Ener­gie­si­scher­heit in der Ukraine

Olena Pavlenko, DiXi Group

The destruc­tion of Ukraine’s energy sector has been a goal in Russia’s war against Ukraine from the start. This involves, firstly, the attempt to wreak the maximum destruc­tion on the country’s energy infra­struc­ture (power grids and gas pipelines) with the aim of cutting off the energy supply of as many Ukrainian consumers as possible. There have been days during the war when as many as a million consu­mershad no access to elec­tri­city, though Ukrainian energy companies were able to re-estab­lishe service swiftly.Secondly, the seizure of strategic energy faci­li­ties – the Kakhovka HPP, the Chernobyl NPP and the Zapo­rizhzhya NPP, has been a priority of Russian forces. The behaviour of Russian troops at the captured faci­li­ties makes it clear that they do not under­stand how dangerous the conse­quences of their actions there could be – they walked around in the areas conta­mi­nated by high radiation at the Chernobyl station, andRus­sian units have fired rockets over the Zapo­rizhzhya nuclear power plant at very low altitudes. It is unlikely that Russia plans to fully develop these faci­li­ties – rather, its behaviour suggests that its seizure of power­plants is aimed at black­mai­ling Ukraine and the world. Thirdly, Russia has stepped up the frequency of its cyber-attacks on Ukrainian energy faci­li­ties. The number of cyber-attacks has tripled during first phase of the war. There were more than 300,000 cyber-attacks during the first 80 days of the war. Ukraine has amassed anin­cre­dible amount of expe­ri­ence in cyber warfare and is now in a position to train other countries, including EU countries, in cyber defence. Fourthly, Russia has tried to leave Ukraine comple­tely without fuel. In addition to blocking fuel imports, it destroyed many of Ukraine’s fuel storage faci­li­ties. This was the most painful blow. Ukraine is only now returning to a stable fuel situation. As a result of Russian aggres­sion, as of the fifth of June, almost 5% of the installed elec­tri­city gene­ra­ting capacity had been destroyed, and 35% of gene­ra­ting capacity is now in terri­to­ries occupied by Russia.

Despite the doubts of some, Ukraine’s energy system has shown a high level of resi­li­ence in the face of Russia’s war. Ukraine’s elec­tri­city system was discon­nected from Russia and Belarus on the day that the war broke out. For three weeks, it supplied elec­tri­city to consumers while operating in isolation, giving the lie to pessi­mi­stic predic­tions from many European experts. On 16 March 2022 Ukraine’s elec­tri­city system was synchro­nized with the European ENTSO‑E system, and on 7 June 2022, the EU trans­mis­sion system operators agreed to open commer­cial trading between Ukraine and the EU. The Ukrainian grid operator Ukrenergo believes that exporting elec­tri­city to the EU may become one of its most profi­table economic acti­vi­ties, as prices in Ukraine today are three times lower than those in Europe. This will help to reduce the illi­qui­dity of the Ukrainian energy market and attract invest­ment to it in the future.

Ukraine has also shown a high level of resi­li­ence in the gas sector. Despite repeated cases of destruc­tion of local gas pipelines, Ukrainian companies have been able to resume supplying gas to Ukrainian consu­merspromptly. Ukraine was able to make it through the heating season successfully. It is important to note that Russia has consis­t­ently refrained from firing on the gas pipelines that transport gas to the EU. This is further evidence of the importance that Russia attaches to main­tai­ning gas supplies, and it also helps explain why Putin was so eager to launch Nord Stream 2 – the avai­la­bi­lity of the bypass pipeline would give the Russian forces free reign for shelling strategic Ukrainian faci­li­ties in the gas sector and beyond. At this point, I wish to point out that Ukrainian experts consis­t­ently empha­sized this risk at public discus­sions in Germany and in other countries during the cons­truc­tion of Nord Stream 2.

