Green Energy Tran­si­tion in Ukraine: Communal Level

On February 28th LibMod organised a workshop on the Green energy tran­si­tion in Ukrainian commu­ni­ties to discuss current legisla­tive frame­works and practical local expe­ri­ences of small distrib­uted gener­a­tion in munic­i­pal­i­ties with lawmakers and experts from Ukraine and the EU. Decen­tral­ized energy can benefit commu­ni­ties through strength­ening their resilience and security, reducing elec­tricity costs, and increasing invest­ments and local ownership. Since the Russian war of aggres­sion, municipal owned enter­prises and local ownership of renewable energy have become highly important.

Decen­tral­izing Ukrainian energy supply

The adoption by the Verkhovna Rada of the Law “On Amend­ments to Certain Laws of Ukraine on the Restora­tion and Green Trans­for­ma­tion of the Energy System” No. 3220 of 30.06.2023 was a welcome and long-awaited step towards the adap­ta­tion of Ukrainian legis­la­tion to the EU Fourth Energy Package. The law holds many inno­va­tions for renewable energy sources, which have signif­i­cantly expanded the scope of involve­ment of consumers wishing to install power gener­ating facil­i­ties (also known as active consumers or prosumers). Municipal owned entities (MOEs) can become prosumers too, which allows for more active involve­ment of commu­ni­ties in the energy sector.

Currently, commu­ni­ties do not use the active consumer model, and each indi­vidual MOE purchases its entire elec­tricity volume on the market through market mech­a­nisms and under the restric­tions estab­lished by public procure­ment legislation.

We discussed the benefits of the active consumer model, appli­ca­tion options and regional chal­lenges. Andriy Gerus (Chairman, Verkhovna Rada Committee on Energy, Housing and Utilities), Oleksandr Vizir (head, NGO Asso­ci­a­tion on energy effi­ciency and energy saving, author of “Small Distrib­uted Gener­a­tion. A Window of Oppor­tu­nity for Ukraine: Focus on Commu­ni­ties”), Rouven Stubbe (Consul­tant, Energy and Climate Policy team, Berlin Economics), and Andriy Martyniuk (Executive Director, Ukrainian NGO Ecoclub Rivne joined as speakers in the discus­sion moderated by Daria Malling (LibMod).

Municipal Owned enter­prises as Active Consumers

We discussed how the new law can be imple­mented in Ukrainian commu­ni­ties and what role it plays in promoting the green energy tran­si­tion. The creation of prosumers by commu­ni­ties can posi­tively effect commu­ni­ties in three ways:

• security (strength­ening the system’s resilience in the event of a power outage);
• economy (reduction of elec­tricity costs for community entities);
• invest­ment (the possi­bility of attracting invest­ment in relevant community programmes).

Option 1 to create active consumers is to install power gener­a­tion facil­i­ties at the expense of the community, or by using donor funds. Such MOEs can install renewable gener­a­tion units that are directly connected to their internal power grids and consume most of the elec­tricity produced at the point of produc­tion (directly by the facility on the roof of which the gener­ating unit is located) or close to it, thus creating a classic distrib­uted generation.

This will reduce the cost of purchasing elec­tricity and makes it possible to create energy islands in the future, making the community’s energy system more resilient to security risks.

Option 2 is to compile a register of locations where the investor has the right to install power gener­a­tion units and connect them to the MOE’s internal networks, which will allow such MOEs to obtain the status of active consumer.

The community may hold open tenders (e.g. on the Prozorro platform) for investors, offering to build a regional power gener­a­tion facility, poten­tially guar­an­teeing investors that the MOE will buy the elec­tricity produced at a certain price.

Option 3, the most efficient one, is a combi­na­tion of the two. To further develop this logic, it is important that the surplus elec­tricity produced but not consumed by MOEs is sold to other MOEs in the community. For this purpose, several signif­i­cant changes should be made to the model of elec­tricity procure­ment by munic­i­pal­i­ties as suggested by Oleksandr Vizir.

