Summary:

Thanks to generous feed-in tariffs (FITs) for renewable energy sources (RES), Ukraine has seen a remarkable surge in RES capacity addition in recent years. In 2020, 10% of electricity has been generated by RES (incl. hydro) in Ukraine. In order to rein in the spiralling costs of RES support, Ukraine has adopted an auctioning system for RES support. From 2021 on, this system will be used to determine support levelsfor utility-scale RES on a competitive basis.

In December 2020, the Ministry of Energy of Ukraine announced draft quotas for the first RES auctions in 2021 and indicative annual quotas for 2022 until 2025. According to the Ministry, 365 MW of RES capacity would be auctioned in 2021, and quotas would then slightly increase from 420 MW in 2022 to 570 MW in 2025.

In this Chapter, we show that at moderate electricity consumption growth, the current deployment path will increase Ukraine’s RES share in electricity generation to around 21% in 2030. This path is insufficient to significantly move forward on decarbonising Ukraine’s electricity sector. It moreover conflicts with the country’s ambition to become a producer of green hydrogen. We estimate that doubling the currently planned auction volumes would allow Ukraine to achieve a 30% RES share in electricity generation in 2030, helping Ukraine to keep pace with global decarbonisation efforts.

A more ambitious deployment is feasible with policy measures that help to reduce the integration cost of renewables. To foster the integration of RES into the electricity market, we propose the introduction of a feed-in premium (FIP) scheme. For new RES plants, this FIP scheme would entail the obligation to sell the generated electricity on the wholesale market, rendering the intermediary step of selling electricity to the single offtaker Guaranteed Buyer (GB) unnecessary. Introduced together with balancing responsibilities for RES, a FIP scheme would incentivise RES to deliver better generation forecasts and allow them to sell or buy electricity on all short-term markets to react to forecast updates. These regulatory changes would reduce RES imbalances, ensure a more efficient dispatch of Ukraine’s electricity system and hence reduce the need for costly balancing energy.

To incentivise the market entry of flexible generators that are needed to balance RES fluctuations, we argue that minimum and maximum price caps on Ukraine’s electricity wholesale market should be phased out. We show that eliminating price caps is consistent with the objective to achieve low average prices and would help to address the high market concentration on Ukraine’s electricty market.