Turning now to oil and oil products: before the war, Ukraine was dependant on imports from Russia and Belarus for more than 60% of its petroleum needs. Of the three sectors discussed here, the oil sector proved to be the least resilient. Belarus and Russia blocked oil and fuel exports to Ukraine imme­dia­tely after the war began. In response, the Ukrainian govern­ment began to import more of these products from the EU. However, Russia has attempted to destroy Ukraine’s capa­ci­ties for refining and for storing oil and other fuels – Russian missiles have wiped out 27 oil depots in different regions of Ukraine. Russia also fired 20 missiles at theKre­men­chug refinery plant, rendering it inope­rable. The country has lost its infra­struc­ture. To faci­li­tate fuel imports from the EU, the govern­ment has libe­ra­lized prices on the oil market and simpli­fied all import proce­dures. In June, there was a severe shortage of fuel in Ukraine, but the situation grew more stable toward the end of the month. It is difficult to say how Ukraine might have prevented the crisis and protected its infra­struc­ture to avoid the physical destruc­tion of depos and refi­ne­ries, but one of the biggest lessons learned with regard to the oil sector is that Ukraine must never again become dependent on fuel imports from Russia and Belarus.

Facing the threat of a long-term war, the govern­ment is now focused on the rapid resump­tion of opera­tions in the energy system. Today, infor­ma­tion on the share of total elec­tri­city produc­tion generated by parti­cular energy sources is not released due to security concerns, but it is known that nuclear power together with wind‑, solar- and hydro-power account for almost 90% of total elec­tri­city produc­tion (meaning that elec­tri­city gene­ra­tion from coal is just over 10%). Nuclear power remains the main source for elec­tri­city produc­tion, despite the occu­pa­tion of two nuclear power plants. The Chernobyl plant was liberated in early April, while the Zapo­rizhzhya nuclear power plant is still under Russian occu­pa­tion. This is the first act of this kind of aggres­sion in the world; the Ukrainian govern­ment has already described Russia’s actions as „nuclear terrorism“. This situation demands an addi­tional response from the world, which should seek to limit further­de­ve­lo­p­ment of the nuclear sector in Russia and prevent the sector from sharing its tech­no­lo­gies abroad. This situation has also shown that the IAEA is not able to act in a truly effective manner to ensure nuclear safety in the world: there is a need to discuss deep reform of such bodies in the future.

To reduce Ukraine’s depen­dence on Russian nuclear energy, the state-owned Energ­oatom and the US company West­ing­house have signed an agreement in June 2022 to increase the number of AP1000 nuclear power units in Ukraine from 5 to 9. There is also an agreement to increase the volume of American nuclear fuel supplies to cover the needs of all Ukrainian NPPs. In addition, the companies confirmed their intention to establish a West­ing­house engi­nee­ring and technical centre in Ukraine.

Ukraine’s coal reserves were at a low level as it entered the 2021–2022 heating season, and many experts had criti­cized the govern­ment for failing to prepare effec­tively for the winter. However, Ukraine built up its reserves quite quickly during the winter­time and as it prepared for synchro­niza­tion with ENTSO‑E. As of the beginning of the war, the country’s coal reserves were in line with planned levels, but coal produc­tion fell by 30% after the war started and Russia destroyed several mines. In prepa­ra­tion for the upcoming heating season, the Ukrainian govern­ment has banned all exports of coal, oil fuel and gas. It expects to have amassed 2–3 milliontons of coal in its warehouses by October 2022. There is also another radical change that has taken place in the coal sector: unlike in previous years, there is no public confron­ta­tion today between the govern­ment and the companies in this sector, including private energy companies.

The renewable energy sector was also badly damaged during the war. As of 5 June, about 30% of the country’s solar-power capacity and over 90% of its wind-power capacity had been destroyed. Also, renewable energy producers have not been receiving the feed-in payments they are entitled to under the Green Tariff scheme (only 10% is being paid out according to some estimates), driving them into insol­vency. And because many of the solar and wind gene­ra­tion faci­li­ties are located in the east and south of Ukraine, many have come under fire and lost capacity due to missile damage.

In the gas sector, Ukraine now consumes almost as much gas as it produces, due to a rapid fall in consump­tion, of 30% or even more, after the start of the war. Ukrainian gas storage faci­li­ties still held about 9 billion cubic metres at the end of the heating season. Ukraine has not yet imported gas from the EU. This will likely change as the country begins to prepare for the heating season. Though, Naftogaz believes that Ukraine will not need to import large quan­ti­ties of gas. The govern­ment has begun nego­tia­tions to purchase gas in various countries, including Norway, poten­ti­ally – in the form of liquefied natural gas. The European Bank for Recon­s­truc­tion and Deve­lo­p­ment will provide the NAK Naftogaz with a loan of 300 million euros, the first 50 million of which will go to emergency gas purchases.

