Energy Strategy 2035. Implementation progress Nov 2019 – Feb 2020

Executive Summary

The outgoing Honcharuk government left a mixed legacy. On the climate side, the Ukraine Green Deal announced in early 2020 provides strategic guidance to investors and policymakers towards a sustainable energy and climate system. But to become effective this concept will still need to be underpinned by significant measures. The National Energy and Climate Plan – that is to be completed in the second half of 2020 – should help to identify concrete policy measures. One important quick measure can be redesigning the current carbon tax into an upstream tax on fuels. A tax of about 1 EUR/t proposed by the Ministry could help to collect some UAH 6 bn.

The new gas contract with Russia can also be seen as a success as it provided significant short-term benefits to Ukraine and avoided a month-long “gas war” that would have been detrimental for Russia-Ukraine, Russia-EU and EU-Ukraine relations.

On the other hand, there was limited progress on many other urgent matters. Coal sector reform did not progress and the electricity market remains a tightly-regulated mechanism in need of repeated quick-fixes such as Ukrenergo’s pursuit to operate storage facilities. Also, energy efficiency programs remain stuck and privatisations (Centrenergo) did not proceed. A new issue is investment-uncertainty over a discussed restructuring of feed-in tariffs for renewables. Given the quickly increasing cost, investors and government so far unsuccessfully tried to achieve a mediated compromise and there is a risk that unilateral actions will destroy credibility and significantly increase the cost of future foreign investments.

Author(s):
Dr. Georg Zachmann, Roman Nitsovych, Bohdan Serebrennikov, Manuel von Mettenheim, Oleksii Mykhailenko, Dr. Frank Meißner, Clemens Stiewe

What is a Quarterly Monitoring Report?

The implementation of Ukraine's Energy Action Plan is analysed on a quarterly basis. The progress in different sectors and actions is rated and key developments are presented. Furthermore, the report dives deeper into two topics that have shown to be relevant in the considered period.