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Energy policy master_plan_eng
1. Energy Policy Master Plan for Ukraine
October 2015
Ministry of Economy, Trade and Industry, Japan
The Institute of Energy Economics, Japan
2. Foreword
This is the final report of “Energy Policy Master Plan for Ukraine” which was initiated by
the government of Japan. The Institute of Economics, Japan was appointed by the government
to conduct the study.
Ukraine is, unfortunately, has confronting difficulty in every aspect of their energy supply
chain. When Japan sees and understanding this situation, as a part of international society and a
member of G7 summit countries, has decided to support Ukraine. The study is part of this effort
which aims at providing useful suggestions for Ukraine government in a long-term perspective.
It is our grate honor and pleasure to conclude the report, and hope to provide any support for
a long journey of Ukraine to strengthen their energy structure.
October 2015
Ministry of Economy, Trade and Industry, Japan
The Institute of Energy Economics, Japan
Tokyo, Japan
3. Table of contents
Chapter 1. Recognition of current situation...........................................................................1
Chapter 2. Basic principle of long term energy policy...........................................................3
Chapter 3. Demand outlook..................................................................................................5
Chapter 4. Supply plan .......................................................................................................10
4-1 Outline.......................................................................................................................10
4-2 Electricity supply ....................................................................................................... 11
4-3 Coal supply ...............................................................................................................16
4-4 Heat supply...............................................................................................................19
4-5 Natural gas supply ....................................................................................................23
4-6 Oil supply ..................................................................................................................27
Chapter 5. Financing ..........................................................................................................29
Chapter 6. Conclusion ........................................................................................................32
4. 1
Chapter 1. Recognition of current situation
The total energy demand has rapidly dropped after dissolution of the Soviet Union in 1990
through 2000. Although the energy demand increased after that until 2008 with economic
recovery, it dropped again due to the ailing world economy triggered by the bankruptcy of
Lehman Brothers in 2008. Although the economic recovery and increase of energy demand
were observed through 2012, the economic slowdown has recently become apparent caused by
the conflict in the eastern regions.
Low efficiency for energy utilization is a big issue concerning the demand side. Most of the
energy related facilities, such as power plants, power grids, district heating systems, and oil
refineries were built in the Soviet Union era, and deterioration of those facilities is now
progressing because sufficient investment was not made into those facilities during the turmoil
after the dissolution of the Soviet Union in 1990. In addition, another reason for low efficiency
for energy utilization can be adduced as the background that the incentive to enhance the
efficiency for energy utilization was weak, since the energy price was set at a level lower than
the supply cost as part of the social policy.
Therefore, drastic improvement of energy efficiency is required for Ukraine to establish a
healthier energy supply-demand structure in the future.
Figure; Energy consumption per unit GDP (2012)
toe = tone of oil equivalent
Source: IEA, 2014
On the other hand, in the supply side, there are two major risk factors in the energy supply of
Ukraine. The first is excessive dependency on Russia for natural gas supply, and the second is
1.28
0
0.5
1
1.5
2
2.5
World's highest
Turkmenistan
Ukraine
Russia
China
India
Non‐OECD avg.
World avg.
Poland
Canada
United States
OECD avg.
EU‐28 avg.
Germany
Japan
World's lowest
toe/USD1000
5. 2
the uncertainty of the anthracite coal supply. The natural gas is used mainly for heat generation
and the anthracite coal for power generation.
More than half of the natural gas supply (in 2013) in Ukraine depends on import, and most of
that is from Russia. Since Russia and Ukraine in the Soviet Union period maintained close and
good bilateral relations, dependence of Ukraine on import of the natural gas from mainly Russia
was not a risk. But at present after such relationship collapsed, this dependence on Russia has
become a risk factor in terms of politics, economy, and energy security.
Uncertainty of the anthracite coal supply is caused by the conflict in the eastern regions of
Ukraine. The anthracite coal is mostly produced in the eastern regions and supply of them to the
western regions is decreasing. As a result, many of the power generation and electricity supply
in the western regions are threatened. Although stabilization of the political relationship with
Russia and the autonomies in the eastern regions is essential to improve the situations, at present
it is uncertain when and how the conflict can be solved. That is to say, it is difficult to prospect
stabilization of anthracite coal production and power supply in the eastern regions.
Because of the above, reorganization of the supply structure of the natural gas and coal has
become an urgent need over the short and medium term.
Figure; Distribution of natural gas supply Figure; Distribution of coal production
Source: BP, 2014 Source: Ministry of Energy and Coal Industry
Production
42%
Russia
54%
Other import
4%
46.2Bcm
in 2013
Donetsk Region
45%
Lugansk Region
31%
Dnipropetrovsk
Region
22%
Lviv Region
2%
Volyn Region
0%
83mil. ton
2013
6. 3
Chapter 2. Basic principle of long term energy policy
The long-term energy policy aims to substantiate in a well-balanced manner the so-called 3E,
Energy security, Economic efficiency, and Environment.
a) Energy security
Increase in self-sufficiency is a first priority issue. From this viewpoint, it is important to
control first the growth in demand by improvement of energy efficiency. In parallel to this, it
is also important to improve self-sufficiency by promoting expansion of production volume of
indigenous fossil fuels and maintaining the utilization of nuclear power generation.
Although the renewable energy also contributes to increase self-sufficiency, it is necessary
to consider economic efficiency, i.e. cost, compare to other energy sources.
b) Economic efficiency
It is more desirable to supply energy as cheap as possible, since increase in energy cost
affects people’s life and industrial competitiveness. Although production increase of the fossil
fuel at the domestic sites was recommended from the viewpoint of an “Energy security”, this
recommendation assumes, in principle, the case only when the domestic production cost is
lower compared with the cost of import fuels. If the import cost is lower than the domestic
production cost, it is suggested to reduce domestic production and instead to expand import of
fossil fuel step by step.
However, based on the current situations of insufficient foreign currency reserves, put a
priority on domestic production for the time being shall be studied also in consideration of
supply security and job creation.
c) Environment
Control of the environmental load is a demand of the society and shall continue to be
responded to. From this standpoint, it is required to increase energy efficiency, and to increase
utilization of low carbon energy such as the nuclear energy and the renewable energy.
From the standpoint of an energy security and economic efficiency, however, coal cannot
do anything but play a continuously important role in electric power generation. In order to
control the environmental load of the coal-fired power, it is desirable to offset the CO2
emission with a combination of adopting higher efficiency technology for coal-fired power
generation and utilization of the nuclear power generation.
Based on the above principles, each energy source shall be defined as follows.
7. 4
Coal ・ Although this is the domestic production energy source with excellent
economic efficiency, import will be gradually required in the western
regions.
・ This is continuously the major fuel for electric power generation.
・ As this has high environmental load, this shall be utilized with as high
efficiency as possible.
Oil ・ This is the energy source which is difficult to be replaced in the
transportation sector and has high import dependency.
・ Utilization of this source shall be controlled as much as possible, and
efficiency shall be increased when used.
Natural gas ・ This is the domestic production energy source.
