Ukraine turmoil leaves outlook 'cloudy'

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The turmoil that began in February and resulted in the ousting of President Viktor Yanukovych and the annexation of the southern region of Crimea by Russia has, says IHS senior analyst Josefin Berg, "raised a string of questions."

One such question has been around the tariffs paid by Ukraine for power generated in Crimea.

While IHS predicts that PV plants in Crimea will eventually "fall out" of the Ukraine support scheme, contradictory statements have circulated, with local media reporting interim energy minister Yuriy Prodan saying that the feed-in tariff (FIT) for Crimea’s PV plants will be abolished. Berg said, “The European-Ukrainian Energy Agency stated there could be continued FIT payments to PV plants in Crimea even after the annexation. Exactly what will happen depends on the evolution of the power and utility structure in Crimea. As the local electricity market reshapes to accommodate the new geopolitical situation, IHS sees a significant risk for Crimea PV plants to end up with void feed-in tariff contracts.”

Now, an industry source within Ukraine has told pv magazine that payment for electricity produced from Crimean solar parks would end on 21 March. The source added, “This information can be verified later when deadline for payment will come. I heard talks that Crimean solar parks will be granted with PPA tariff, according to the Russian policy of renewable energy support. It will be clearly less than it is now in Ukraine. I heard it would around five times less than it was in Ukraine.”

Berg added, “Given that Ukraine represents less than 1% of global PV demand, the direct global impact is limited. Suppliers with orders from Ukraine face cancellations and delays, as investors reconsider their plans. For investors, the events in Ukraine demonstrate how PV investment attractiveness stretches beyond mere policy support. Investors will certainly need to carefully consider country risk indicators and wider attractiveness measures when considering future investment.”

Last year, pv magazine reported that solar in Ukraine was booming despite fears from investors. Unlike other Eastern European countries, the country had been experiencing a period of steady growth. By the end of the last year, the country had 747 MW of solar PV capacity in operation and a pipeline of 700 MW. The Crimea region hosts 300 MW of that capacity. Ukraine has had a FIT of up to $0.61 per kWh since 2010. It was announced yesterday that Russian company Gazprom would increase the price of its oil to Ukraine by 40%. That news followed an announcement by Ukrainian leaders that they would be increasing the price of gas as part of austerity measures to facilitate the country’s entry into the EU.

The industry source said that Ukrainian politicians were discussions an FIT reduction for solar to the level of energy from wind. They added, “Market players are clearly against it, but I doubt they can influence the situation. This will clearly affect relations with the EU as well as the overall investment climate, but the beneficiaries of this `old` tariff were representatives of the former political power. The task of the new government, as well as demand of people, is to cut or reduce it to a minimum.”

Berg’s said FIT rates will be scaled down but not altogether abolished, adding, “Ukraine’s 2030 renewable energy target is likely to remain in place as the country seeks closer ties with the EU. The European Bank for Reconstruction and Development is already a prominent financier of Ukraine renewables projects via the Ukraine Sustainable Energy Lending Facility. Ukraine’s continued high country risk will limit near-term renewable energy investments outside multilateral funding schemes.

The violence in Kiev centred around the city’s Independence Square left scores of people dead. Yanukovych is now reportedly in Russia, dogged by allegations of financial impropriety. Since Yanukovych fled the country, an interim government headed by acting president Oleksandr Turchynov has been formed with presidential elections set for May.