Firstly, it is necessary to reduce the popu­la­tion threshold to establish a central procure­ment orga­ni­za­tion (CPO), or to use the existing CPOs. Currently, only hromadas (Ukrainian for “commu­ni­ties”) with a popu­la­tion of over 1 million residents can do this, and therefore most hromadas cannot use this framework. Another possi­bility would be for asso­ci­a­tions of munic­i­pal­i­ties to have one central purchasing organisation.

Secondly, commu­ni­ties must be allowed to create their own balancing group and join another, so that they can maximise the economic effect of these groups and use the available elec­tricity resource to cover their own needs. It should also be possible for community entities to quickly move from one balancing group to another — in fact, the terri­to­rial hromada’s party that is respon­sible for the balance will be moving. Balancing groups can be formed within but also across communities.

Benefits and practical aspects of the energy tran­si­tion at the communal level

The practical benefits that can be achieved for commu­ni­ties by using the active consumer model are diverse:

• Elec­tricity can become 5–10% cheaper, if 20–30% of annual consump­tion is covered by the installed power units.
• Municipal owned entities can acquire elec­tricity from one supplier though one entity. They can achieve signif­i­cant economic benefits as prices will be lower for large volumes of electricity.
• Less bureau­cracy and people involved in the proce­dures and better procure­ment specialists.
• Over­coming the bottle­neck of financing RES-projects. Creation of invest­ment possi­bil­i­ties for business in communities.

According to Andriy Martyniuk, who works on promoting renewable energy and imple­menting RES in commu­ni­ties, the main moti­va­tion of municipal decision makers is the cost effi­ciency of using renew­ables and an alter­na­tive energy supply in case of a black out. Since the beginning of the full-scale invasion, local author­i­ties signif­i­cantly changed the attitude towards renew­ables as they realised that they can be a back-up power source for critical infra­struc­ture. At the same time, the payback period for the on-grid solar power plants in hospitals and water utilities is only around 3–5 years.

While working with munic­i­pal­i­ties some typical chal­lenges should be considered:

• Lack of capac­i­ties and the need for training the staff respon­sible for the main­te­nance of power units and energy management.
• The condition of roofs, buildings, elec­trical wiring or water utility infra­struc­ture can be a major limiting factor.
• It is unre­al­istic for MOEs to supply elec­tricity to the grid under current regulations.
• Energy use schedules of hospitals, schools, kinder­gartens, etc. do not coincide with the gener­a­tion schedules of solar power plants and installing storage capac­i­ties is not econom­i­cally advan­ta­geous. The main moti­va­tion for installing batteries is providing security of supply and stability of perfor­mance on cloudy days.

Even though renewable energy started playing an important role in securing power supply since the energy system is under Russian attack, there is still a need for raising awareness and helping commu­ni­ties under­stand the benefits of the green energy tran­si­tion. High-quality calcu­la­tions and clear under­standing of the new regu­la­tory framework might be helpful. It is also crucial that munic­i­pal­i­ties actively partic­i­pate in obtaining financing outside or inside their community and develop a sense of ownership.

The chal­lenges listed above and the sugges­tions for the regu­la­tory framework are applic­able for the municipal owned enter­prises, while the situation in the resi­den­tial sector is different. The classic feed-in-tariff (“green tariff”) remains much more attrac­tive for resi­den­tial consumers than the net billing scheme. And with very low prices for elec­tricity there are currently no incen­tives for self-consump­tion for resi­den­tial consumers. The system is not func­tioning effi­ciently as it incen­tivizes consump­tion in the peak hours thus increasing balancing costs and the system’s peak load. Rouven Stubbe from Berlin Economics suggested that a solution would be to phase out resi­den­tial subsidies gradually while supporting vulner­able house­holds (using inde­pen­dent support schemes, which offer a budget neutral way or budget positive way and are far fairer).