・ Diversification of import source country and route is an issue.
・ This is continuously the major fuel for heat production.
・ The demand shall be controlled by improvement of utilization efficiency.
Nuclear power ・ This is the quasi-domestic production energy source which is excellent in
terms of a supply stability, economic efficiency, and environmental load.
・ This shall be positively utilized while enhancing safety level.
Hydraulic power
Biomass
・ This is the domestic production energy source which is excellent in terms
of supply stability and environmental issues.
・ Utilization shall be expanded while considering economic efficiency.
Wind power
Photovoltaic
power
・ This is the domestic production energy source which is excellent in terms
of environmental issues.
・ At present, this source has big issues in terms of supply stability and
economic efficiency.
・ This has low priority in development in the short term and is regarded as
a future option.
8. 5
Chapter 3. Demand outlook
Typical representative factors which have a big influence on the future energy demand are
economic growth and energy efficiency. In this chapter, the possible future pictures of the
energy demand in Ukraine are drawn by these combinations.
In the Reference scenario, the economic growth rate during the outlook period up to 2035 is
assumed to be 1.3% per annum on average in reference to “World Economic Outlook” (April
2015) of the International Monetary Fund and “Regional Economic Issues: Central, Eastern and
Southeastern Europe” (May 2015) of the same. On the other hand, in the Higher growth
scenario, the economic growth rate is assumed to be 2.3% per annum, which is 1% point higher
than that of the Reference scenario, assuming the future where the economic growth with a
relatively higher rate is achieved. In these scenarios, although improvement of energy efficiency
is implemented in each sector as in the past, room for further increase in efficiency is left behind.
Improvement of energy efficiency in the Reference scenario becomes 1.2% annually
implemented by equipment replacement, energy price reform, and etc. Although the economic
growth rate in the Efficient scenario is the same as that in the Reference scenario, improvement
of energy efficiency was assumed to be implemented with a higher speed of 1.9% annually in
consideration of the target of the whole European Union (energy saving of 20% by 2020
compared with BAU) stated in the Energy Efficiency Directive (2012/27/EU). That is, the future
courses are drawn where the demand is higher in the Higher growth scenario, and on the
contrary lower in the Efficient scenario as an example. Observation of the differences among
these scenarios enables us to presume what kind of change possibly affects Ukraine and the
information can be obtained to derive the policies required to respond to that change.
Table; Scenario setting
GDP growth Efficiency Energy demand
Reference 1.3% p.a. Reference Centre
Higher growth 2.3% p.a. Same as Reference Higher
Efficient Same as Reference More efficient Lower
In the Reference scenario, the primary energy demand increases slightly by 0.1% annually,
and the demand in 2035 exceeds that in 2013 slightly. On the other hand, in the Higher growth
scenario, the demand increases by 0.8% annually and becomes 1.18 times of that in 2013 in the
same period. On the contrary, in the Efficient scenario, the demand in 2035 is 12% lower than
that in 2013.
9. 6
The share of energy sources in total consumption is in general projected to be maintained at
the same rate as is demanded now. The increment of electric power demand, however, is
assumed to be met mainly by the coal-fired power generation and nuclear power generation.
Therefore, in the Higher growth scenario, the increase in coal demand becomes remarkable. On
the other hand, improvement of energy efficiency is considered to be achieved by the space and
water heating in the residential sector and automobile. In the Efficient scenario, in combination
with replacement of the coal-fired power generation with the nuclear power generation,
consumption of all types of fossil fuel in 2035 is lower than that in 2013.
Fig; Total primary energy demand Fig; Energy demand by scenario (2035
Note; 3.3% p.a. of GDP growth rate is assumed in
the Ukrainian Energy Strategy 2035
Note; Most of ‘other renewables’ consists of
biomass in the Ukrainian Energy Strategy 2035
In the final energy consumption, in terms of contribution by sector, contribution by the
buildings sector and the industrial sector are as large as 4 Mtoe, and by energy source,
contribution of natural gas is the largest followed by oil. Most of the reduction of natural gas
consumption is attained by the buildings sector, and the other reduction of oil consumption is
concentrated on the transportation sector. Although reduction of oil consumption has a larger
effect on economic gain because of its higher price, reduction of natural gas consumption is an
urgent issue in view of security concern. Although energy saving is largely expected,
appropriately establishing the priority area of the countermeasures may be required.
80
100
120
140
160
2000 2010 2020 2030
Mtoe
Higher
growth
Energy
Strategy
Reference
Efficient
0 20 40
Natural gas
Coal
Nuclear
Oil
Hydro
Other
renewables
Mtoe
Efficient Reference Higher growth
Energy Strategy 2013
10. 7
Figure; Savings of final demand (Reference scenario vs. Efficient scenario, 2035)
By sector By energy
In addition, reduction of energy consumption,, especially fossil fuel, brings reduction of the
CO2 emissions and decrease of energy import dependency. Moreover, an emission reduction
effect of air pollutants can also be expected.
Fig; CO2 emissions from fuel combustion Fig; Energy import dependency (2035)
Note; Net import/ Total primary energy supply
Then, what do these outlooks indicate?
Firstly, a slight difference in the economic growth rate can create a big change in the future
energy demand. Although the economic growth rate assumed in the Higher growth scenario is
only 1% point larger than that in the Reference scenario, the energy demand in the Higher
growth scenario in 2035 becomes 16% larger than that in the Reference scenario. And, it should
Buildings, etc., 4
Transport, 2
Industry, 4
Coal, 1
Oil, 2
Natural gas, 3
Heat, 2
Electricity, 1 Total: 10 Mtoe
150
200
250
300
350
2000 2010 2020 2030
Mt
Higher growth
Reference
Efficient
0%
10%
20%
30%
2013 Higher
growth
Reference Efficient
11. 8
be understood that the growth rate of 2.3% annually assumed in the Higher growth scenario is
not extremely high. For example, the economic growth rate from 2000 to 2012 was recorded at
3.7%, although the global financial crisis was occurred during the same period. In the situations
where the end of conflict in the eastern regions cannot be forecast, pessimistic views on the
future of Ukrainian economy tend to be dominant. This unstable situation, however, may not
necessarily continue for next two decades. Since the energy demand turns easily to expansion if
the economy improves, it is required to carefully observe the turning point and respond to the
issues. It is necessary to draw the future vision from the mid- and long-term perspective while
also responding to the on-going and short-term situations.
Secondly, outlook clearly indicates the effect of improvement of energy efficiency. Even if
the economy grows, it becomes possible to considerably suppress the total demand of energy by
developing more powerful energy efficiency and conservation policies. Moreover, Ukraine, who
is currently inferior in energy efficiency compared with other countries, has considerable room
for efficiency improvement which can be implemented at comparatively low cost with big
potential of consumption reduction by this improvement. Efficient energy consumption not only
leads to reduction of spending for fossil fuel import and to enhancement of global
competitiveness, it also contributes to improvement of energy security through the decrease of
energy import dependency. Efficient energy consumption can also reduce the investment
amount for energy infrastructures including that for power and heat supply, and enables the
country to allocate resources and funds to other sectors for restoration of the economy.
