Ukrainian PV market on the verge of expansion22. November 2012 By: Ilko Iliev, Inea Consulting
The maturing photovoltaic markets in Germany, Spain, France and Italy, and recent feed-in tariff cuts in a number of key markets have prompted solar investors to look for new opportunities in south east European (SEE) nations and Commonwealth Independent States (CIS). Ukraine is presenting one logical and very interesting investment alternative.
Ukraine is a very promising emerging market for photovoltaic energy investments among CIS countries, according to the Ukraine Photovoltaic Market Outlook 2012, issued by Inea Consulting Ltd. With the introduction of support mechanisms in 2009, and subsequent amendments in 2011 and 2012, the country’s photovoltaic market is expected to take off in the next few years.
At the end of 2011, Ukraine had an installed cumulative photovoltaic capacity of 140 MWp. However, by the end of this year, this figure could triple to reach 415 MWp, when taking into account the optimal case scenario of Inea Consulting’s report. Meanwhile, photovoltaic market value is expected to increase from €224 million in 2011, to around €762 million by the end of 2012.
Currently, the Ukrainian green tariff for electricity produced from ground-mounted solar power plants commissioned until this December 31 is one of the highest in the world at €465/MWh. The tariff is revised on a monthly basis based on the exchange rate of EUR against UAH.
For solar power plants that started construction in 2012 or later, there are the local content requirements for the use of Ukrainian manufactured equipment – materials, works and services – during the construction process. For those commissioned after July 1, 2013, it is not less than 30%, and after July 1, 2014, not less than 50%.
It is key to note that on November 20, 2012, the Ukrainian parliament adopted Draft Law No. 10183 On Introducing Changes to the Law of Ukraine "On the Electricity Sector" (regarding promotion of electricity production from renewable energy sources). The law is now waiting to be voted by the President.
One of the main points is the gradual reduction of green tariffs for photovoltaic power plants. From April 1, 2013, green tariffs will be reduced by some 27% to € 339/MWh. Obviously proposed reduction levels are well above the rates in most of other solar markets. Thus they will continue to play rather the role of magnet than brake for investors.
What distinguishes the Ukrainian photovoltaic market from others is that current growth is driven by a single motor engine. The role of this engine is played by Austria-based Activ Solar, which recently broke its own 300 MWp record milestone. Overall, more than 75% of all cumulative photovoltaic capacity in Ukraine has been installed by Activ Solar.
A lot of solar energy experts consider the company a phenomenon. Indeed, in less than 18 months, its work meant the Ukraine became home to some of the largest photovoltaic power plants in the world, including Ohotnikovo at 105.56 MWp and Perovo at 82.65 MWp.
However, other experts claim that such a concentration of one single market player could hamper the competition and create barriers for entry of foreign investors in Ukrainian market.
As the Ukrainian photovoltaic sector is very young, there are a number of risks present. For instance, the current green tariff for solar power plants is considered attractive to many investors. As such, the speculative purchase of new generation licenses is a threat and could negatively affect the long-term market players.
Furthermore, missing or unclear parts of the legislation could result in the delay of licensing for projects. And, grid saturation in Crimea and other areas, due to the rapid development of the country’s solar and wind industry, could present obstacles for project developers.
Overall, however, the forecast for the Ukrainian photovoltaic market is positive. It is expected that market drivers by the end of 2014 will be large-scale projects above 1 MWp, including rooftop and industrial installations. Meanwhile, in Q4 2012, the first large scale rooftop photovoltaic power plants above 5 MWp are scheduled to start operations.
Renewable energy mix
Ukraine has large portfolio of energy generation facilities, including nuclear, hydro, coal and gas fired plants. At the end of 2011, more than 80% of coal thermal power plants exceeded their physical production lifecycle. Furthermore, over 67% of the country’s nuclear power reactors are close to the expiration of their physical production lifecycles (in the next 8 to 10 years).
All these power facilities will need replacement or refurbishment to extend their life. Some of them will have to be closed. According to studies conducted by the Ukrainian Ministry of Energy and Coal Industry, the country will need additional investments of over €35 billion by 2030, in order to build new power generation facilities, to de-carbonize its electricity sector and to replace aging power generation facilities.
Renewable energies are one logical option for this de-carbonization. Remarkable development of the solar sector in Ukraine in the past two years has proved that this is possible.
The primary objective of Ukraine is to ensure compliance with the mandatory renewable energy targets as laid out under Energy Strategy of Ukraine to 2030. In the case of Ukraine, this target was set at the level of 10% of the total energy generation capacity.
The Ukraine is one of the most energy inefficient countries in the region and restructuring and upgrading its energy sector continues to be one of the key development challenges for the Government. According to the latest update of Energy Strategy to 2030 from June 2012, in order to meet its targets set, Ukraine aims to use at least 0.8 GW of small hydroelectric, 3 to 4 GW of wind, 1.5 GW to 2 GW of solar and 1.5 GW of biomass energy by 2030, or a total renewable share of between 6.8 to 8.3 GW.
In the medium-term, the country’s minimum target is a 5% share of RES-electricity from total generation capacity by the end of 2020. However State Agency on Energy Efficiency and Energy Saving of Ukraine Agency has braver plans and considers that it is necessary to increase the capacity rates of installed renewable power plants into the country's current energy strategy up to 6.4 GW in 2015, 9 GW - in 2020, 13 GW in 2025 and 17 GW in 2030.
About the author
Ilko Iliev is the CEO of Inea Consulting, a renewable energy Advisory firm headquartered in Varna, Bulgaria, and with local points in Austria, Germany, the UK, Italy, France and Dubai.
Disclaimer: The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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