces a great challenge in phasing out these capacities.

Although a Contracting Party to the Energy Community Treaty, Ukraine counts on gaining a derogation from implementing the environmental acquis, in spite of the social, health and economic impacts of operating these old and polluting coal power plants. In April 2014 Ukraine requested of the Energy Community Task Force on Environment that its already flexible ‘opt-out’ derogation be extended to 40,000 hours until 2030, and for the Industrial Emissions Directive compliance date to be moved to 2033. Under the Large Combustion Plant Directive (LCPD, 2001/80/EC), plants that ‘opt out’ of meeting the new standards can operate for a maximum of 20,000 hours after January 2008 and, at the latest, must be shut down by 2015. By virtue of article 16 (ii) of the Treaty Establishing the Energy Community, Contracting Parties have the obligation of implementing the Large Combustion Plans Directive.

Control of emissions from coal fired power plants is negligible. Operators say that emissions are within national limits, but these levels exceed those in the EU by up to 50 times. Reducing emissions at power plants is not cheap, and such investments do not make sense for power plants built in the seventies without first replacing major equipment (also not cheap), as the plants would not be able to operate long enough to pay back the money invested to reduce emissions. None of the coal-fired power plants in Ukraine have any SOx and NOx pollution control, while the current equipment that filters ash at these plants has already been used for decades.

In western Ukraine, the coal power plants Dobrotvir and Burshtyn are connected to the European grid and export approximately 55 per cent of their electricity to Hungary, Romania, Slovakia and Poland. These power plants would not be allowed to operate in the EU because of their emissions levels, or they would face a strict deadline for closure.

People living around Dobrotvir and Burshtyn power plants are aware of the pollution risks but feel unable to change the situation. DTEK, the company that operates both power plants, claims that locals do not complain about operations except when ash from the already-full ash dumps is blown by wind during dry periods.

To read the full report, click here.