Figure; Net import spending of fossil fuel and its share of GDP (2035)
Regarding the policies, we would like to present the following five items as key
countermeasures
0%
4%
8%
12%
0
10
20
30
2013 Higher growth Reference Efficient
% of GDP
Net import spending ($2013 billion)
Import spending
% of GDP
12. 9
a. Rationalization of energy price
Wasteful consumption can be reduced by setting the energy price to a level corresponding to
the supply cost. In addition, if electricity, natural gas, and heat charge can be varied depending
on the import fuel price, the price mechanism would begin to function.
b. Establishment of individual metering and consumption based billing
It is necessary for people and company to know first the actual consumption conditions to
increase the energy efficiency. In order to achieve this, it is required to install a meter of
electricity, natural gas, and heat for every customer one by one. In addition, the charge shall be
levied based on the actual consumption.
c. Replacement of the deteriorated electric power system
Deterioration of the facilities for power generation and power grid is remarkable. It causes
decline in power generation efficiency and increase in power grid loss. It is required to replace
the deteriorated facilities including power plant and transformers with higher efficient / lower
loss facilities by step-by-step updating. These efforts would lead to reduction of natural gas
consumption and coal consumption.
d. Improvement in efficiency of heat supply system
It is required to improve efficiency of the heat supply system since deterioration is also
progressing in the system. It is possible to reduce natural gas consumption by replacement of
transportation pipelines and use of unutilized energy. In addition, it is required to replace the
heating equipment for individual heating in the rural areas with higher efficiency equipment one
step at a time with increases of the natural gas rate to reach the appropriate level and educational
activities.
e. Increase control of the oil demand
A major demand for oil comes from automobiles. Therefore, it is necessary to reduce
consumption by countermeasures of fuel economy regulation of automobiles that are
produced/imported and sold, and of suppression of automobile use where, on the contrary, use
of public transportation is encouraged. These efforts would also contribute to reduction of
import cost, since oil depends mostly on import.
13. 10
Chapter 4. Supply plan
4-1 Outline
Energy supply is studied based on the demand outlook described above. The outline is shown
as follows.
Electricity
supply
・ Maintaining utilization of the nuclear power generation as the base load
power supply
・ Replace existing aged anthracite coal-fired power plant to steam coal
(bituminous, sub-bituminous) burning higher efficiency plant.
・ Utilization of the renewable energy based on the economic efficiency
assessment
Heat supply ・ Implementation of repair based on the equipment diagnosis and the priority
・ Installation of heat meters, and implementation of the rate system reform
・ Select efficient supply method based on the district heat demand
・ Use of unutilized energy
・ Increase in efficiency of individual heating
Coal ・ Scrap & build of the coal mines
・ Support of the employees who left the coal mine
・ Study of mine mouth power generation using brown coal
・ Study of promotion of utilization of steam coal
・ Effective use of the coal mine gas
Natural gas ・ Promotion of development of indigenous natural gas resource
・ Diversification of natural gas import
Expansion of physical capability of reverse flow from Europe
Study of direct import of LNG
・ Effective use of the underground storage facilities
Oil ・ Create better investment environment to attract investment
・ Study of repair and upgrade of the oil refineries
・ Enhancement of demand control
Financing ・ Prepare a good investment environment
・ Revision of the rate to one reflecting supply cost
・ Financing by the earmarked tax and the surcharge
・ Use of the public companies
14. 11
4-2 Electricity supply
We would like to propose a power supply mix composed mainly of nuclear power and
coal-fired power, which is the same as the current one, from the viewpoint of a supply stability
and economic efficiency. The CO2 emission by the coal-fired power generation is offset by
utilization of the nuclear power generation.
In addition, since the power grids in Ukraine have also aged, it is required to modernize them
step by step.
Figure; Generation capacity and Power generation outlook
(Reference scenario)
a. Nuclear power; Maintain as the base load fleet
We would like to propose the continued use of nuclear power as the power supply which
covers the base load, since nuclear power is quasi-indigenous, low cost, and low-carbon energy.
Many of the existing nuclear power plants, however, were built in the 1980s, and will expire
their operating life before 2035. Since new construction of a nuclear power plant requires a
large amount of investment and long construction lead time, it is not realistic to replace all the
existing nuclear power plants with new ones based on the design life. Thus, we would like to
propose the operating life extension of the existing nuclear power plants. For extension,
however, it is necessary to scrutinize the situation of each existing power plant and to
comprehend if extension of its operating life is possible and how much cost is required for it. In
some cases, replacement may be more appropriate.
Ukraine has the plan to construct Khmelnitska No.3 unit (1GW) and No.4 unit (1Gw) at
present and steady progress of the construction is recommended, since operation as a baseload
can be expected from these power generators when considering annual load curb and future
28% 29% 28% 26% 26%
41%
38% 34% 30% 29%
1% 3% 5% 5%
10% 9% 9% 11% 10%
13% 13% 12% 11% 11%
8% 10% 13%
17% 19%
0
10
20
30
40
50
60
70
2012 2020 2025 2030 2035
other REs
CHP
Hydro
Coal (Replace)
Coal (existing)
Nuclear
GW Generation capacity
45%
57% 53% 50% 47%
39% 23% 23% 18% 22%
2%
6% 10%
10%
5%
6%
6% 7%
7%
9%
8%
8% 7%
7%
1%
3% 4%
7%
8%
0
50
100
150
200
250
2012 2020 2025 2030 2035
other REs
CHP
Hydro
Coal (Replace)
Coal (existing)
Nuclear
TWh Power generation
15. 12
demand of electricity. If the minimum load of electricity demand greatly increases in the future,
there is an alternative of adding another unit (approximately 1GW).
Figure; Capacity of NPP by type (Reference scenario)
b. Coal-fired power; Replacement and efficiency improvement
Since Ukraine has coal resources, it is desirable to make the best use of them for energy
security. As the coal-fired power is excellent in economic efficiency, we would like to propose
to use them for power source as the base and middle load. Although the coal-fired power
generation has the issue of large CO2 emission, this emission amount can be offset by
continuous use of the nuclear power generation.
Many of the coal-fired power plants have deteriorated, have low thermal efficiency, and have
almost no equipment installed for preventing air pollution. Therefore, it is necessary to replace
the existing old coal-fired power plants with new high efficient ones which are equipped with
air pollution control system to comply with various EU rules.
