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One of Europe’s poorest countries rewards renewable power producers with some of the highest subsidies in the world.by Ky Krauthamer 14 May 2019
Generous subsidies for renewable energy have fostered “a new oligarchy" in Ukraine, according to parliamentarian Olga Bielkova.
Governments in Kyiv have committed to renewable energy in a big way, hoping to reduce the country’s heavy reliance on coal and Russian-sourced gas.
Subsidies for solar, wind, and other renewable energy, known as feed-in tariffs, are as much as double those paid in nearby European Union countries, according to OCCRP.
“The feed-in tariff for green projects in Ukraine is one of the highest in the world, which makes investment into this sector very attractive,” consultants Baker McKenzie declared in 2018.
Since the government enacted very high feed-in tariffs in 2015, solar and wind power producers are eligible for subsidies two to eight times higher than thermal and nuclear generators, Politico writes.
The target for next year is for renewables to contribute 11 percent of total electricity production, a substantial jump from the current level of 8 percent. The government thinks the share of green energy could reach up to 25 percent by 2035, Politico says.
Much uncertainty lurks in that “up to,” however. Two crucial questions are, can the state afford to keep subsidizing renewable energy, and will the powerful business and political interests that play a big role in the industry lose interest if subsidies drop?
Oligarchs Tank Up on Renewable Power
As of early this year, at least 35 energy companies awarded “green” subsidies by the energy regulator belonged to members of parliament, their relatives, or their former or current aides. Companies are sometimes held in the name of political aides to conceal their real owners, Politico says, citing a report by the Ekonomichna Pravda news site.
A further 30 or so more companies belong to wealthy oligarchs and other big business interests – the “new oligarchy” mentioned by Bielkova, who should know about oligarchs: she belongs to the political bloc of outgoing President Petro Poroshenko, who grew wealthy from his candy business before entering politics, and whose administration was repeatedly pressured by its Western friends to step up investigations into oligarchs’ business practices.
Wealthy and well-connected investors are particularly strong in the solar power business, the largest piece of the renewable pie with a more than 60 percent share in the industry, according to a recent article in Sustainability Times.
Businessmen Serhiy and Andriy Klyuyev built up the country’s largest network of solar plants before turning most of them over to a Chinese creditor after they followed ousted President Viktor Yanukovych into exile in 2014, OCCRP writes.
Investment Capital Ukraine, run and partly owned by Makar Paseniuk, a personal financial adviser to Poroshenko, opened one solar plant this year and plans to open another soon, for a combined 99 megawatts. A third, 127-megawatt plant is planned, which would make the firm one of the biggest solar powers in Ukraine. Solar power accounted for 752 megawatts of installed renewable capacity in 2018, according to Sustainability Times.
Rinat Akhmetov, Ukraine’s richest man, is also active in renewables. He built the country’s largest wind farm, producing 200 megawatts of power. Energy plants built by the Klyuyev brothers and Akhmetov’s businesses attracted 35 percent of all payments from the state-owned wholesale electricity market operator Energorynok to alternative energy producers in 2018, OCCRP says.
Will Green Turn to Brown?
Solar energy producers not only receive very high subsidies, they also benefit from tax exemptions on imported solar panels. Intended as an additional boost for the industry, such generous support could threaten its long-term viability.
Sustainability Times cites a remark by environmentalist Oleg Savytskiy that high green tariffs are making renewable producers dependent on continued government support and less competitive in the long run: exactly what happened in Spain, Germany and other countries that saw the entire renewable sector shrink when subsidies dried up.
The Czech experience with solar subsidies could be an object lesson for Ukrainian investors. Early in this decade, starting from practically zero, the not exactly sun-blessed Central European country became the European Union’s third fastest-growing solar market, as local and foreign investors hustled for generous state handouts. The public outcry at these “solar barons” helped nudge the government into drastically scaling back the subsidies, quickly sending investors scampering for warmer climes.
Subsidies are being blamed for some of the rising cost of power in Ukraine. The average household electricity bill rose by 19 percent last year, partly due to green subsidies and partly to the International Monetary Fund’s insistence on ending costly gas subsidies.
One of several proposals to reform the system is a bill to introduce market-driven auctions in place of subsidies. Auctions could even begin by next year, although oligarchs and others with vested interests in the current system are pushing back, Politico writes.
One legislator’s effort to cut subsidies ran into a brick wall.
Viktoriya Voitsytska, a member of parliament’s energy committee, proposed a 30 percent cut in solar subsidies and a 10 percent cut for wind plants that come online this year. When it came to a committee vote, she was the only member to vote in favor, OCCRP says.
Committee chairman Oleksandr Dombrovsky told Bihus.info why the initiative failed.
“Green energy is not only a tariff; it is also an investment climate. … The rules of the game cannot be changed from today to tomorrow.”
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