Energy cheaper and more reliable: how the EU helps Ukraine improve energy infrastructure

How the effectiveness of the energy sector bears upon the wellbeing of the country’s citizens? And how the European Union helps Ukraine become energy-independent and energy efficient?

These were some of the topics discussed by Energy Community experts during the seminar on improvement of energy infrastructure planning, held in Kyiv.

How the EU helps Ukraine reform the energy sector

Ukraine has committed itself to reforming the energy sector within the framework of cooperation with the European Union and the Energy Community. The energy sector requires reform, because the Ukrainian economy is very energy-intensive. According to data by the International Energy Agency, Ukraine is ranked among the most energy-consuming countries in the world (26th in 2015) and has one of the most energy-intensive economies. For comparison: economies of the neighboring Poland, Slovakia and Czech Republic are 2-3 times less energy-intensive than Ukraine’s.

One of the programs aiming to help Ukraine in this area is EU4Energy. Within the EU4Energy framework, the EU helps Ukraine and five other Eastern Partnership states (Armenia, Azerbaijan, Belarus, Georgia and Moldova) reduce their energy dependence and carbon dioxide emissions. Using the EU4Energy initiative, the EU supports more reliable energy supply, promotes energy efficiency and renewable energy.

Under the EU4Energy program, the Energy Community Secretariat (ECC) helps Ukraine implement EU legislation and carry out energy reforms.

Director of the Energy Community Secretariat Janez Kopač and the Chair of NCREUS Oksana Kryvenko


EU4Energy priorities in Ukraine

EU4Energy has several key priorities: improving energy statistics, analyzing energy policy, improving legislative and regulatory framework, improving access to information and communication between the EU and partner states.

This is achieved by financing projects and programs aimed at reforming energy markets and reducing national consumption of energy and dependence on energy supply.

Important shifts have already been achieved in Ukraine. In particular, EU4Energy helped Ukraine develop the law on energy performance of buildings, heat metering and billing, the law on the electricity market and other laws.

Among the recent achievements is the launch in October of the technical assistance project aimed to help Ukraine implement the Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure. If the implementation succeeds, it will enable the country to bring more investments in energy infrastructure and achieve goals agreed with ECC.

The EU also helps with modernization of energy infrastructure. In a long term, it will make energy supply more reliable and transparent.



Selection criteria for gas, electricity generation and oil infrastructure projects in Ukraine

Overall, there are three types of projects that the EU may support: Projects of Energy Community Interest (PECI), Projects of Mutual Interest (PMI), and Projects of Eastern Partnership Interest (PEPI).

The Energy Community Secretariat supports the process of selecting priority projects by applying concrete methodologies and criteria to evaluate investments in transborder electricity and gas transmission projects.

Ukraine as a member of the Energy Community is already taking certain steps to launch infrastructural Projects of Energy Community Interest and Projects of Mutual Interest (PECI and PMI).

These projects concern expansion of the transmission capacity of interstate overhead power lines with the neighboring Slovakia and Romania. They will allow Ukraine to obtain the maximum capacity in electricity exchange with EU states in a few years after synchronization with the synchronous grid of Continental Europe used by transmission system operators of the European Network of Transmission System Operators (ENTSO-E).

In addition, technical support from EU4Energy helped develop a program that covers transborder projects in Eastern Partnership countries that are not members of the Energy Community (Armenia, Azerbaijan and Belarus) and projects involving contracts between Energy Community partners and Eastern Partnership countries (for example, Ukraine with Belarus and Georgia with Armenia). These are PEPIs (Projects of Eastern Partnership Interest).

The PEPI methodology will be applied to infrastructural projects presented by Eastern Partnership countries for evaluation. As the result, a list of Projects of Eastern Partnership Interest will be made.


Why, then, a separate program is needed and how PEPIs are selected? ‘It is necessary, because certain Eastern Partnership countries are not members of the Energy Community and, therefore, cannot participate in PECI/PMI selection’, Ádám Balogh, Gas Infrastructure Expert at the Energy Community Secretariat explains.

According to the Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure, the PEPI methodology was adapted to specific conditions and needs of these countries and needs of Eastern Partnership countries.

‘The idea is to make the selection procedure similar to the one used to select Projects of European Union Interest or Projects of Energy Community Interest’, Nenad Šijaković, Energy Infrastructure Expert at the Energy Community Secretariat explains.

‘We apply the regional approach and make a similar analysis like national transmission system operators or energy regulators do at the national level. But using the regional approach, we can see the advantages not visible at the national level and even find a better solution for certain known national investment needs. It will help decision makers, project promoters and countries participating in the project make a weighted decision regarding these projects’, Ádám Balogh emphasizes.

Nenad Šijaković names a number of criteria that could bear upon the choice of project: ‘It must be projects that concern transmission of electricity or natural gas and that involve two or more Eastern Partnership countries’.

Nenad Šijaković, ECC Energy Infrastructure Expert and Ádám Balogh, ECC Gas Infrastructure Expert


What difficulties occur when implementing EU projects?

Not surprisingly, such important infrastructural projects are difficult to implement. Among the problems occurring the most often when implementing these projects, Director of the Energy Community Secretariat Janez Kopač mentions complex process of agreeing with the neighboring states, finding the place for infrastructure, and financing the project.

Besides the aforementioned problems, Janez Kopač mentions another one specific for Ukraine: ‘Very low distribution and transmission tariffs. If you compare, for instance, the gas price in Ukraine with the average gas price in Europe, you will see that in Europe, some 50% of the gas price consists of taxes, distribution tariff, transmission tariff, etc., whereas in Ukraine, the share of cost price in the tariff structure reaches 70-75%.

‘That’s why Ukrtransgaz, Ukrenergo, oblenergo, oblgaz and other companies are not active players in Ukraine when the new, efficient infrastructure is being created’.


What are the benefits from these projects for Ukraine, and what has already been achieved?

Answering the question regarding benefits, Mr. Kopač was laconic: ‘Any connection between two participants is always good for stability’. Still, according to ECC Director, not every connection immediately creates benefits for market development:

‘Today, Ukraine lacks liquidity in the electricity and gas market. So, if Ukraine, for instance, will get connected to the so-called “Burshtyn Energy Island” [i.e. Burshtyn Power Station, which is currently de-facto “cut off” from the rest of Ukraine’s integrated power system] that has already been connected to the European power system, it would create additional liquidity for the electricity market itself inside Ukraine’, he adds.

Director of the Energy Community Secretariat Janez Kopač

And as far as gas is concerned, Mr. Kopač says, Ukraine does not need to create any additional infrastructure:

‘You need to modernize the gas transmission system, especially with more advanced compressor stations, because the today’s ones are obsolete and inefficient’, the expert points out.

Ambassador Hugues Mingarelli, Head of the EU Delegation to Ukraine stresses: ‘The EU wants Ukraine to remain an important country for transit of gas to the European Union. Therefore, upgrading and restoring the existing gas infrastructure in Ukraine is important, and it is supported by the EU’.

Overall, cooperation with the European Union must bring Ukraine a number of important benefits, in particular, promote investments, improve the quality of corporate governance, create new jobs and enhance the ability to withstand climate change. In addition, it would increase market competition, which in turn, would help eradicate corruption. Another benefit would be the increasing energy efficiency, which would mean reduction of gas consumption and “more pleasant” utility bills for consumers.


By Uliana Bukatiuk

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