0
2
4
6
8
10
12
14
16
2015 2020 2025 2030 2035
New plant
Life extension
Designed operation life
GW
16. 13
Figure; Major Coal-fired and Nuclear power plant in Ukraine
The more problematic issue is the type of coal. Although there are six coal-fired power plants
where anthracite is used as fuel, the eastern regions that are the supply sources of anthracite are
in conflict situations. Therefore, the supply of anthracite has stagnated resulting in a lower
operating rate of the anthracite-fired thermal power plants. It is difficult to predict the future of
the conflict in the eastern regions, and uncertainty of supply of anthracite is very high. On the
other hand, there are many countries which can export bituminous and sub-bituminous coal, and
the supply sources can be diversified even if those are imported from foreign countries. In
addition, cost of bituminous and sub-bituminous coal is cheaper than anthracite coal. Based on
these facts, we would like to propose that the fuel used in the coal-fired power plants be
converted from anthracite to bituminous/sub-bituminous coal when the existing deteriorated
coal-fired power plants are replaced. We also would like to propose that the bituminous /
sub-bituminous coal import infrastructure be expanded its capacity, since the amount of
domestic bituminous coal resources is limited and the mid- and long-term import of those shall
be considered to be the premise.
We made a rough estimation of the payback period of the boiler based on the past and the
latest typical data1
in cases when the varying difference in price of the anthracite and the
bituminous coal was in the range from US$20 to US$50 /ton. When the discount rate was 0%,
the result was 6.5 years for the difference in price of US$50/ ton, 8.5 years for US$40/ ton, 12.5
1
Construction cost of the power plant: 1,800$/kW (Boiler part shares 30% among them.)
Calorific value of anthracite: 5,922kcal/kg and calorific value of bituminous coal: 5,326kcal/kg
Electric power generation efficiency by anthracite: 31.8% and by bituminous coal: 32.7%
17. 14
years for $30/ ton, and 23 years for $20/ ton. When the discount rate is assumed to be 5% and
10%, the payback period becomes considerably worse. On the contrary, the payback period can
be greatly shortened by improvement of the operating rate.
Figure; Payback period of boiler replacement
(left: operating rate 50%, right: operating rate 80%)
Regarding replacement of the anthracite-fired thermal power plants, when considering there
is some room left for the government to be involved in the investment strategy and also able to
receive Official Development Assistance from foreign countries, publicly owned power plant
such as Trypilska power plant and Zmiivska power plant of Centrenergo can be prioritized in
such investment. On the other hand in the private sector, energy efficiency and conservation law
can be utilized as implementation tool of policy to enhance replacement of old and low
efficiency facility / equipment. For example, government can set a long-term average efficiency
target for power company.
It is not realistic to assume many replacements in a short period of time, since replacement
with high efficient power plants that equipped with preventive measure for air pollution requires
a large amount of investment, a comparatively longer term of planning and construction work.
Therefore, in the Reference scenario, replacement with about 1GW was assumed in 2020, with
another about 1GW in 2025, and again with about another 1GW in 2030. In addition, partial
improvement, such as replacement of the burners and the turbines whose investment amount is
lower than that of whole replacement, may be also a subject of studied as a short-term
countermeasure for efficiency improvement.
By having these efforts, improvement of the average thermal efficiency of the coal-fired
power generation and reduction of the coal consumption can be expected.
0
5
10
15
20
25
30
US$50 US$40 US$30 US$20
year
Difference of import price
Discount rate: 0% 5% 10%
0
5
10
15
20
25
30
US$50 US$40 US$30 US$20
year
Difference of import price
Discount rate: 0% 5% 10%
18. 15
Figure; Average thermal efficiency and coal consumption outlook
(Utility, Coal-fired power plant, Reference scenario)
Although Ukraine also has the resources of brown coal, those are hardly used now. From the
viewpoint of effective use of the domestic resources, it is worthwhile to study construction of
the mine mouth power plant where brown coal is used as the fuel. In addition, if IGCC
(Integrated coal Gasification Combined Cycle) technology is used, moisture and ash are
removed during the gasification process and it is possible to significantly increase the electric
power efficiency.
Figure; Net thermal efficiency by technology
Note) Sub-C: Sub-Critical, SC: Super Critical, USC: Ultra-Super Critical
A-USC: Advanced Ultra-Supercritical
IGCC: Integrated Coal Gasification Combined Cycle
IGFC: Integrated Coal Gasification Fuel Cell Combined Cycle
deg C: degrees Celsius, GT: Gas Turbine
Source: METI
30
31
32
33
34
35
36
37
2012 2020 2025 2030 2035
(%) Thermal efficiency (Utility)
0
5
10
15
20
25
2012 2020 2025 2030 2035
(Mtoe) Coal consumption (Utility)
35
2010 2020 2030
NetThermalEfficiency(%)
60
55
50
45
40
Sub‐C (1950s)
SC (1970s)
USC (1990s)
Future technology
IGCC
1700 deg C GT
A‐USC
IGFC
Existing technology
19. 16
c. Renewable energy; Cost effective use
Although the potential is small, the development possibility of hydropower generation still
remains. In addition, feasibility of utilization of biomass, such as agricultural residues, is
expected, since Ukraine is an agricultural country, although establishment of collection and
treatment process is a pre-requisite. Since both power generation methods are excellent in terms
of supply stability among the renewable energies, we would like to propose pursuing feasibility
of utilization based on the deliberate economic efficiency assessment.
Other renewable energies represented by wind power and solar PV are currently high in cost
and have unstable output due to dependency on the weather. Although they are attractive for
improvement of the self-sufficiency rate and countermeasures against global warming, they
cannot be placed anywhere but at a low priority when the predicament on the Ukraine economy
is taken into consideration. In the future when economic growth will become vigorous or the
cost for these renewable energies will be drastically reduced by technological innovation, these
are the items that shall be taken up on the table for discussion.
4-3 Coal supply
In Ukraine the coal demand for thermal power plant is expected to grow gradually in
connection with the increase of the electric power demand in the future. Since electric power is
one of the national life lines, maintaining the coal supply is indispensable. The political
conditions of the eastern Ukraine regions, which account for 75% of the total coal production,
are currently unstable, and therefore dependence of coal supply for the Eastern regions is
becoming an issue of the energy security. Although Ukraine cannot do anything but depend on
import of the coal in the short term, it is necessary to establish the mid- and long-term plans for
effective utilization of domestic resources, for improvement of coal production efficiency, and
for a stable coal supply.
a. Scrap & build of the coal mines
At present Ukraine is progressing plans to gradually abolish subsidy to the coal mines and to
privatize the coal mines, and it is important to continuously promote these policies. The coal
mines with low productivity will be forced to be closed from now on. Underground equipment
in the Ukraine coal mines is currently in the situation where deterioration is progressing without
modernization and repair is hardly being performed. It is necessary to introduce modern
equipment such as the self-advancing support which has the supporting power to bear the
ground pressure deep underground and the high efficient coal mining equipment to improve
productivity of underground mining. In addition, the retreating longwalls mining method, where
the coal bed conditions can be comprehended in advance and air vents before mining and
20. 17
maintenance of tunnels can be easily implemented, can improve productivity. Although the
current major mining method is the retreating longwalls mining method, some coal mines have
introduced the advancing longwalls mining method due to a delay of a part of the gateroad. It is
important to draw a deliberate mining plan such as the plan to employ many people to dig the
gateroad, since with the retreating longwalls mining method it takes time to dig the gateroad.
b. Support of the displaced coal mine workers
The Ukraine government approved closure of the coal mines with low productivity among
284 coal mines in 1997. Based on this principle, the number of coal mines was reduced to 244
in 1999, 232 in 2000, 167 in 2005, 151 in 2009, and 135 in 2013. It is expected in the future that
the coal mines with low productivity will be forced to be closed due to abolition of the subsidy.
