Ukraine’s draft 2nd NDC (NDC2) envisions an economy-wide reduction of emissions from ca. 340 megatons of CO2 equivalents (MtCO2eq) in 2018 to ca. 290 MtCO2eq in 2030. It projects that the electricity sector will ensure roughly 45% of the total projected emission reductions from now until 2030.
To achieve these emission reductions and simultaneously create a well-functioning electricity system, investments of approx. EUR 27 bn in the energy system (including electricity and CHP generation) until 2030 are needed.
These EUR 27 bn would enable the necessary:
a) construction of 17 GW renewable electricity sources, installation of 1 GW of OCGTs and batteries and 1.2 GW renewable combined power and heat, as well as the
b) NERP-compatible lifetime expansion of existing power plants. This requires the retrofitting of approx. 14 GW thermal electricity capacities (including 5.5 GW CHP).
The resulting electricity system in 2030 would be appropriate to securely generate above 185 TWh (gross electricity generation), being able to meet a net demand of 150 TWh.
Realising this transformation of the energy sector successfully would cause the carbon intensity of net demand to decrease from approx. 360 g/kWh in 2020 to 190 g/kWh in 2030. This represents abatement costs of approx. 40EUR/ton of CO2-equivalent, similar to current levels of the EU ETS.
Meanwhile, the necessary investments would increase the aggregated electricity generation costs from EUR 7 bn in 2020 to EUR 12.5 bn in 2030. This represents generation costs of 83 EUR/MWh – compared to 59 EUR/MWh in 2020. This is an increase of 41%.
However, even without the installation of new RES capacities, investments in new capacities and the NERP-compatible life-time expansion of at least 14 GW of thermal power plants (TPPs) are necessary to meet future electricity demand. The respective annual generation costs would thus increase to EUR 11.2 bn, or 75 EUR/MWh, representing an increase of 27% compared to 2020.
To ensure the flow of private investments and the ability of generators to finance their operations, reforms in the electricity market are of high importance. E.g., current transmission tariffs are too low to pay for the two Ukrainian public service obligations. Additionally, aggregated generation costs exceed system-wide revenues by approx. EUR 1 bn annually, mainly because Energoatom does not receive cost-covering electricity fees. For the same reason, Energoatom is not able to adequately maintain its fleet of nuclear power plants with the current fixed price it receives for its electricity.
We can show that the investment needs estimated in the Ukraine NDC draft are adequate to achieve planned emission reductions in the sector. Furthermore, the emerging system structure enables a higher security of supply. Resulting generation costs are approximately 41% higher compared to today’s costs but would kick-start a long-term climate-friendly transformation of the Ukrainian economy. With abatement costs of only 40 EUR/ton CO2, the electricity sector can compete with other sectors’ costs for reducing emissions. Finally, it is important to generate an investor-friendly business environment through a robust and reliable policy framework and to transform the Ukrainian economy towards a greener and more sustainable growth path. This would further reduce generation costs due to lower risk premia and interest rates. The approval and implementation of the Ukrainian NDC2 will support this transformation.
What is a Policy Evaluation?
Policy Evaluations asses concrete policies that are planned/ under discussion or already implemented. They aim to add an analytical view on the policy and reform discussions.