Ukraine also continues to transport Russian gas to Europe. Some Ukrainian and European experts have suggested that Ukraine stop trans­porting gas on its own initia­tive but doing so would put Ukraine in breach of commit­ments primarily to European companies and European consumers, and Russia would use any such act to accuse Ukraine of being an unre­liable partner. Therefore, the Ukrainian TSO (Trans­mis­sion System Operator) could only stop the transport if European companies first took the appro­priate decision.

The Ukrainian route remains the primary route for trans­porting Russian gas to Eastern and Western Europe. Poland termi­nated its gas agreement with Russia on the Yamal-Europe gas pipeline in May 2022. Nord Stream 2 was completed in October 2021 but was not put into operation – German Chan­cellor Olaf Scholz announ­cedat the press confe­rence on 22 February 2022 that Nord Stream 2 certi­fi­ca­tion had been suspended after Russian President Vladimir Putin issued a statement reco­gni­zing indi­vi­dual states in Ukraine. Russia uses the Nord Stream 1 gas pipeline as a tool for political mani­pu­la­tion – gradually reducing the volume being trans­ported through it, and blaming this on, for instance, the sanctions preven­ting Siemens from returning an over­hauled compressor from Canada. By reducing gas supplies through the Nord Stream 1 gas pipeline, Russia does not want to increase gas trans­por­ta­tion through Ukraine. At the same time, the Ukrainian Gas Trans­mis­sion System Operator has been proposing that gas flows be rerouted through Ukrainian terri­to­ry­since the beginning of the war, as the Ukrainian pipeline has free and Gazprom-reserved capacity. Unfort­u­na­tely, neither European companies nor Russia have listened to or discussed these proposals.

Streng­thening the sustaina­bi­lity of Ukraine’s energy sector in the medium term means large business invest­ments and further inte­gra­tion into the EU energy sector.

Ukraine needs an EU policy that will enable it to receive aid but also allow it to become an equal partner. This means creating the condi­tions for the energy sector to become more liquid and generate more elec­tri­city. The EU can help to increase elec­tri­city exports from Ukraine and avoid creating obstacles in the form of CBAM regu­la­tion for Ukraine.

It also means that the EU and US govern­ments need to develop policies that will help attract foreign invest­ment in elec­tri­city gene­ra­tion in Ukraine. Ukraine will not be able to offer a new set of programs to support renewable power gene­ra­tion, due to the lack of liquidity on its elec­tri­city market and high level of energy poverty (which will increase even further after the war). As Ukraine can’t develop support programs for the renewable sector on its own, the EU countries can help in this.

Also, Ukraine – as a candidate country for EU member­ship – can be reco­gnized as a full member of the European Green Course and gain access to European funds. Ukraine has clearly defined the goal of decar­bo­niza­tion and must achieve this goal from a much more difficult starting position than any other EU member state. The possi­bi­lity of receiving addi­tional financial support will allow the country to make swifter progress in this direction.

Incre­asing energy effi­ci­ency is a policy aim that would be supported by any govern­ment and all consumers. But improving energy effi­ci­ency will require many more mecha­nisms (for house­holds, cities and commu­ni­ties, and companies) than currently exist. And these mecha­nisms must be very simple and trans­pa­rent. The EU can help both in the deve­lo­p­ment of such mecha­nisms and by providing the necessary funds.

In the gas sector, Ukraine must remain the main transit country for Russian gas – and Nord Stream 1 should be stopped. It is already clear that the transport of Russia gas through Ukraine has an inhi­bi­ting effect on the level of Russia’s armed aggres­sion – and will continue to do so, at least so long as Russia remains inte­rested in exporting gas to the EU. Ukraine does not mani­pu­late technical problems for its own purposes, as Gazprom does with offshore gas pipelines. Also, Ukrainian gas storage faci­li­ties should be made a fully-fledged part of the EU’s energy security archi­tec­ture – European companies should store gas in them for the winter, and EU regu­la­tions should provide for this. The EU can also provide funds to increase the capacity of inter­con­nec­tors between Ukraine and Poland and Slovakia. This will ensure better gas flows between countries and the ability to respond to crises more quickly.

Moreover, if the EU is seriously thinking about granting EU member­ship to Ukraine in the future, Ukrainian poli­ti­cians and govern­ment officials can already start to attend meetings and discus­sions of EU energy policy – for example, meetings of energy ministers. This would allow a better under­stan­ding of EU prio­ri­ties and a faster synchro­niza­tion of Ukraine’s and the EU’s energy security policies in the future.