Because of a coal mine closure, there are a great number of employees who left the coal mine
in a limited region. Therefore, re-employment is expected to become difficult, and preparation
of an employment policy program is required. When Japan’s unemployment issue of the coal
mine workers also became serious, and act on emergency measures of displaced coal mine
workers was enacted in December, 1959. This law will become a good reference for Ukraine as
it defines subsidy for securing employment, vocational training for displaced employees,
preferential hiring of the displaced coal mine workers, and the benefit to the unemployed people
or employers.
Figure; Japan’s experience for displaced coal mine workers
c. Study of mine mouth power generation using brown coal
There exist abundant brown coal deposits in the central part of Ukraine. There were small
surface coal mines of Olexandria deposit in the Kirovohrad area and of Mokra Kalyhirka
deposit in the Cherkasy area, and only a little less than 200,000 tons of brown coal was
produced per year from these coal mines. These areas, however, have huge potential of holding
brown coal, as much as 2,300 million tons of estimated reserves. In general, since brown coal is
not suitable for transportation due to its high moisture content, in order to develop brown coal
mines on a large scale, the method is taken where electricity is generated at mine mouth power
21. 18
plant and transmitted to demand area via power grid.
Regarding development of the recent mine mouth thermal power generation, the Hongsa
mine mouth thermal power generation project in Laos is being developed with the capital of
Thailand. The following table shows the outline, and the amount of the gross investment for
coal mine development, the electric power plant, and construction of the power line is 3,700
million dollars.
Based on the above, we would like to propose conducting a feasibility study of the
development of brown coal resources and of brown coal-fired mine mouth thermal power
generation in the central area. Introduction of environmental equipment, however, will become
indispensable, since the brown coal of Ukraine has high sulfur content.
Table; Outline of the Hongsa mine mouth power plant project in Laos
Construction Phase 2011-2016
Power Plant Output 1,878 MW
Lignite Consumption 14.3 Million ton/year
Calorific Value of Lignite 2,491 kcal/kg
Moisture 33.96%
Ash Content 26.25%
Sulfur Content 0.70%
Lignite Reserve 577.4 Million ton
Capital Investment US$ 3,710 Million
Stripping Ratio 3.4 : 1
Electricity Tariff 6.1 UScent/kWh
Loan from 9 Thai Commercial Bank US $2,783 Million
Source: http://www.dmr.go.th/download/lao_thai56/pdf_dat/Hongsa%20Mine%20Mouth%20Power%20Projec.pdf
d. Study of promotion of utilization of steam coal (bituminous coal/subbituminous coal)
The Donetsk area in the eastern region produces 95% of the anthracite coal of Ukraine. And
the supply of anthracite coal is now insufficient, since the political conditions in those regions
are unstable. Therefore, Ukraine recently has been importing anthracite coal from foreign
countries to compensate for the shortage of domestic supply. Although there are six (6)
anthracite coal-fired power plants in the country, 30 to 40 years have passed since some of them
started their commercial operation. When considering an uncertainty of anthracite supply form
the region, it is worthwhile to study the introduction of the steam coal (bituminous and
sub-bituminous coal) fired boiler. There are more sources who can export steam coal in the
world compared with those who can export anthracite coal, and thus the suppliers of the coal
22. 19
can be diversified. In addition, the price of steam coal is lower than that of anthracite coal.
e. Effective use of the coal mine gas
It is said that the gas content of Ukraine’s coal is 20 to 40m3
/ton. The coal gas, however, is
hardly used, and although a part of the coal mine gas is utilized for the boilers installed around
the coal mine, 70 to 80% of the coal mines are only emitting the coal mine gas into the
atmosphere2
. Coal gas venting before mining improves safety of the coal mine, and in addition
the collected coal mine gas can be effectively utilized as a fuel at around the coal mine. For
example, in Japan, the coal mine gas was used as the city gas in the era when the coal
production volume was very large. Since the effective use of the coal mine gas is already a
proven technology, we would definitely like to propose introducing it.
4-4 Heat supply
According to International Energy Agency (IEA), heat energy consumption accounts for 16%
of the final energy consumption in Ukraine. Although the amount of heat supply has rapidly
decreased from 1990 through 2000, it has leveled off and the state of leveling off has continued
in recent years. The major fuel for heat generation is natural gas. These statistics3
, however, do
not include the heat supply from the industry and the individual heating.
When taking a look at the heat supply at home, the heat supply from the district heating
system accounts for 39% of Ukraine, and the district heating system is used mainly in the large
cities. On the other hand, the individual heating using natural gas, electricity, and coal is the
mainstream in the mid- and small-size towns and villages, and accounts for 62% of the country.
2
Power and Heat Cogeneration to Utilize Coal Mine Methane – Ukrainian Experience, Methane Expo 2013
3
IEA, Energy balance 2014
23. 20
Figure; Share of number of households by heating system
note: total number of households: 17 million
Source: Alona Babak, 18 Mar 2015
A. District heat supply
a. Modernization of heat supply infrastructure
The district heating system based on cheap natural gas was developed in the Soviet Union era,
and is still currently being used. The equipment for district heating has deteriorated and has now
become an inefficient heat supply system4
where water leakage occurs since appropriate
maintenance has not been implemented. It is necessary to repair such pipeline and equipment
while taking the measure of future heat demand and its supply method. First of all, accurately
comprehending the conditions of pipeline and equipment is the most urgent need, and especially
identifying and repairing the water leakage parts shall be implemented immediately. In addition,
it goes without saying that higher efficiency for the heat production equipment and lower loss
for the heat transmission & distribution line is required.
The survey found that Kievenergo Company in Kiev City has been implementing
replacement of the heat supply pipeline by itself. Private capital takes the lead of this company
who continues to invest based on understanding that improvement in efficiency of the
equipment results in expansion of profits. Also as for the heat supply business undertaken by the
local public sectors, it is strongly encouraged to invest positively based on “profit and cost
consciousness” in reference to such examples. In some cases, it is worthwhile to study to apply
regulation to the heat supply business, such as establishment of the efficiency standard in the
energy efficiency and conservation law.
4
Heat losses in the heating system reache 45% and in the building 30%. Energy Strategy of Ukraine
through 2035, WHITE BOOK OF UKRANIAN ENERGY POLICY
39
73
25
1
41
22
58
53
21
5
17
46
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
total large cities towns villages
Others (electricity,
coal, wood, other)
Indivisual heating
Central heating
24. 21
b. Installation of heat meters, and steady implementation of rate system reform
It is taken for granted that the district heating system is the indispensable public infrastructure
in the city and that consumers can use heat abundantly with a cheap price, and it is in the
situations where no incentive works to control heat utilization. Specifically, consumers can
neither recognize nor control the amount of their heat consumption, since neither heat meter nor
regulator is installed on the demand end, and, in addition, the payment is a fixed amount.
Although the regulations concerning saving energy in the buildings are established, incapability
of comprehending the amount of heat consumption also becomes obstructions to execute the
regulations.
As described above, from various viewpoints, the heat amount measurement and rate system
reform (rate hike and introduction of the measured rate system) on the demand side are now
required. Fortunately, actions for installation of heat meters and revision of the rate system have
already been initiated, and the steady progress of this reform is expected.
c. Selection of the supply method based on the district heat demand
Heat demand density may fall in the future in Ukraine due to influence of population decline,
and accordingly, use of the district heating system may become inefficient in some districts.
Therefore, it is necessary to estimate the future heat demand of the district and to select the
optimal supply method, fuel, and equipment depending on it.
Table; Options of heat supply
* Example of unused low temperature energy (currently utilized in Japan)
i. Temperature difference energy; Sewage, river water, groundwater, geothermal heat
ii. Waste energy; biomass, waste incineration
iii. Exhaust heat energy; subway, factories, power plants and substations
Fuel
Efficiency of
heat gen.
Heat loss in
transmission
Remarks
District heating system
(existing major mean )
Natural
gas
high large Advantage in very high
heat-density area
Small distributed heat
system (building scale)
Natural
gas
medium medium Advantage in high heat-
density area
Individual boiler / heater
(household scale)
Natural
gas
lower than large
boiler/heater
small Advantage in low heat-
density area
Heat pump system
(building scale)
Electricity
(i.e. coal ,
nuke)
Can generate
more heat than
input electricity
medium Advantage in high heat-
density area
Can utilize unutilized
energy *
Heat pump system
(air conditioner for
household)
small Advantage in low heat-
density area
Not applicable for
extremely cold weather
25. 22
From a larger viewpoint, we would like to propose that heat supply shall be reflected more
clearly in the urban planning from now on. Although it goes without saying, efficiency of
district heat supply becomes high when the heat demand density is high. While population
decline is predicted, it is better to consider using heat effectively by intentionally increasing the
concentration of the cities, i.e., concentration of heat demand. In addition facilities generating
heat, such as the electric power plants, sewerage treatment plants, and garbage incineration
plants, have been conventionally built in remote areas, i.e., the areas where value of the
exhaust heat is low. We, however, would like to propose a paradigm shift that the facilities
generating heat shall be constructed in the areas where heat demand exists such as business area
and populated area.
d. Use of unutilized energy
A district heating system using ‘unutilized energy’ can reduce consumption of the primary
energy by about 20% compared with an individual heating system5
and, in addition, can reduce
CO2 emission in the same way. It is important to match the districts where the unutilized heat
source exists and the districts where the heat demand exists. In addition, the introduction of
CHP (Combined Heat and Power) is also an idea when the demand curve of heat and electric
power looks alike.
It is the use of incineration heat of the garbage that can have especially high potential. Most
of the garbage from each house and office is landfilled and disposal of the garbage itself
becomes a big issue, along with the garbage not being effectively utilized as a resource. We
would like to propose not only building more incineration facilities but also utilizing its exhaust
heat.
Moreover, in Kiev City, Bortnychi sewerage treatment plant is planned to be repaired and
new sludge incinerators to be constructed by ODA of Japan in the near future, and it is
considered a good idea to study the feasibility of the exhaust heat utilization by adopting the
heat pump technology as a model case of this kind of application. Although the heat pump
technology requires higher initial capital expenditure than that of other conventional
technologies, it has higher cost competitiveness in the life cycle including the operating cost,
since it has higher efficiency. The amount of the initial capital expenditure tends to affect
judgment for investment in the situations where financing is difficult, however, the evaluation in
life cycle cost is more important for energy equipment, when considering that energy equipment
has generally a long service life.
5
“The realities of area-wide utilization of unused energy in heat supply and the direction toward u the next
generation” Agency for Natural Resources and Energy of Ministry of Economy, Trade and Industry, March
2008
26. 23
B. Individual heating
For individual heating, improving efficiency of heating appliance is the major theme in the
countermeasures. There is no alternative other than waiting until each home replaces its heating
appliance one after another with a more highly efficient one motivated by a rate hike of the gas
and by education of saving energy. In addition, although it requires even longer time and
expense, improving insulation of the building shall be implemented.
The measure, however, can also be taken so that the heating appliance is updated at no charge
for the low income households who receive preferential subsidy of the gas rate. The largest part
of the gas charge used by the low income household is paid by the gas company. Therefore,
although the expense for replacement of heating appliance temporarily increases burden for the
gas company, the amount of subsidy for the low income household can be reduced if the gas
consumption is significantly reduced by improvement in efficiency. Naftogaz Company
indicates this idea to reduce gas consumption and it is suggested to proceed with this idea under
a careful cost-benefit evaluation.
4-5 Natural gas supply
Since Ukraine has natural gas resources in the country, exploring the possibility of use of
these resources has first priority. Subsequently, the shortage from domestic production will be
supplemented by import.
a. Promotion of development of indigenous natural gas resource
The proved reserve of the natural gas is estimated to be 637Bcm and R/P ratio to be 34.3
years in Ukraine as of the end of 2014 (BP 2015). The production volume for the past 20 years
is about 16 to 19Bcm.
According to IHS6
, the natural gas production cost in Ukraine is in the range of about
USD$3.3 to US$5.5/MMBtu depending on the area and the depth of underground reserved. This
cost is US$2.7 to US$6.6/MMBtu cheaper than the price of the natural gas imported through the
pipeline from Europe and Russia from the summer of 2014 through the winter of 2015. In
addition, IEA7
assumes that the import price of the natural gas in the European market in 2040
will be $12.7/MMBtu, which is higher than that in 2013 ($10.6/MMBtu). Although there are
naturally many uncertain factors in the development cost of new resources, the domestically
produced natural gas has generally price competitiveness compared to the imported natural gas,
and may be able to said to have high potentiality to continue to keep its competitiveness in the
future as well.
6
Harnessing Production and Revenue: Toward a new fiscal regime for natural gas in Ukraine, 16 June
2015
7
IEA, World Energy Outlook 2014, New Policy Scenario
27. 24
Figure; Comparison of natural gas production/import cost
DDB=Dnipro-Donetsk Basin
Approximately conversion factor: 1Mcm = 35.7MMBtu
Source: IHS (domestic production), Naftogaz (import), World gas intelligence (NBP spot)
Based on this assumption, it goes without saying that, first of all, utmost effort is desired for
developing the untapped domestic resources. It is at least expected that annual production
volume of around 20Bcm, which is the same as present, can be maintained.
Then, what is important for development of domestic resources? It is important to provide an
attractive investment environment for private companies, since development of the
hydro-carbon including the natural gas is implemented by the private companies. Examples are
making the regulatory expenses cheaper such as the tax imposed on the development license,
and enhancing transparency and predictability of the related policies and regulations.
It is desirable to initiate the environmental arrangement as soon as possible, since a long time
is required to implement the processes from exploration of resources up to actual production.
b. Diversification of natural gas import
According to the scenarios we developed, the import requirement of the natural gas in the
future is about 20Bcm annually, although it may vary depending on the degree of economic
growth and improvement in energy efficiency in the future. The following can be described as
the alternatives to supply this 20Bcm.
8.20 8.43
6.064.00
3.30
4.84
4.20
5.29
3.89
5.52
9.74 9.94
10.91
0
2
4
6
8
10
12
0.5Bcm 2.8Bcm 0.5Bcm 2.8Bcm 2.8Bcm Europe Russia NBP
DDB
shallow
DDB
deep
DDB
ultra
deep
Pre
Carpatian
Tight gas . Import
3Q14‐1Q15
spot
2014
$/MMBtu
Opex
Capex
28. 25
Figure; Estimated import requirement of natural gas
The reverse flow from Europe has already been realized, but the problem is the physical
reverse flow (not a contractual backhaul) capability is insufficient. If the risk of the natural gas
import from Russia is high, expansion of the physical reverse flow capability from Europe is
an effective alternative and we recommend proceeding with it. In this case, however,
enhancement of physical capability requires several years, since the investment in the pipelines
and the compressor stations are required on the European side.
Although the alternative that can be used immediately is import from Russia, efforts to
eliminate import of natural gas as soon as possible are now being made because of the high
political risk. It is thought that the import of natural gas from Russia will decrease gradually in
cooperation with the actions to aim for energy independence. We, however, would like to
suggest strategic use of natural gas import from Russia because of the following two reasons
during the transition period to energy independence, i.e. while import of natural gas is
continuing. The essence of energy security is distribution and reduction of the risk based on
diversification. Even the reverse flow from Europe, which is regarded as the ideal measure,
cannot completely eliminate the risk of outage due to, for example, equipment failure. In
addition, the import from Russia can be used as a bargaining chip in the negotiations of the
import price with Europe. If, based on the above, it is considered that maintaining import of
natural gas from Russia will help increase supply stability and reduction of the import cost as a
whole.
In the long term, direct import of LNG also becomes an alternative. LNG can be imported,
for example, from Algeria which is a neighboring country, and also from Nigeria, the United
States, and Qatar if examples of a little further-distance away countries are taken. Moreover,
there is a plan to liquefy the natural gas in Georgia that is produced on the Caspian Sea coast.
Although construction of the re-gasification terminal requires a lot of expenses, it greatly
0
10
20
30
40
50
60
70
80
90
1990
1995
2000
2005
2010
2013
2015
2020
2025
2030
2035
Bcm
actual
High growth
Low growth
High efficiency
29. 26
contributes to risk reduction based on diversification of supply sources. Therefore, we would
like to propose studying it as a long-term alternative.
Table; Natural gas import options
Availability
(amount)
Affordability
(cost)
Political risk
Import
from Europe
Medium → High
- Sufficient backhaul
- Expand physical rev.
Medium
- Comparable to import
from Russia
Low
Import
from Russia
High
- Sufficient capacity
Medium
- Comparable to import
from Europe
High
Direct
LNG import
??
- Need investigation
- Diverse source country
High
- Higher regas CAPEX
- Comparable to pipeline
gas import from Europe
Medium
- depends on import
source country
regas = LNG regasification terminal
c. Effective utilization of the underground storage capability
Amount of working gas volume of 31Bcm of the storage facilities far exceeds the annual
required volume of import of about 20Bcm. If sufficient quantity of the natural gas can be
stored in summer when there is no heating demand, supply-demand balance of the natural gas in
winter heating season can be greatly eased. We would like to propose Ukraine to make full use
of this favorable condition and to stabilize the natural gas supply in winter.
In addition, if the import price of natural gas comes to reflect the supply-demand balance of
every season, it would also be possible to supply the natural gas with a cheaper price by using
the difference in price between summer and winter.
Figure; Underground storage capacity and its use (May 2014-Mar 2015)
Source: MECI, Naftogaz, Gas Infrastructure Europe
Withdrawal, 8.9
Russian import,
2.7
Summer
injection, 8.1
Deficit, 3.5
utilized, 9
un‐utilized, 22
0
5
10
15
20
25
30
35
Winter requirement Summer injection Capacity
Storage
Bcm
Sufficient storage capacity
to supplement Russian import
30. 27
4-6 Oil supply
The production volume of crude oil tends to decrease every year, and the operating rate of the
refinery also remains very low. Therefore, most of the oil product supply has been in the
situation of relying on import.
a. Create better investment environment to attract investment
Maintaining crude oil production is desired, and for that purpose we would like to propose
creating better investment environment to promote oil exploration and development by the
private companies in the same way that natural gas is promoted.
b. Study of modernization of the oil refineries
Theoretically, producing the oil products in the country can retain the added value at home
rather than importing them, and employment also increases. On the other hand, the oil products
are international commodities, and domestic products are always exposed to price competition
with imported products. If the cheap domestic crude oil is abundantly supplied, lower price oil
products can be supplied. There is, however, an uncertainty to expect too much cheap domestic
crude oil production, and thus it is necessary to enhance the price competitiveness to maintain
the domestic refineries, in other word, it is required to modernize the refineries or to invest in
new facilities. The Kremenchuk ORE, which has comparatively large refining capability, can be
seen as a candidate of modernization.
The priority of this countermeasure, however, becomes low based on the consideration that
the present oil supply does not have any problems, since a large amount of investment, far more
than that for a power plant, is required for modernization or new construction of the refineries.
Therefore, we would like to propose restoring the refining capability of the country as a mid-
and long-term effort.
c. Enhancement of the countermeasures against demand
The countermeasures against demand become important if the improvement on the supply
side cannot be expected at least in the short term. In addition, large effect of import expenditure
reduction can be expected by the demand control, since oil products are expensive energy.
It probably becomes necessary to promote the use of the public transportation and to control
the use of private cars especially in the urban areas, since most of the oil demand is gasoline and
diesel for automobiles. As an incentive for using public transportation, the following are cited as
examples; imposing tax (tax increase) on the gasoline, the diesel, and possession of the
automobile, and regulating parking in the city areas. Moreover, encouraging dissemination of
fuel efficient cars can be considered as an alternative by reducing the tax amount of the cars
32. 29
Chapter 5. Financing
Securing of funds is indispensable to realize various plans. We would like to propose what
kind of measures can be deliberated based on the principles of self-financing by the private
companies and beneficiary charge.
a. Create a better investment environment
It is the government’s role to create an environment where the private companies can
accomplish investment. This environmental preparation includes elimination of entry barriers
and maintaining the stability of the policy and the system including a taxation system that
influences investment decisions. Positive information disclosure in English to the foreign capital
is also an important element.
In addition, since the recovery of expenses (profits obtained) is the biggest concern for the
investors, revision of the energy rate described later is extremely important from this standpoint.
b. Revision of the rate to one reflecting cost
It is a fundamental principle to abolish the subsidy of the energy rate. If the energy rate can be
raised to the cost collectable level, the private energy companies can implement the necessary
investment on their own initiatives. These efforts have already been started and are expected to
be steadily advanced.
If the energy rate becomes set at the appropriate level, there is a possibility to apply ESCO8
business model. In this model, the virtuous circle can be expected where energy efficiency is
improved while the private companies can make profits.
Figure; Basic concept of ESCO business
8
Energy Service Company: ESCO provides the services to reduce the energy cost of the partner company.
The profits that the partner company obtains by the cost reduction are shared by ESCO and the partner
company.
energy
cost
100 50
25
25
before after
cost reduction through
eff. improvement
for ESCO
for facility owner
profit share
33. 30
c. Financing by the earmarked tax and the surcharge
In order to recover cost of investment which has the strong public nature, the method of
collecting a small charge from all beneficiaries by the earmarked tax or addition of surcharge to
the energy rate is effective. This method can be applied to many of the energy infrastructures, as
they are considered to have a high public nature.
Table; Example of surcharge and special purpose tax
Surcharge
for renovation of electricity grid
- Charge to all consumers
- Add on to electricity bill
- UAH 0.01 /kWh consumption
⇒ UAH 1.47 billion/yr (approx. US$ 125 million)
Surcharge
for renovation of district heating
system
- Charge to all household consumers
- Add on to heat bill
- UAH 1 /month/bill
⇒ UAH 78.6 million/yr (approx. US$ 6.7 million)
Special tax
for power station development
- Charge to all power generating companies
- Collect money relative to actual generation [kWh]
- UAH 0.01 /kWh generation
⇒ UAH 1.94 billion/yr (approx. US$ 164 million)
* Total electricity generation in 2013: 194 billion kWh
Total electricity consumption in 2013: 147 billion kWh
Number of households: 6.55 million
Average exchange rate in 2014: US$1=UAH11.8
d. Use of the public companies
Privatization of public companies is progressing for the purpose of improving economic
efficiency in Ukraine. The role, however, that the public company can still play is remained in
realizing the large amount of investment which the energy sector needs.
Construction of a new electric power plant especially requires a large amount of funds, and if
electricity charges are intended to be controlled at a low rate, the payback period cannot but
become long. We would like to propose keeping exist the public companies for the purpose of
power plants development as a short- and mid-term measure, since the high-risk investment for
the private companies is considered to be left behind.
Moreover, concerning financing from foreign country, the use of ODA is preferable where a
low interest and long-term loan is available. It is, however, the government or the related
institutions and not the private companies that can generally receive the funds from ODA
34. 31
scheme. Therefore, the public companies can also play an important role as receiving companies
of ODA.
This proposal is based on experiences of the postwar period of Japan. At that time major
Japanese electric power companies were private companies. Therefore, they did not have
sufficient funds, and could not implement sufficiently electric power development that was
needed for postwar reconstruction. At that time the government established the national electric
power company, and has implemented construction on large-scale hydroelectric power stations
and coal-fired power plants by integrating the capital that the nation and the private electric
power companies invest. This company, at present, has finished the role, is completely
privatized, and has continued to exist as a wholesale electric power company.
Table; Advantage of public company
Smoother
policy implementation
- Government can directly control investment strategy
More stable
operation
- Precondition; change to cost reflected energy tariff
- Higher credit rating underwritten by government
Easier
financial arrangement
- Available lower interest rate loan because of higher credit rating
- Able to accept ODA loan
Figure; Possible scheme of public power company
Foreign
country
Bank
Private power
company
Public
power company
Build
New power station
ODA loan
loan
special tax
share holding
wholesale of electricity
35. 32
Chapter 6. Conclusion
Various proposals were derived through the demand outlook and the study of a supply plan. It
is ideal to implement all of these measures without delay, but the resources, such as available
funds and talented people, are restricted, and, therefore, the priority of the proposals shall be
defined. At the time of postwar reconstruction, Japan defined the coal industry and iron & steel
industry as the priority sector for national support, and preferentially supplied various materials,
equipment, talented people, and funds in those sectors. As a result, these two industries became
driving forces resulting in achievement of the economic reconstruction. Although various
measures are required to strengthen the energy supply-demand structure in Ukraine, in the first
step, we would like to propose defining and concentrating on the priority sector that becomes a
driving force of renovation.
As summarized at the beginning of this report, the following three issues can be seen in
which Ukraine shall immediately take measures against.
・ Inefficient energy use due to deteriorated energy infrastructure and energy rate structure
lower than energy production cost
・ Excessive dependence on Russia for the natural gas supply
・ Uncertainty of the anthracite coal supply
What measures shall be preferentially taken to address these issues? We would like to
propose the following three items as priority areas, considering that the initial actions towards
reasonable energy rate structure and expansion of reverse flow capability are already
progressing.
・ Efficiency improvement of the existing coal-fired power plants
・ Improving energy efficiency in district heating system
・ Steady promotion of energy system reform toward the reasonable energy rate
structure
The first, “Efficiency improvement of the coal-fired power plants”, becomes an initial
measure to be taken while aging of the existing coal-fired power plants is progressing and the
supply stability of anthracite coal from Eastern regions is threatened. A replacement of
anthracite-fired plant to bituminous / sub-bituminous coal and expansion of brown coal
utilization will be important measures to be taken in the medium- and long-term as it can
36. 33
remove uncertainty of the coal supply.
Also concerning the expansion of brown coal utilization, although success or failure of
development is unknown, utilization of mine mouth electric power generation and gasification
technology can contribute to the stability of the electric power supply.
The issue is the size of the investment amount, but as proposed in Chapter 5, securing the
funds with high priority by every means necessary including use of public companies are
necessary.
The second, “Improving energy efficiency in district heating system” becomes an
important measure to be taken, which could improve the supply-demand balance of natural gas
substantially by replacing existing district heat system which is aging and enhancing energy
efficiency. As indicated in the efficiency scenario of the demand outlook, we would like to
expect Ukraine to move to enhance investment for district heat system so that Ukraine could
extract the potential of energy efficiency.
Furthermore concerning diversification of the fuel for heat generation, we would like to
especially recommend to recognize the value of “waste power generation” and to utilize it to the
utmost degree resulting in contributing to environmental improvement in the city.
The third, “Steady promotion of energy system reform toward the reasonable energy
rate structure”, is a necessary precondition for all actions in connection with renovation of the
energy supply-demand structure. Appropriate energy price will encourage voluntary energy
saving, and also help secure financial resources necessary for investment in efficient energy
infrastructure. Energy price reform needs careful implementation as higher energy price will
affect industrial competitiveness and the life of the people. However, it shall be promoted
steadily, because it contributes to strengthening the Ukraine economy in the future.
Developed countries have drastically improved the energy supply-demand structure triggered
by the oil crisis of the 1970s. The history tells that although Ukraine at present has many
challenges in every aspect of energy supply chain, the country can strengthen its energy
structure by changing this critical situation into an unprecedented opportunity. Making the
opportunity into a bright future depends on Ukraine’s own actions ahead.